It appears that a large mass of blubber has created a cephalopodic clot in the soul sucking sinkhole named JPM. Star trader Bruno Iksil aka The London Whale “owned the spread” in a highly leveraged sovereign bond bet that failed to follow his gut, which soon became tripe tossed into the sea as shark chum. In these sorts of hedge fund feeding frenzies, the chum usually loses, and so it was for the London Whale.
Last weekend, The New York Times published an investigation into the chain of command that would lead to this sort of wild gambling inside a bank that once upon a time was widely admired for its rigorous risk management. As if we needed further proof that reality will eventually humble all attempts at satire, the chain includes an Achilles (the Whale’s nominal supervisor) and a tick who bit the hand (or more likely the armpit) that fed all of them: chief investment office Ina Drew. We note that Ms. Drew has since announced her resignation, a departure that will be softened by a severance payment of $14.7 million.
The NYT report makes for entertaining reading, but begs the essential question: why was there ever such a creature as the London Whale swimming around inside a publicly subsidized commercial bank? James Rickards is the author of an extremely important book titled Currency Wars: The Making of the Next Global Crisis, and a highly respected analyst of high finance sewage and those who produce it. In a recent commentary in U.S. News, Rickards writes:
As of this writing, Mr. Dimon has not resigned. Also as of this writing, his “known associate” Mr. Jon Corzine remains at large, floating like a jellyfish among the seaweed. PBS recently released an excellent report on what appears to be fraudulent malfeasance at the black hole formerly known as MF Global, under Corzine’s spectacularly inept and potentially criminal leadership:
We note a statistically significant overlay between the residential preferences of financial titans and the epidemiological hot zone for Lyme disease. Perhaps we shall see a variation on the “junk food” defense in future criminal investigations wherein those under indictment for the most outrageous financial fraud in history will contend that their judgement was severely impaired by Lyme disease, thus they cannot be held accountable for their actions. Ladies and gentlemen of the jury: the tick did it.
These scandals are not isolated events, no more than the perverse scenarios that unfolded inside Abu Ghraib were the handiwork of a few “bad apples”. As Charles Ferguson puts it in this excerpt from his book Predator Nation: