JP Morgan Chase was a net seller of $206 Billion worth of Credit Insurance, or "credit protection," in 1Q2012. Its CEO, Mr. Jamie Dimon, has announced losses of $2 Billion so far on its "synthetic credit portfolio". "JPMorgan doesn't seem to have been reducing credit risk last quarter. It was taking on more. And if credit defaults suddenly surged, it would lose a lot of money." Jonathan Weil, "What Jamie Dimon Doesn't Know is Plain Scary" (Bloomberg.com, posted online May 11, 2012).
JPMorgan issued more and more Credit Insurance without proper insurance reserving, without adequate financial reserves -- obviously, and without complying with rules against proprietary trading (trading with the firm's -- read, "shareholders'" -- own money), for which JPMorgan successfully lobbied for exemption from the rules that would have prevented this failure. See Edward Wyatt, "JPMorgan Chase Fought New Rule on Risky Trading" p. A1, col. 6 (New York Times Nat'l ed., Saturday, May 12, 2012).
Reserving requirements exist for a good reason, whether reserving is required by Insurance Companies or by Financial institutions. The Volcker Rule and the Dodd-Frank Act exist for good reasons as well.
We just received some more evidence of why they all exist.
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