Thursday, May 17, 2012

i finally got it! bear and bull don't yield net gain!

james dimon, chief executive of j. p. morgan. (happier times)

UPDATE: hi folks. in the last 72 hours j. p. morgan has lost another billion. the reason is the nature & propinquity of bets. i've been thinking about it. some bets are essential, some are not. ours was a bullish bet on an index of investment-grade corporate debt, later paired with a bearish bet on high-yield securities.

i got it! the lesson is that bear and bull don't yield net gain. (incidentally, i'm beginning to hate credit-default swaps).  do i look like another beat-up wall street ceo?

bullish<------------------------------>bearish    

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@ j.p.morgan we've lost $2 billion overnight. it's true. but ladies and gentlemen, what an incredible pleasure it is to handle the uncertainties of financial risk!

do you see what i'm getting into? risk is pivotal for our species: no matter how much we have, we are always ready to lose it all. for what? the ride of risk! that's where we come in. banks evaluate these possibilities for you. for decades we've perfected models & strategies to manage risk. the variables, often hidden in financial & legalistic gobbledygook, are too complicated to be fathomed by the average joe. here, investment banking becomes essential! how to transfer risk elsewhere? how to reduce its negative impact? now i'm prepared to address the question:

what happened with the $2 billion? as dubious as it may sound, the answer is volatility. 

and what's volatility? again, risk! (too much of it).

i know you think that my argument is redundant. in other words, risk management is just a way of making, or losing money as a result of, or in spite of, volatility. i'll spare you with the trivial details of human greed as an important causal factor. the good news is that @ j. p. morgan we can absorb this loss (and i'll be shockingly honest now): we can because that money is not really j. p. morgan's. it's yours.