How to Lose 2 Billion Dollars (for starters)

Losing $2-billion in six weeks is quite the feat for JPMorgan Chase & Co., the venerable U.S. bank that was, until last Thursday, widely respected for sound risk management.

But how exactly did the bank get itself into this mess? And what trade blows up this quickly? JPMorgan isn’t saying much – likely because the more it discloses, the more its rivals will have to use against it. But keen market observers are trying to figure it out, and the speculative theories have been narrowed.

To understand the trades, you have to start by looking back a few weeks. In early April, Bloomberg News reported that Bruno Iksil, a trader in JPMorgan’s chief investment office, had placed massive bets on the health of certain companies. His positions were so big that rival hedge funds claimed the positions were starting to distort the market.

Mr. Iksil works for JP Morgan’s chief investment office. This division, based in London, is supposed to hedge the bank’s risks, but some say that its ‘hedges’ are in fact risk trades designed to duck the proposed Volcker Rule that bans prop trading.

When news of this division’s massive positions broke, JP Morgan didn’t say much. Then out of nowhere it hastily put together a conference call on Thursday to disclose that the CIO lost $2-billion in about six weeks.

The first explanation for the losses relates to what is known as the basis trade, a hedging strategy for corporate debt. Assume you own a 5-year bond. If the issuer goes bankrupt, you never get your principal back. To protect yourself, you can purchase a credit default swap (CDS) that mimics an insurance policy. Just like your car insurance, you pay a premium (fee or ‘spread’) to the swap writer, and in return, if you car gets stolen, or in this case the company goes bankrupt, you get paid a lump sum. But for this hedge to work, the corporate bond spread (interst paid to you) must match the CDS spread (your insurance premium). If they line up, your net exposure is little or nothing.

Historically, this held up. If anything, investors had to pay just a bit more in premiums than they received in interest, and this small difference was known as ‘positive basis’.

Every once in a while, ‘negative basis’ would appear for random reasons, creating risk-free profits because interest payments you received amounted to more than the insurance premium you had to pay. When this happened, big name hedge funds and prop trading desks would pile in and exploit the anomaly. To them, it was free money.

The problem, though, is that this trade is predicated on bond spreads (interest) remaining equal to CDS spreads (insurance premiums). As Felix Salmon points out, the market is currently very screwy, and many CDS spreads (insurance premiums) are blowing out while the bond spreads (interest) hold tight. For example, UBS’s CDS spread (insurance premium) is 85 basis points higher than its corporate bond spread (interest received), and Deutsche Bank’s spread difference is 83 basis points.

Mr. Salmon believes this dislocation is what got JPMorgan in trouble. The way he sees it, the bank was selling insurance protection, betting that CDS spreads (insurance premiums)would go down rather than up. Ultimately, they went up, and the corresponding spreads didn’t. So your insurance premium went up, but the interest paid to you didn’t.

Think of it this way. If JPMorgan was using this trade as a hedging strategy, it means the company was probably short corporate bonds. [By going short, the banks benefits when the bonds do badly (decrease in value), while in the CDS market, it suffers because it has a higher chance of paying out.] But because JP Morgan was selling insurance protection, the lower CDS value from wider spreads wasn’t offset by any bond spread movements (higher interest payouts).

JP Morgan wouldn’t be the first U.S. financial institution to get dinged by the basis trade. Merrill Lynch posted a $16-billion loss in the fourth quarter of 2008 for the same reason.

A second theory is much more complex, but the main idea is that JP Morgan may have tried to hedge a position by placing various trades on an index of liquid credit default swaps. As the market rallied over the past few months, it forced JP Morgan to increase its position with this index. This resulted in massive mispricing because the bank made the index more expensive that the sum of its constituents (artificially propped up).

“This is akin to looking at the 500 names in the S&P 500 – weighting them and seeing that the S&P 500 index should trade at 1,200 but it is trading at 1,400…” Zero Hedge noted.

If this played out, rival hedge funds would have tried to short the index (betting it would decrease in value) because they knew it was too expensive. After they did, the index should have fallen right away, yet JPMorgan had to keep supporting it because it needed the hedge. The longer this went on, the more questions the other hedge funds asked, and eventually Mr. Iksil was discovered.

After building this position, JPMorgan could have gotten in trouble because the market stopped rising. The problem is that it couldn’t unwind its position because its rivals had figured out what it was up to.

That’s why Jamie Dimon may have said that more losses could come. If he’s stuck with these trades, competitor hedge funds are going to do everything they can to make sure JPMorgan can’t get out of them.

If this is the case, more losses are certain to be announced.

Attribution: Janamejayan

If All Else Fails…Read the Manual

 An English language, al Qaeda guide includes rules such as keeping clean, not using mobile phones and thinking of virgins in paradise when bomber-drones are overhead.

Described as a “must-read” source, it has emerged on the internet shortly after it was leaked that AQAP (al-Qaeda in the Arabian Peninsula) had been penetrated by a British spy who managed to smuggle out the latest version of their “underpants bomb”.

The guide was written by Samir Khan, an American who served as the top propagandist for the Yemen-based branch of the terrorist movement, which is considered the most dangerous to the West. He was killed by a drone attack in September, alongside AQAP’s chief ideologue, Anwar al-Awlaki,

Khan writes that he had been under the impression that he would be fighting most of the time after joining. “The reality is not quite like that,” he said.

The first section is titled “cleanliness” and says: “In some cases, you will be staying with a few brothers in a tight room or house”. “In order to avoid unnecessary problems, encourage yourself and your brothers to clean the room(s) on a regular basis. As for yourself, a daily shower is ideal but not possible in many cases.”

He describes the “bee-like sound” of the unmanned aerial vehicles in a section headed: “aerial bombardment.” 

“If you feel terrified,” he says. “Close your eyes and imagine yourself inside paradise. Think of your hoor [virgins] that are awaiting you as well as meeting the prophets.”

In a section apparently designed to scare western recruits into staying at home and attacking the West from there, the manual says recruits may have to sleep on “sand, rocks or grass.” Laying out the training, Khan writes: “In al-qa’idah, we don’t care about the size of your muscles, how fast you run, how strong your legs are and so on – although these things will be strengthened – but we put a special focus on ’lasting long’ and out doing the enemy in patience.” At one camp in Afghanistan, he warns, the trainers ordered the fighters to walk around barefoot.

“In short, prepare for the worse, and hope in the best,” Khan says.

The manual says that one of the “pillars of modern-day jihad” is secrecy, adding: “If I am British but of Indian descent, I tell the brothers I’m from so-and-so land (a place where you obviously not from).” The guide also says there are “certain questions you should avoid asking,” because: “The more you ask these kind of questions, the more the mujaheddin and its leadership will think of you as a spy and place you on their blacklist, keeping a close watch of you.”

The al-Qaeda fighters also apparently believe in black magic, with Khan writing that the “apostate” government of Saudi Arabia has individuals that “work alongside evil jinns [spirits] that spy on the mujaheddin and give away their position.”

Attribution: Duncan Gardham

Miracle Find

He was hundreds of miles from civilization, lost in the burning heat of the desert.

Second World War Flight Sergeant Dennis Copping took what little he could from the RAF Kittyhawk he had just crash-landed, then wandered into the emptiness.

From that day in June 1942 the mystery of what happened to the dentist’s son from Southend was lost, in every sense, in the sands of time.

But 70 years later, the ghostly remains of his battered but almost perfectly preserved plane has been discovered.

Like a time capsule that could provide the key to his disappearance, it has laid intact alongside a makeshift shelter Dennis appears to have made as he waited, hopelessly, for rescue.

Now a search is to begin for the airman’s remains – as aviation experts and historians begin an operation to recover and display the P-40 aircraft in his memory.

The chance find was made by an oil worker exploring a remote region of the Western Desert in Egypt. It is more than 200 miles from the nearest town in a vast expanse of largely featureless terrain.

Flight Sergeant Copping, part of a fighter unit based in Egypt during the North Africa campaign against Rommel, is believed to have lost his bearings while flying the damaged Kittyhawk to another airbase for repair. All that is known is that he went off course and was never seen again.

Remarkably, the plane remained almost untouched for the next seven decades – right down to the guns and ammunition found with it. Most of the cockpit instruments are intact, and the twisted propeller lies a few feet from the fuselage.

Crucially, the P-40’s identification plates are untouched – allowing researchers to track its provenance and service history.

There is flak damage in the fuselage, which is consistent with documents on the aircraft. Historian Andy Saunders said: ‘It is a quite incredible time capsule. It’s the aviation equivalent of Tutankhamun’s tomb. This plane has been lying in the same spot where it crashed 70 years ago. It hasn’t been hidden in the sand, it has just sat there.’

‘He must have survived the crash because one photo shows a parachute around the frame of the plane and my guess is the poor bloke used it to shelter from the sun. The radio and batteries were out of the plane and it looks like he tried to get it working.’

‘If he died at the side of the plane his remains would have been found. Once he had crashed there, nobody was going to come and get him. It is more likely he tried to walk out of the desert but ended up walking to his death. It is too hideous to contemplate.’

The RAF Museum in Hendon, North London, has been made aware of the find and plans are already under way to recover it before anyone tries to strip it for scrap or souvenirs. Efforts have also been made to trace any immediate members of Flight Sergeant Copping’s family in the UK, but it is believed that there are none.

Captain Paul Collins, British defense attaché to Egypt, confirmed a search would be mounted for the airman’s remains but admitted it was ‘extremely unlikely’ it would be successful. The spot could be marked as a war grave after the aircraft is recovered.

Captain Collins added: ‘The scene is close to a smuggling line from Sudan and Libya.

‘We will need to go there with the Egyptian army because it is a dangerous area.’

Ian Thirsk, of the RAF Museum, confirmed staff are working with the MoD to recover the plane.

The P-40 was a US-made fighter and ground attack aircraft. It was outclassed by later German fighters and saw little combat in Europe but performed a key role in North Africa and Asia where high-altitude performance was less critical. Around 20 are still airworthy.

Attribution: Mail Online

The Real War on Women

Recently the left has tried to advance the notion that there is a war on women being waged by the Republican Party and members of the right.

It turns out that this got very little traction and has all but fizzled out. The left may try to resurrect it as the general election heats up, but I doubt it will achieve any traction or be a deciding factor in the election one way or the other.

There is, however, a real war on women being waged daily and has been going on for centuries.

I speak, of course, of Islam and countries that use Sharia as the law of the land.

In Islamic society, a woman or girl is subjugated to, at best, a second-class citizen, or more appropriately, enslaved.

In Islam, marriage for the woman is not a happy experience.

In Islam, the wife is a slave to her husband. The Islamic traditions stress that a woman should obey her husband’s commands. The Quran gives a man complete authority in marriage: “Men stand superior to women” (Q 4.34).

In addition to absolute obedience, a woman should revere her husband because Islam teaches that, “If a woman knew the right of a husband, she would not sit at his lunch and supper time until he finishes.” One time, a woman came to the Prophet of Islam to ask about her obligations to her husband. He said, “If he had pus from his hair part to his foot (from head to toe) and you licked him, you would not have shown him enough gratitude.”

The Quran gives the husband the right to punish his wife if she goes outside the parameters that he draws for her. It provides men with instructions: “But those whose perverseness ye fear, admonish them and remove them into bed chambers and beat them; but if they submit to you, then you do not seek a way against them.” (Q 4.34).

In reading the verse above one will notice that these instructions were given to the husband concerning a wife whom he only fears disloyalty, not a wife that actually committed a disloyal act.

At the beginning of marriage, the husband reminds his wife about the rights that are given to him by Sharia Law. He can say to her, “Fear Allah! I have rights due to me from you. Repent from what you’re doing. Know that obedience to me is one of your obligations.” If the wife refuses to fulfill the sexual desires of her husband, that he should remind her of his rights over her body.

According to Islamic teaching, if the wife remains “disobedient”, her husband should ignore her. This means he abstains from sexual intercourse with her as part of this phase of the punishment.

The word hajr is interpreted to mean, “to refuse to share their beds”. The word hajr actually has several meanings. One of these meanings indicates the hajr of the camel when the owner binds the animal with a hijar, or rope. This rather disturbing interpretation means that the term used in Q 4.34, “refuse to share their beds”, can actually mean to bind the wife and force her to have sexual intercourse.

The Quranic principle of a man’s right to a woman’s body is not open for discussion. Regardless of her psychological or physical state, she has to obey the man’s command to lie in bed and have sexual relations with him.

The prophet of Islam repeatedly made statements advocating this view:

“If a man calls his woman to his bed, and she does not come, and then he goes to bed angry at her, the Angels will curse her until the morning.”

If the previous methods, including instruction and verbal abuse, failed to correct a wife’s behavior, then the husband is given the right to beat his wife. Even though verse Q 4.34 does not specify the mode or limit of the beating, it is believed that the prophet of Islam but a condition on the beating, classifying it as “not excessive”.

When interpreting the phrase “not excessive beating”, Islamic scholars offer the following guidelines:

Avoid hitting the wife’s face. Do not break any of the wife’s bones. Use nonfatal implements or physical force, such as the use of al-siwak (a twig of the Salvadora persica tree), or shoelaces, etc. and the use of the hand (hitting, slapping, punching the neck and chest, etc.).

The wife may receive a beating for any behavior that incites the anger of her husband or for every act that her husband does not like. Current Islamic literature supports the legitimacy of beating and its benefits for “upbringing”.

The abuse of women under Sharia law extends not only to wives but to all females, regardless of age.

Most are forbidden to work or leave the house without a male escort. They are not allowed to seek medical attention from a male doctor and are forced to cover themselves head to toe, even covering their eyes.

It has been widely publicized in Saudi Arabia, which is most Sharia adherent, that women are not allowed to drive, which is rather immaterial, since, for the most part, they are not allowed to leave the house.

Child marriages are quite common as is giving away girls for simple dispute resolution. Forced isolation in the home, exchange marriage and honor killings are also part of Sharia.

In Afghanistan a number of women have been known to set themselves on fire because they cannot bear their lives. Between 60 and 80% of all marriages in Afghanistan are forced as many as 57% of girls are married off below the age of 16, some as young as six. Girls are a commodity and marriage is essentially just a financial transaction.

Sharia law allows polygamy and only men can acquire easy divorce. Under Sharia, the marriage contract actually has three spaces to be filled in by the groom, with the names and addresses of additional wives should he have any.

The penalty for a woman’s extramarital sexual indiscretion is death by stoning or beheading. Rape is a crime under Sharia law, but the criminal and guilty party is always the female, regardless of age or circumstance.

Women who’ve been raped cannot report the crime because they require 4 males to witness the crime and run the risk of being prosecuted for having sex outside marriage.

Saudi women are denied the right to make even the most trivial decisions for their children and are not permitted to travel without permission from the child’s father.

So the next time you encounter a woman complaining that she can’t afford her contraception or bellyaching over some supposed “glass ceiling”, remind her how blessed she is to be born and raised in this country, where she has the same rights as everyone else.

 Attribution: AL FADI

Ring of Death

A ring of ground-to-air missile launchers could be deployed around London to protect Olympic venues, the Ministry of Defense confirmed yesterday.

 Six sites, including two residential complexes, are being tested as launch pads for missile systems capable of thwarting any airborne terror attack.

Starstreak and Rapier missile systems – which have a range of around 4 miles – would be deployed as a “last resort” to shoot down any low flying aircraft intending a 9/11 style suicide mission at one of the Olympic venues.

Defense sources claim radar would identify rogue aircraft and the missiles would be deployed long before they reached built up areas.

But experts have claimed that the systems are useless in poor weather as they rely on the operator being able to see the target.

Nick Brown, editor in chief of IHS Jane’s International Defense Review said, “The system’s weakness is that the missiles are laser-guided, steered onto their target by the soldier keeping his sight on an aircraft. So if the soldier can’t see an aircraft, they can’t hit it.

 As a result, the missiles can be badly affected by weather and would also not be able to engage targets ‘masked’ by buildings on their approach to the stadium.”

People living close to where the missiles are to be housed have also expressed concern about the dangers of using such weapons in urban areas.

The systems will be tested in the coming days as part of a major military exercise organized to check Olympic security preparations, although no test missiles will be fired.

Today members of the armed forces visited Bow Quarter in preparation for tomorrow’s exercise. Photographs taken by residents appear to show soldiers carrying large boxes.

A spokesman for the Ministry of Defense said they would be setting up equipment but would not be installing missiles, which are still at the “proposal stage”.

The six sites identified as potential locations for missile launchers are:

:: Bow Quarter, a large apartment complex close to the Olympic stadium.

:: Fred Wigg Tower, a 16 story residential tower block in Walthamstow, east London.

:: Blackheath Common, close to Greenwich where the Equestrian events will be held.

:: William Girling Reservoir, in Enfield, North East London.

:: Oxleas Wood, near Woolwich in East London

:: Netherhouse Farm in Epping Forest, North East London.

The missiles are intended to form part of a “layered” defense system, which will see 13,500 military personnel deployed to support the police for the duration of the games.

Typhoon aircraft will conduct low flying exercises over the capital and helicopters carrying snipers will also coduct practice operations.

General Sir Nick Parker, standing joint commander, said around 100 sites had initially been considered for missile launchers, but that had eventually been narrowed down to six.

He said the aim was to provide an “effective layered plan that provides a proper deterrent” adding that they could be used to defend venues against all manner of airborne attacks from the 9/11 style assault to a smaller “low and slow” attack from a single light aircraft.

He added: “There are two locations where we are going to place missiles on buildings because that is the very best place for them to go to do the jobs they are expected to do.

“This is what is going to be practiced over the next 10 days. We need to see that we can integrate them and they are really in the right place. Once we have done that we can make a final decision and make a final recommendation.”

He added: “I do understand that this is unusual and that people will be concerned. For the greater good it is prudent for us to provide this sort of air security plan. It would be sensible to be prepared for the worst.”

He added that the final decision on whether to fire the weapon systems would be taken at the “very highest political level”.

Defense Secretary Philip Hammond said: “Support for the Olympic Games will be an important task for defense in 2012 and this exercise is about pushing our people and our systems to the limit to ensure that we are ready for the challenge.

“The majority of this exercise will be played out in full view of the public and I hope that it will have a secondary effect of reassuring the British people that everything possible is being done to ensure this will be a safe and secure Olympic and Paralympic Games.”

Metropolitan Police Assistant Commissioner Chris Allison, the National Olympic Security Coordinator, said: “The Olympic Games are unusual so there will be a number of things we are doing which are unusual because the Olympic Games are coming. This is about trying to put in place a proportionate, necessary and sensible plan.

“The purpose of the exercise is to test whether they will work or not and then to make recommendations to the ministers because obviously, it has to have final approval from the ministers and not ourselves.”

Attribution: Mail Online

This Just In…Lenin Murdered!

The founder of Russian communism Vladamir Lenin died after being poisoned by his political successor Joseph Stalin, according to a sensational new theory.

Russian historian Lev Lurie, believes that while Lenin was already in poor health having suffered several strokes, Stalin may have finished him off after a bitter feud.

Lenin, who had initially supported Stalin’s rise to power, later began aligning himself with Leon Trotsky.

In notes dictated before his death, Lenin criticizes Stalin’s rude manners and ambitious nature.

He even suggested that Stalin should be removed from his position of General Secretary of the Communist Party.

Poisoning would later become Stalin’s preferred method for dealing with his enemies, Lurie points out.

He added: ‘The funny thing is that the brain of Lenin still is preserved in Moscow, so we can investigate.’

Popular theory maintains that Lenin died from the sexually-transmitted disease syphilis.

His embalmed body still lies on public display in a Red Square mausoleum almost 20 years after the collapse of the communist state he helped bring to life.

Mr Lurie and UCLA neurologist Dr. Harry Vinters reviewed Lenin’s records for an annual conference at the University of Maryland School of Medicine on famous people’s deaths.

Dr Vinters put forward a separate theory, maintaining that stress or a family medical history could have accounted for Lenin’s death

Prior to his death, the 53-year-old Soviet leader’s health had been growing worse over time.

In 1921, he forgot the words of a major speech and he had to learn to speak again and write with his left hand after one stroke.

A subsequent major stroke later left him paralyzed on one side and unable to speak.

An autopsy found blood vessels in his brain were extremely hardened, results that have been difficult to understand, said Dr. Philip Mackowiak, who organizes the yearly event.

‘Number one, he’s so young and number two, he has none of the important risk factors,’ Mackowiak said.

Lenin didn’t smoke – he never let smokers near him. He also didn’t have diabetes, wasn’t overweight and the autopsy didn’t find any evidence of high blood pressure, Mackowiak said.

There was ‘considerable suspicion’ among Russians at the time of Lenin’s death that syphilis was to blame, Mackowiak said.

However, family history appears to have worked more against Lenin, Vinters said.

Lenin’s embalmed body still lies on public display in a Red Square mausoleum almost 20 years after the collapse of the communist state he helped bring to life.

Lenin was treated for syphilis using the primitive medications available at the time, and while the sexually transmitted disease can cause strokes, there is no evidence from his symptoms or the autopsy that was the case with Lenin, Vinters said.

The Soviet leader’s father also died at 54 and both may have been predisposed to hardening of the arteries.

Stress also is a risk factor for strokes, and there’s no question the communist revolutionary was under plenty of that, the neurologist said.

‘People were always trying to assassinate him, for example.’ Dr Vinters said.

Dr Vinters, who reviewed autopsy records and the leader’s clinical history, said toxicology tests that might have revealed poisoning were not conducted during the autopsy.

Reports from the time also show Lenin was active and talking a few hours before his death.

‘And then he experienced a series of really, really bad convulsions which is quite unusual for someone who has a stroke,’ Vinters said.

The conference is held yearly at the school, where researchers in the past have re-examined the diagnoses of figures including King Tut, Christopher Columbus, Simon Bolivar and Abraham Lincoln.

Attribution: Mail Online

Forward Ho!

By: The Common Constitutionalist

Yes, the new Obama campaign slogan, “Forward”. It’s new, it’s innovative, it’s hip. Or is it? It appears quite similar to the MSNBC slogan “Lean Forward”. Funny coincidence, isn’t it.

It evokes movement in a positive direction. Don’t go back. Push on to better times ahead. One has to move”Forward” to make progress. Could that be where the term “Progressive” came from?  Absolutely! The early progressives knew we had to move forward. Cast off the shackles of that stifling old Constitution.

The slogan “Forward” is new and innovative, if you don’t know history. For those who do know their history, the slogan “Forward” is even more foreboding than that of “Progress”.

Wikipedia: The name Forward carries a special meaning in socialist political terminology. It has been frequently used as a name for socialist, communist and other leftwing newspapers and publications. For example, Vpered (Russian language for ‘Forward’) was the name of the publication that Lenin started after having resigned from the Iskra editorial board in 1905 after a clash with Georgi Plekhanov and the Mensheviks.

Now it’s time for some irony, travelling back in time to find the origins of the slogan, “Forward”.

Since a picture is worth a thousand words (or so they say), we’ll see what history has to offer.

Lenin, Forward for the Motherland, for our victory!

Under the leadership of the great Stalin - forward to Communism!

Young builders of communism! Forward, to the new successes in work and study!

Mao, Strike the battle drum of the Great Leap Forward ever louder

Sing revolutionary war songs with fervor, and move forward in victory.

Notice A common theme, maybe a word that stands out?