Courtesy of Pam Martens.
Jamie Dimon, Chairman and CEO of JPMorgan Chase, Testifying Before Congress
The U.S. Treasury’s Office of Financial Research (OFR), the body created under the Dodd-Frank financial reform legislation to make sure another 2008 epic crash never happened again, quietly released a report last week which not only suggests another 2008-style crash is possible but that regulators will likely be blindsided again.
The report, written by Jill Cetina, John McDonough, and Sriram Rajan, reveals that the big Wall Street banks are ginning up their capital measures by engaging in opaque and potentially dangerous “capital relief trades.”
To illustrate how dangerous this kind of capital relief arbitrage can be, the report says that JPMorgan’s London Whale trades (which blew a $6.2 billion hole in the insured bank) was a capital relief trade.
Here’s the precise language from the report:
“JPMorgan Chase & Co.’s losses in the 2012 London Whale case were the result of CDS [Credit Default Swap] usage which was undertaken to obtain regulatory capital relief on positions in the trading book.”
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