The Banking and Strategy Initiative

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Are JP Morgan's collateral practices to blame?

Of course, when we all started on this ride in 2008 we thought collateral was sacred. And at least I was told so by bigger one man teams like Warren Buffet and Hank Paulson. In fact so many of these collateral teams were there from JP Morgan in each deal, there was virtually no other market pressure on the weaker players going down from RBS to Lehman and lately the Euro too.

Europe’s collateral problem is different

Of course in the case of Europe we are virtually all out of collateral, having survived a year on printing and collating rubbish for collateral int he MBS market as long as the ECB was lending.

In Europe again the collateral curry gets spicier as the German option of first few losses for the Central Bank, adds layers of guarantee to any collateral but for a limited amount. From n expert who knows ( publicly published on the great world wide web, each $100 bln could require at least $260 bln in collateral more for those not expecting a 60% haircut on their purchase ( No there aren;t any in Europe, there is only one buyer, everyone else does not get money to borrow from so cannot buy in Europe)

JP Morgan is rather one of the biggest lenders in those who have not been bitten by the crisis

In the good old days of the wild west , i.e. pre 2008 , pre crisis, almost 70% of the market in fixed income and 70% of the capital for

banks was from the Interbank market and needless to add all of it was short term paper. A seeming chaos, one marveled at those in underwriting and collateral who swaw the “mere paperwork” as seriuous business ensuring the debt they were adding to the beast of burden would be repaid in full by the colalteral, and those at JP Morgan were seemingly one of the best at that. Somewhere along the line probably one can speculate that they got more worried about the weak ( or the schmoo in the deals as lots of the weakness was based on having accepted any and every piece of rubbish a s collateral) and JP Morgan was probably asking for more collateral in the inter bank market from the Jeffries, the MF Globals and the Lehmans of the banking frat. Where one can also speculate that these that asked for collateral were charged with and were actually,positively charged with being superior and the likely sole survivors of an armageddon that had to follow from the amount of collateral they needed to loan the said $10 bln

The latest fracas at MF Global probably under investigation as we speak right now could well be around that as JP Morgan snagged a clear discount on Italian Bonds for a clear profit in less than two months and (after the shop was closed) and first and foremost, all the cash was not found lying in JP Morgan accounts by sheer accident! AHH..the ultimate safeguards and what they do for a perfect score.

Measuring Collateral Chains?..Keep Walking!

Henry Paulson, Secretary of the Treasury of th...

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This entry was posted on December 14, 2011 by in Banking, US and tagged , , , , , , , .


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