London Whale: Bruno Iksil

The System: Who Rigged It, How We Fix It
by Robert B. Reich
Published 24 Mar 2020

” * * * — Jamie Dimon insists that the near meltdown of 2008 was a perfect storm that will never happen again. “Most of the bad actors are gone,” he told Fed chief Ben Bernanke in 2011. Therefore, he argued, there was no longer any need to crack down on the Street. But then something awkward happened. In the spring of 2012 an unassuming trader in JPMorgan’s London office named Bruno Iksil accumulated such a large position on an index based on the creditworthiness of more than one hundred companies that he distorted the market. The insurance he was selling (in the form of credit-default swaps) became cheaper than the individual companies on the index. Betting that the imbalance had to correct itself at some point, hedge funds saw an opportunity to make money by taking the other side of the trade.

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Betting that the imbalance had to correct itself at some point, hedge funds saw an opportunity to make money by taking the other side of the trade. But instead of unwinding the position and taking losses, JPMorgan’s London team added to it. Global traders outside JPMorgan were stunned. “It’s basic risk management,” said one. “I do not see how you miss it.” They called Bruno the “London Whale.” When rumors began to fly, Dimon characterized it as “a complete tempest in a teapot.” Three weeks later he announced that the bank had lost $2 to $3 billion (the eventual figure would be north of $6 billion) in trades that were “poorly executed” and “poorly monitored,” the result of “many errors, “sloppiness,” and “bad judgment.”

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But not to worry, he assured Wall Street and its regulators. “We will admit it, we will fix it and move on.” Dimon was called before the Senate Banking Committee to explain. “We made a mistake,” he admitted. “I am absolutely responsible. The buck stops with me.” The buck would not have stopped with Dimon had the London Whale swallowed the global banking system. If anything, the episode offered proof that the near meltdown of 2008 could happen again. JPMorgan was supposed to be “the port in the storm” (Dimon’s words), the bank that didn’t need a bailout (he repeatedly said). But less than four years after the financial crisis forced American taxpayers to bail out the Street and sent the entire American economy hurtling into the worst downturn since the Great Depression, JPMorgan recapitulated the whole debacle with the same kind of errors, sloppiness, and bad judgment, and the same excessively risky, poorly executed, and poorly monitored trades that had caused the crisis in the first place.

Other People's Money: Masters of the Universe or Servants of the People?
by John Kay
Published 2 Sep 2015

The house of Morgan, broken up by Congress in 1935, was once again a business spanning retail, commercial and investment banking activities. Dimon successfully steered his organisation away from the worst excesses of the years to 2007 and emerged with a reputation unparalleled in the industry. But in 2012 Dimon’s image would be tarnished when his bank was forced to disclose large losses on so-called hedging activities. Bruno Iksil, the ‘London whale’, had made huge and unsuccessful bets in derivative markets. Barclays’ Diamond would be engulfed by a scandal invoking false disclosure of his bank’s cost of funds – the LIBOR scandal – and the Bank of England enforced his resignation. Politicians and public began to suspect that the recurrent crises of the finance sector were not simply the result of unexpected and unpredictable events, but symptomatic of deep-seated problems with the culture of the financial services industry.

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The term came into popular language after Nick Leeson, a 28-year-old employee in the Singapore office of the venerable London investment bank of Barings, vanished overnight from his desk. The losses he had incurred led to the bankruptcy of the bank, and jail for Leeson. More recent ‘rogue traders’ include Jérôme Kerviel, that former employee of the French bank Société Générale (now in jail), who was ordered to repay €4.9 billion, and J.P. Morgan’s ‘London whale’ (Bruno Iksil), whose irregular trading was said to have lost the US bank $6 billion. Perhaps the largest of such excesses were those reported by ‘Howie’ Hubler, a once respected trader at Morgan Stanley, whose activities in 2007 were reported to have resulted in losses of $9 billion.23 A rogue trader is one who has run out of money, or scared his employer, before his number came up.

Swimming With Sharks: My Journey into the World of the Bankers
by Joris Luyendijk
Published 14 Sep 2015

Complexity vastly increases the scope for misuse and even abuse. Whether the crash of 2008 was ultimately down to that or to a huge misunderstanding – Dr No or Dr Nitwit – is still the subject of heated discussion. But no such controversy exists surrounding the scandal caused by the trader known now as ‘the London Whale’. In the spring of 2012, a trader at the London offices of JP Morgan by the name of Bruno Iksil managed with his small team to run up a $6.2 billion loss. The nickname refers to Iksil’s humongous positions – in other words he had put a vast amount of the bank’s capital at risk. Iksil was based in the City but JP Morgan is an American bank so the Senate’s Permanent Subcommittee on Investigations began to dig into this ‘monster loss’.

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In spite of all the internal controls and risk limits, another rogue trader at the London headquarters of the Swiss bank UBS managed to lose his bank billions of pounds. The megabank HSBC was caught laundering drugs money while several banks were fined for ignoring sanctions against Iran and Sudan. In 2012, a trader known as the London Whale lost over $6 billion at JP Morgan. And for years now across Europe, small and medium-sized companies, pension funds, utilities, municipalities and other public institutions have been discovering that the complex financial products they bought from London-based investment bankers have turned ‘toxic’.

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the committee members asked the JP Morgan risk managers. Nobody was able to do so. JP Morgan is considered the bank with possibly the best risk management in the world. In the year before his whale-like loss, Iksil’s pay came to $7 million. Iksil didn’t break any laws and has never been prosecuted. The London Whale cost JP Morgan a lot of money but banks can also use complexity as a deliberate tool for their own purposes. I spoke to a restructurer who advises small companies in financial difficulty so that they can meet their debt obligations to his bank. He often felt overwhelmed by the complexity of the products and instruments his bank had sold to ‘his’ companies.

Sabotage: The Financial System's Nasty Business
by Anastasia Nesvetailova and Ronen Palan
Published 28 Jan 2020

The tokens sold are promoted as future functional units of currency if or when the ICO’s funding goal is met and the project launches. LIBOR: London interbank offered rate. A benchmark rate at which major global banks lend to one another in the international interbank market for short-term loans. ‘London Whale’: The nickname of a trader, Bruno Iksil, who lost at least $6.2bn for J. P. Morgan Chase & Co. in 2012. MBS: Mortgage-backed securities. A financial instrument similar to a bond. It is created out of a bundle of home loans bought from the banks that issued them. Investors in MBS receive periodic payments similar to bond coupon payments.

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Banks’ less serious misdeeds include, but are not confined to, the following: misleading statements to investors involving capital-raising rights issues; abusive lending practices to small businesses; manipulation of gold prices; misreporting related to Barclays emergency capital raising; a banker stealing confidential regulatory information; collusion with Greek authorities to mislead EU policymakers on meeting euro criteria; financial engineering with the aim of moving Italian debt off balance sheet; manipulation of risk models with the aim of minimizing reported risk-weighted assets/capital requirements; filing false statements with the SEC and keeping false books and records, or what has become known as the ‘London Whale’ story.10 The list is likely to be incomplete by the time this book is published. Since 2009, American and foreign banks have paid out $321bn in fines for misbehaviour in the US alone. This is a handy sum. It suggests to us that big, international banks are prepared to take great risks with the law.

The Fix: How Bankers Lied, Cheated and Colluded to Rig the World's Most Important Number (Bloomberg)
by Liam Vaughan and Gavin Finch
Published 22 Nov 2016

Letter from FSA chairman Adair Turner to Agius, April 2012, “Fixing Libor: Some Preliminary Findings”, Treasury Select Committee. Harry Wilson and Richard Tyler, “Bank mis-selling victims: from the chippy to the small hotel”, Daily Telegraph, March 10, 2012, http://www.telegraph.co.uk/ finance/newsbysector/banksandfinance/9135986/Bank-mis-selling-victimsfrom-the-chippy-to-the-small-hotel.html. Bruno Iksil’s office was half a mile from the Barclays headquarters in Canary Wharf. His trading cost JPMorgan $6.2 billion. Brooke Masters and Kara Scannell, “Barclays boss discussed Libor with BOE”, Financial Times, July 1, 2012, http://www.ft.com/cms/s/0/94a88010c37c-11e1-966e-00144feabdc0.html#axzz3t4dIRSpw. 

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Despite the impact on the dollar and the involvement of a number of American institutions,this was the London interbank offered rate, Barclays was a U.K. bank, and the U.S. had enough problems of its own. Stories were starting to emerge about a huge, undisclosed loss at JPMorgan caused by a French trader known in the market as the London Whale on account of the huge positions he took.12 Libor slipped off the agenda, leaving U.S. investigators with little choice but to put their feet up and watch in amazement as events unfolded on the other side of the Atlantic. The Saturday after the settlement, those events were focused on a small, exclusive area to the west of central London, where Barclays’s two most senior bankers had homes within walking distance of each other.

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Deb Baran 159 Gibson Dunn & Crutcher 128 Gilmour, James 148, 168, 169 Glands, Paul 67 Godsell, Astley & Pearce 27, 29, 67 198 IN DEX Goldman Sachs 62, 66, 70, 72, 73, 81, 91, 92, 97, 137 Goodman, Colin 28–30, 31, 32, 37, 61, 62, 67, 78, 85, 117, 168, 169 Green, David 150, 159 Green, Stephen 58 Greenspan, Alan 71 Gulf International Bank 163 Icelandic banking system, collapse of 146 Interest-rate swaps 10, 16 International Monetary Fund (IMF) 95, 101, 118 International Organization of Securities Commission 74–5 IOSCO 109 Hall, Will 35, 148 Hawes, Neil 160, 161, 163 Hayes, Joshua (son) 130 Hayes, Nick (father of Tom Hayes) 5 Hayes, Robin (brother of Tom Hayes) 5 Hayes, Sandra (mother of Tom Hayes) 5 Hayes, Thomas Alexander William (Tom) xi, xii, 1–3 Asperger’s syndrome 2, 6, 22, 158, 164, 168 early trading 8–11 extravagances 67–8, 77 family and early years 5–6 life as trader 21–3 love of football 79 marriage 123 personal hygiene 80 personal wealth 130–1, 155 personality 20 sentence 166, 167–8 temper 7, 80, 82, 154 trial 157–66 HBOS 95 hedge funds 92 Herbert Smith 38 Heywood, Jeremy 96 Holder, Eric 103, 104, 149 Hoshino, Hayato 112, 114, 118, 119, 120, 121 HSBC 35–6, 58, 95, 96, 117 Huertas, Thomas 57–8, 75 Jamies Wine Bar 66 Japanese central bank 9 Japanese Financial Services Agency 130 Johnson, Peter 88, 89, 93, 99, 100 Jones Day 170 Jonson, Lydia 148 JPMorgan 47, 63, 66, 92, 137, 140, 174 ICAP xi, 3, 27, 28, 29, 37, 61, 65–8, 78, 79, 85, 112, 116, 168 Keiser, Rolf 80 Kengeter, Carsten 82, 161 King, Mervyn 55, 56, 57, 95, 96, 143–4 Knight, Angela 49, 51, 52, 54, 58, 59–60 Lampert, Eddie 72 Lawyers’ Christian Fellowship 158 Lazard 138 Lehman Brothers 1–3, 62, 75, 77, 81, 82, 94, 111, 112, 146 Leigh-Pemberton, James 139 Libor ix-x, xi, xii, 2–3, 9, 10–11 growth of 15–17 manipulation of 18, 23, 26–32, 33–8 origins of 14, 15 Lloyds 94, 96 Lloyds Banking Group 95 London interbank offered rate see Libor London Stock Exchange 138 London Whale (French trader) 140 Lowe, Gretchen 42–3, 44, 46, 74, 102, 135, 170 Lucas, Chris 134, 139 Lugar, Richard 45 Index Lukken, Walt 45, 74 Lynam, Moira 121 Madden, Luke 117 Major, John 54 Mandelson, Peter 137 Mann, John 145 Manufacturers Hanover 13 Marsh, Luke 104–5 Maxwell, Robert 105 McCappin, Brian 83, 114, 121, 122, 124 McDermott Will & Emery 75, 76, 106, 107 McGonagle, Vince 39, 41, 42–4, 45, 74, 135, 157, 169 McInerney, Denis 102 Meister, David 135, 136 Merchant, Jay 88 Merrill Lynch 64, 84, 92 Messina, Jim 69 Miller, Avery 107 Mocek, Greg 43, 74, 75–6, 87, 107 Mollenkamp, Carrick 40, 59–60 Morgan Stanley 91 Morton, Andrew 111–12, 120, 121, 124 MSCI 171 New York Fed 56, 57 New York Stock Exchange 167 Newsday 42 Nixon, Richard 13 Northern Rock 38, 49, 53, 95 Oakeshott, Matthew 136 Obama, Barack 69, 70, 103 Obie, Steve 42, 43, 73–6, 87, 89, 102, 107, 109, 135, 170, 173 Office of the Comptroller of the Currency 45 O’Leary, Peter (step-brother) 35–7 Osborne, George 106, 144 overnight indexed swaps 10 199 Pain, Jon 106 Park, Robertson 102 Paulson, Hank 72 Payment Protection Insurance misselling 137 Peng, Scott 43 Perry Capital 72 Perry, Richard 72 Peston, Robert 142, 143 Pieri, Mike 63, 81–3, 86, 119, 126, 130, 161 Pitt, Harvey 45 Platts 41 Porter, Chris 36, 37 Porter, Laurence 114, 115, 116, 118, 120 Prince, Chuck 116 private equity 92 Protium deal (2010) 137 Qatar Investment Authority 97 Rabobank xi, 64, 134 Rain Man 7 Rake, Mike 141, 143, 144 RBC 10 RBS xi, 66, 93, 94, 95, 96, 104, 118 Read, Darrell 27–30, 31, 33, 37–8, 61–2, 67, 77–8, 85, 112, 116, 117, 165, 168, 169 Reagan, Ronald 15 Reich, Ryan 88 relative value trading 22 Ricci, Rich 98, 134, 142 Richardson, Gordon 98 Risk Capital 44 Robb, Richard 17 Robson, Anthony 9 Rouse, Pete 69 Royal Bank of Canada 8 Royal Bank of Scotland 6, 10, 148, 174 RP Martin xi, 30, 31, 37, 63, 64, 65, 66, 79, 117, 148–9, 168 200 IN DEX Rubin, Robert 70, 71 Ruh, Joachim 80 Salomon Brothers 17 Sanders, Bernie 71 Sants, Hector 106, 142–3 Sarbanes-Oxley Act 70 Schapiro, Mary 69, 70 Schiliro, Phil 69 Schroders 92 Securities and Exchange Commission (SEC) 45, 69, 70, 120, 129 Senate Banking Committee 45 Serious Fraud Office (SFO) 148–52, 155, 158, 160, 161, 165, 168, 169 Serious Organised Crime and Police Act (SOCPA) (2005) (U.K.) 151 Shah of Iran 13 Shearman & Sterling 38 Shelton, Mark 127, 128 Sherrard, Charles 154 Smith New Court 92 “Special Liquidity Scheme” (U.K.) 55 Spencer, Michael 28, 30 “spoof offers” 32 Spratling, Gary 128–9 Sprinzen, Nicole 104 Standard Chartered 65, 94 Stevens, Ted 104 Steyer, Tom 72 Stone, Jonathan 99 Storey, Miles 51, 162, 163 subprime mortgage crisis (U.S.) 18, 53, 56, 103, 111 Sullivan & Cromwell 108, 134 Summers, Larry 69 swaps 7, 10 T.

Risk Management in Trading
by Davis Edwards
Published 10 Jul 2014

While reports attribute the price movements to a flight to quality rather than market manipulation, LTCM was caught unable to trade out of its positions, eventually going bankrupt due to mark‐to‐market losses. 138 RISK MANAGEMENT IN TRADING After the LTCM bankruptcy, as predicted, the bond prices converged. The end result was a massive profit for the firms who bet against LTCM and later acquired their positions during the bankruptcy proceedings. JP Morgan’s London Whale In 2012, JP Morgan announced multi‐billion dollar losses in its portfolio of credit‐default swaps (CDS). JP Morgan had dominant market position in these assets, and the London-based head trader of the book, Bruno Iksil, was nicknamed the London Whale due to the size of the CDS portfolio. Prior to 2012, the business consisted of both buying and selling CDS portfolios. However, toward the end of 2011, trading became more one sided with JP Morgan holding positions opposite the rest of the market.

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See good till canceled orders H hedge accounting, 188 hedge effectiveness, 193 logarithmic returns and, 194–195 hedge effectiveness testing, 187–189 hedge funds, 3–6 hedge-accounting memo, 189–191 hedging, 2, 11, 177–179 costs, 180 creating volatile earnings via, 187 using, 179–180 hedging calculations, 185 highest and best use, 130–131 historical backtesting, 99 holistic view of risk, 115–117 I illiquid market, 35, 124 implementing credit limits, 259–260 implied volatility, 160–161 Information Ratio, 109–110 integration, calculus, 85–87 interest rate swap contracts, 37, 54–55 interest rates, 201 intraday monitoring, 117–118 K kurtosis, 70–72 J JP Morgan, London whale, 138 L leverage, 4 LGD. See loss given default lifespan of orders, 19–20 limit orders, 17–19 limitations of approximations, 224 limits, trading, 147–148 liquid market, 34–35, 124 litigation risk, 25 live testing, 101 log-normal distributions, 82 logarithmic returns, hedge effectiveness and, 194–195 Long Term Capital Management, 137–138 304 loss given default, 240–241, 245–247 probability of default and, 254–255 losses calculating, 2, 10–11 profits and, 121–123 M managing risk, 28–29 (end of chapter 1 managing trading risk, 21–23 margining, 14 mark, 122 mark to market market crashes and, 126–128 market liquidity and, 125–126 mark-to-market accounting, 124, 128–130, 188 market, 122 market crashes, mark to market and, 126–128 market liquidity, mark to market and, 125–126 market orders, 17–19 market price, 123–125 market risk, 23, 25 market stability, speculators and, 136 market-based probability of default, 252–254 criticisms of, 254 markets, 16–17 Maslow, Abraham, 267 master netting agreement, 239 master netting, credit risk and, 256–257 mathematical derivative, 88 MBS.

How to Speak Money: What the Money People Say--And What It Really Means
by John Lanchester
Published 5 Oct 2014

That wouldn’t work for retail banking, where there is a strong social interest in keeping banks lending, but it might be a viable structure for investment banks, and would certainly make their risks more in line with their rewards. The British bank C. Hoare and Co. is unusual in being an unlimited liability bank, wholly owned by one family. London Whale The nickname of Bruno Iksil, the trader at J. P. Morgan’s London branch who was paid $7.32 million in 2010 and $6.76 million in 2011, and then in 2012 lost $6.2 billion betting on credit default swaps. The first response of Jamie Dimon, chairman and CEO of J. P. Morgan, was to describe the affair as “a tempest in a teacup,” until the scale of the losses became apparent.

Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America
by Danielle Dimartino Booth
Published 14 Feb 2017

A few months later, market watchers were puzzled by weird movements in some credit markets; gossip began circulating about a rogue trader everyone dubbed the London Whale for the large positions he was taking in credit default swaps. The mystery was solved in April, when JPMC, now the biggest bank in the United States, revealed that a trader in its little-known Chief Investment Office in London had made enormous bets on derivatives that triggered $2 billion in losses for the bank. (The price tag would ultimately total $6 billion.) The French-born employee, Bruno Iksil, became the perfect illustration of Fisher’s argument that nothing had changed. Dimon at first called the debacle “a tempest in a teapot.”

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At the January 25, 2012: FR: FOMC Statement, January 25, 2012, www.federalreserve.gov/newsevents/press/monetary/20120125a.htm. In a historic vote: Ibid. A few months later, market: Jessica Silver-Greenberg and Nelson D. Schwartz, “‘London Whale’ Said to Be Leaving JP Morgan,” New York Times, May 16, 2012. Dimon at first: Stephen Gandel, “The 10 Stages of Jamie Dimon’s Blubbering London Whale Grief,” Fortune.com, April 11, 2013. But an investigation: Robert Lenger, “JPM Trade ‘Flawed, Complex, Poorly Reviewed, Executed, Monitored,’” Forbes.com, May 12, 2012. A report by the Fed’s: FR: Office of the Inspector General, “Evaluation Report: The Board Should Enhance Its Supervisory Processes as a Result of Lessons Learned from the Federal Reserve’s Supervision of JPMorgan Chase & Company’s Chief Investment Office,” October 17, 2014, oig.federalreserve.gov/reports/2015-0030_-_Document_To_Release.pdf.

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The Obama administration had failed to do so but never explained why—probably because Yellen knew removing the power of bank supervision would dilute the Fair Chair’s power. LISCC was the compromise. Tarullo had lowered the hammer on New York Fed supervisors in 2009 for not pushing hard enough to compel Citigroup to repay $45 billion it borrowed during the financial crisis. Then, during the London Whale debacle, Tarullo had demanded to know how New York Fed supervisors had let such massive bets occur without their knowledge and oversight. So Tarullo was a logical choice to lead LISCC. At Bernanke’s direction Tarullo and a sixteen-person committee began looking at the Fed’s internal regulatory structure and practices.

The City
by Tony Norfield

The ability to expand assets is a key driver of profitability for the banking system, and the search for acceptable yields on financial investments helps spur financial market ‘innovation’ and all kinds of madcap speculation that, sooner or later, turns investment geniuses into morons. A famous example from 2012 was that of the ‘London Whale’. The big mammal in question was a trader for US bank JP Morgan Chase in London named Bruno Iksil.9 After successfully betting on credit derivatives in 2011 and making hundreds of millions of dollars, things started to go wrong for him the following year. In time-honoured fashion, he began doubling up on his positions to recover his losses. This was much worse than betting $200 on red in roulette after losing the previous $100 bet.

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Haldane, ‘Risk Off’, speech given on 18 August 2011, at bankofengland.co.uk. 7Federal Reserve, ‘Profits and Balance Sheet Developments at US Commercial Banks in 2008’, Federal Reserve Bulletin, Vol. 95, 2 June 2009, p. A76. 8Norfield, ‘Derivatives and Capitalist Markets’, pp. 116–18. 9Patricia Hurtado, ‘The London Whale’, Bloomberg, 23 April 2015, at bloombergview.com. 10Hilferding, Finance Capital, p. 172. 11Ibid., p. 180. 12Daniel E. Saros, in ‘The Circulation of Bank Capital and the General Rate of Interest’, Review of Radical Political Economics, Vol. 45, No. 2, 2013, pp. 149–61 (p. 154), and Lapavitsas in Profiting Without Producing (p. 127, n. 45), also assume, with Hilferding, that the rate of profit for the financial sector will tend to equal the average rate of profit in the industrial and commercial sectors. 13Ben Fine, ‘Banking Capital and the Theory of Interest’, Science & Society, Vol. 49, No. 4, Winter 1985–86, pp. 387–413 (p. 399). 14I developed the following points through useful discussions with Ben Fine. 15As in Gérard Duménil and Dominique Lévy, ‘The Real and Financial Components of Profitability (United States, 1952–2000)’, Review of Radical Political Economics, Vol. 36, 2004, pp. 82–110 (p. 104). 16For example, ONS, ‘Profitability of UK Companies, 3rd Quarter 2010’, 5 January 2011, at ons.gov.uk.

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory
by Kariappa Bheemaiah
Published 26 Feb 2017

While large banks might offer greater efficiencies, their size also comes with more process, more red-tape, increased amounts of opaqueness, and larger mistakes. Consider the case of the J.P. Morgan’s “London Whale” episode in 2012. As the traders executed their hedging strategy by entering into a series of derivative transactions involving credit default swaps (CDS) , one of the JP Morgan traders, Bruno Iksil, accumulated outsized CDS positions in the market and began distorting the market with massive bets. As other traders in the CDS market began to notice this activity, they moved in the opposite direction and began to take positions that were contrary to the J.P.

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That $1 Billion TransferWise Deal Is Exactly Why Mark Carney Worries About “An Uber-Type Situation In Financial Services.” Retrieved from Business Insider UK: http://uk.businessinsider.com/transferwise-mark-carney-and-uber-type-situation-in-banking-2015-1?r=US&IR=T Forelle, C. (2012, May 11). What Beached the London Whale? Credit Indices. Retrieved from The Wall Street Journal: http://blogs.wsj.com/marketbeat/2012/05/11/more-on-what-beached-the-london-whale-credit-indices/ Freeman, J. (2011 , March 19). Mega-Banks and the Next Financial Crisis . Retrieved from The Wall Street Journal: http://www.wsj.com/articles/SB10001424052748703899704576204594093772576 Hellwig, A. A. (2013).

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As per his interpretation, the investment office in London tried to sidestep capital regulation laws of risk management by fulfilling the bare minimums of regulatory requirements. Traders were thus given the incentive to score big, and therefore, instead of focusing on simplicities, the traders focused on the complexities of derivative markets and ignored the danger signals provided by the stress tests (Forelle, 2012). The London whale incident is just one of the many financial scandals that have involved the TBTF banks following the crisis. Since 2008, HSBC has been involved in the LIBOR scandal, Standard Chartered in money laundering transactions, and JP Morgan, Citigroup, Bank of America, RBS, Barclays, and UBS (also known as the “Bandits’ Club ”) were all involved in rigging the Forex market (Independent, 2015).

Nobody's Fool: Why We Get Taken in and What We Can Do About It
by Daniel Simons and Christopher Chabris
Published 10 Jul 2023

Their performance from one season to the next varies around their long-term average, just as an 80 percent basketball free-throw shooter doesn’t hit exactly 80 percent in every game and a .250 hitter in baseball doesn’t go one for four in every game.16 What’s true in sports performance also holds in financial markets—no investment will perform consistently all the time. Bruno Iksil, the trader who came to be known as the “London Whale,” lost billions of dollars in 2012 for JPMorgan Chase because he put his firm’s money on a prediction that the value of certain bonds would not exhibit much volatility. If that prediction were wrong, the price swings would drive down the value of his position. As it turned out, what Iksil thought was low volatility was yet another illusion caused by a simple spreadsheet error—using the wrong formula to combine two numbers—perhaps the most costly Excel mistake in history.17 Second, we have to pay attention to consistency to even notice it.

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Management Task Force Regarding 2012 CIO Losses, January 16, 2013, 128–129 [https://ypfs.som.yale.edu/node/2821]; A. Ahmed, “The Hunch, the Pounce and the Kill,” New York Times, May 27, 2012 [https://www.nytimes.com/2012/05/27/business/how-boaz-weinstein-and-hedge-funds-outsmarted-jpmorgan.html]; E. Owles, “Timeline: The London Whale’s Wake,” New York Times, March 27, 2013 [https://archive.nytimes.com/www.nytimes.com/interactive/2013/03/27/business/dealbook/20130327-jpmorgan-timeline.html]. 18. M. De Vita, “Analysis: Madoff’s Returns vs. the Market,” in The Club No One Wanted to Join: Madoff Victims in Their Own Words, ed.

The Spider Network: The Wild Story of a Math Genius, a Gang of Backstabbing Bankers, and One of the Greatest Scams in Financial History
by David Enrich
Published 21 Mar 2017

Cecere, too, was trying to cast all the blame on Hayes, even though this web was in fact shared by many spiders—Cecere among them. * * * For a few weeks that spring, the financial world’s attention was consumed by another scandal in London. A trader in J.P. Morgan’s London office, Bruno Iksil, had amassed huge positions in an exotic class of derivatives called credit default swap indexes. Before long, his bets grew so big that he was controlling a substantial slice of the market and had acquired a nickname: the London Whale. As Hayes had learned, size is a mixed blessing, and when markets turned against Iksil, competitors smelled blood and attacked. Things quickly careened out of control—soon Iksil’s team was sitting on losses of more than $2 billion.

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The section on Kweku Adoboli’s downfall comes in large part from “Kweku Adoboli: A Rogue Trader’s Tale,” Financial Times, October 22, 2015, by Lindsay Fortado. Chapter 15: Spiders The Andrew Smith section is based on former traders’ interviews with me and with regulators and internal chat transcripts. The London Whale description is based in part on J.P. Morgan’s internal review into the debacle, the results of which were published in January 2013 in a 132-page report. Colin Goodman explained the circumstances surrounding his mother-in-law’s death in detail to regulators. In this and subsequent chapters, the sections about Hayes’s interactions with his lawyers and their interactions with the SFO and Justice Department are derived in part from detailed notes taken by the lawyers as well as my interviews with lawyers and others.

The Best Business Writing 2013
by Dean Starkman
Published 1 Jan 2013

There’s the Volcker Rule, of course, and it’s safe to say that everyone’s suspicious about whether this is, or would be, or should be, allowed by the Volcker Rule as a “hedge.” What does it hedge you ask? Well, the thing I described above in excruciating detail hedges JPMorgan’s risk of a lot of corporate bankruptcies. Yes, you say, but what does Bruno Iksil’s $100bn CDX long credit position hedge? Well, it hedges his short credit position. Which hedges JPMorgan’s overall long credit position. OKAY, you say, and walk away in disgust to write a bigger Volcker Rule. Hedging is hard because you can only try to hedge with things that you expect to be correlated in the world that might come about, and you don’t really know what state of the world will actually occur or what will be correlated with what in that world.

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A Wall Street executive who made ten times that amount and now has declining income along with a divorce, private-school tuitions, and elderly parents also suffers, he said. “These people never dreamed they’d be making $500,000 a year,” he said, “and dreamed even less that they’d be broke.” Matt Levine 18. The Tale of a Whale of a Fail Dealbreaker Certain things just can’t be explained in the mass-market press, and the London Whale trade that caused billions of dollars in losses for JP Morgan is one of them. For one thing, JP Morgan refused to offer any details about what its trading desk did—and for another, what its trading desk did was so mind-bendingly complex that few journalists could even understand it, and none could explain it in a way that the average newspaper reader could comprehend.

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Matt Levine, an equity-derivatives geek turned blogger, understands complex concepts and can talk about them in a conversational and even funny way. This stuff isn’t easy. But for people who wanted to really get up to speed on a hugely important story, there was only one place to turn. Hi! Would you like to talk about the London Whale? Sure you would. The amount of misunderstanding of our poor beleaguered beluga is staggering, so I figured we could try to embark on a voyage of discovery together. Maybe we’ll figure it out. Along the way we’ll talk a tiny bit about the Volcker Rule. I am going to try to talk very slowly and simplify things so if you are pretty financially sophisticated you could skip this post (I’ve linked to some better things to read at the end), or just get really angry at me in the comments.

The Golden Passport: Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite
by Duff McDonald
Published 24 Apr 2017

In the years since, the firm has only solidified its position at the top of the industry, a fact reflected quite clearly in Dimon’s bank account: In 2015, he earned a reported $27 million.6 For a brief moment in time, it seemed the man could do no wrong, a sentiment expressed quite clearly in 2009’s Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase, written by the author of this book. But the moment didn’t last. In 2012, the firm revealed that a single trader in its London office—Bruno Iksil, nicknamed “the London Whale”—had incurred a trading loss of $2 billion, and the loss continued to grow thereafter, eventually reaching more than $6 billion. Dimon, who initially referred to reports about the loss as “a complete tempest in a teapot,” was pilloried in the media not just for the company’s failed internal risk controls, but for the mere fact that such a loss was even possible at a time when the American people were both reeling from the 2008–10 recession and angry that the country’s financial establishment had not only just avoided being punished for its crimes, but was indeed back to business as usual.

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As the crisis unfolded, he threw huge piles of money at old friends from Goldman Sachs, and was fired after a surprise $15 billion loss shortly after the firm’s sale to Bank of America. Jamie Dimon (’82). The CEO of JPMorgan Chase, Dimon was first praised for the rescues of Bear Stearns and Washington Mutual and then raked over the coals for what critics saw as excessive risk taking during the whole London Whale episode. The many, many HBS grads at McKinsey & Company. There was a joke in the mid-1990s that since pretty much every bank of importance had hired McKinsey, you had fifty companies focused on the same thing—global strategy—at the exact same time.6 The same was true ten years later, raising an interesting issue of “systemic risk.”

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“Bill” Heinz, John and Teresa, 560 Henderson, Bruce, 207, 417 Henderson, Ernie, 179 Henderson, James, 128 Henderson, Lawrence J., 81–82, 84, 111, 355 Henderson, Rebecca, 238 Henry, James, 406–7 Hersum, Anita, 279 Hertz, John D., 123 Herzlinger, Regina, 238, 573 Hewlett-Packard, 241, 321, 322, 460, 531, 563 Higdon, Hal, 512 Higgins, Bob, 332 Higher Learning in America, The (Veblen), 95 Hill, Linda, 238, 314, 557–58 Hitch, Charles, 272 Hoagland, Ralph, 128 Holmes, Oliver Wendell, Sr., 25 Homans, George, 308 Hoopes, James, 14, 31, 3, 882, 114, 315, 317, 523 Hoover, Herbert, 101 Hosmer, Windsor, 326 Hostetter, Amos, Jr., 323 Hotta, Shozo, 205–6 “How Business Schools Lost Their Way” (Bennis and O’Toole), 224 “How Competitive Forces Shape Strategy” (Porter), 414 How Harvard Rules (Trumpbour), 432 Hubbard, Glenn, 405 Human Problems of an Industrial Civilization, The (Mayo), 88, 90 human relations movement, 37, 81–90, 93, 118, 286, 355 human resources movement, 61, 197–98 Huston, Darren, 531 IBM, 142, 209, 289, 301, 347; HBS grads hired by, 460; HBS partnership with, 154–55; HBS’s Executive Education and, 151; HBS’s MBAs required to buy computers and, 155; Kanter and, 404; layoffs at, 404, 492–93 Icahn, Carl, 367, 480, 481 Ignatius, Adi, 306 Iksil, Bruno (London Whale), 472, 548 Immelt, Jeffrey, 305, 531 “Impact Investing: Trading Up, Not Trading Off” (Bales), 7 INCADIS (Individual Case Discussion Simulator), 287 income inequality, 5, 10, 23, 56, 390, 426, 510, 539, 540–41; CEO compensation and, 165–66, 539, 544; concentration of wealth, 539; stock market and, 491; submerged state and, 542; wage stagnation and, 165, 426, 491 “Income Inequality in the United States, 1913–1998” (Saez), 540 India: business education in, 231, 233; Satyam Computer Services fraud, 408–9, 521 Indian Institute of Management–Ahmedabad, 230, 231, 236, 564–65 India Research Center, 234, 545 Individualized Corporation, The (Ghosal and Bartlett), 491 Industrial Bank of Japan, 153–54; endowment of HBS professorship, 153, 402 industrial organization (IO), 412–13 industrial psychology, 84–86 innovation, 557–58; disruptive, 303, 409, 422, 424, 572, 573; Doriot and wartime, 124; founder-inventors and, 60; MBAs and, 120–21; MBAs in Silicon Valley and, 10.

Geek Sublime: The Beauty of Code, the Code of Beauty
by Vikram Chandra
Published 7 Nov 2013

Accessed June 11, 2013. http://www.lscheffer.com/malbolge.shtml. Schelling, Andrew. The Cane Groves of Narmada River: Erotic Poems from Old India. San Francisco: City Lights Books, 1998. Schlesinger, Jill. “JPMorgan Chase Earnings: ‘London Whale’ Cost $5.8 Billion.” CBS Money Watch, July 13, 2012. http://www.cbsnews.com/8301-505123_162-57471697/jpmorgan-chase-earnings-london-whale-cost-$5.8-billion/. Scott, Alec. “Lessons from Canada’s Silicon Valley Diaspora.” The Globe and Mail, February 23, 2012. http://www.theglobeandmail.com/report-on-business/rob-magazine/lessons-from-canadas-silicon-valley-diaspora/article535544/?

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The trouble is that in Excel there is no way to trace where your data come from, there’s no audit trail (so you can overtype numbers and not know it), and there’s no easy way to test spreadsheets … The biggest problem is that anyone can create Excel spreadsheets—badly. Because it’s so easy to use, the creation of even important spreadsheets is not restricted to people who understand programming and do it in a methodical, well-documented way.27 Sloppy Excel-wrangling can lead to some very bad decisions, as in the “London Whale” trading disaster of 2012, which caused the financial services firm JPMorgan Chase a loss of approximately six billion dollars; the company’s internal investigation listed as one of the contributing factors a financial modeling process which required cutting and pasting data through a series of spreadsheets.

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Wolfcore [pseud.], comment on “Git Is Simpler Than You Think.” 23. “Whatever Happened to Programming?” 24. Campbell, “Where Does One Go to Find the Current ‘Good’ Books to Read? (Or Blogs?)” 25. Ensmenger, The Computer Boys Take Over, 88. 26. Kwak, “The Importance of Excel.” 27. Ibid. 28. Ibid.; Schlesinger, “JPMorgan Chase Earnings: ‘London Whale’ Cost $5.8 Billion.” 29. Oliver, “Why I Still Love CQRS (and Messaging and Event Sourcing).” 30. Ibid. 31. Zihotki, “Raven & Event sourcing.” 32. Chakrabarti, “Arguing from Synthesis to the Self: Utpaldeva and Abhinavagupta Respond to Buddhist No-Selfism,” 203. 33. Ibid., 209. 34. Ibid., 211.

The Black Box Society: The Secret Algorithms That Control Money and Information
by Frank Pasquale
Published 17 Nov 2014

These dynamics persist. Consider, for instance, JP Morgan Chase’s “London Whale” trades, which lost the bank billions of dollars. In 2012, the bank’s Chief Investment Office (CIO) had about $350 billion in excess deposits to manage, and devoted some to a very risky synthetic credit portfolio (SCP). The CIO asserted that it had “five key metrics and limits to gauge and control the risks associated with its trading activities.” But when several of those metrics indicated unacceptable losses, managers decided to change the metrics.105 The Senate Report on the London Whale helpfully encapsulates just how suspect this practice was: The head of the CIO’s London office . . . once compared managing the Synthetic Credit Portfolio, with its massive, complex, moving parts, to flying an airplane.

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Note, however, political scientist Daniel Carpenter’s contention that “there is value in studying a singular process not because it stands in for so many others, but because it influences so many others.”165 Given how wealthy the boom years made so many in finance, and how unscathed the bust has left them, few aspiring traders and bankers would think of them as a cautionary FINANCE’S ALGORITHMS 137 tale. And trades like the London Whale indicate that years after the crisis, critical models are just as manipulable (and regulators as feckless) as they were in the bubble years. Until fi nance practices in general are routinely as scrutinized as those prevalent in the bubble years, we have little reason to think matters have changed all that much.

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Some finance experts argue that the modeling of transactions has become so complex that disingenuous managers can always field a 174 THE BLACK BOX SOCIETY phalanx of quants to hide deals’ dangers. Moreover, algorithmic “control” systems, which are supposed to deter manipulation of risk models automatically, may be easier to manipulate than human experts— recall how JP Morgan Chase’s London Whale traders moved the goalposts to buy time for their risky strategies.125 But without actually reviewing the fine details of transactions, we’ll never even be able to have a coherent argument about such issues. Judge Rakoff actually tried to force such a review in one case. In 2011, he refused to accept a $285 million settlement proposed between Citigroup and the SEC regarding the bank’s role in promoting suspect securities.

SUPERHUBS: How the Financial Elite and Their Networks Rule Our World
by Sandra Navidi
Published 24 Jan 2017

Carney accepted his apology, which was lucky for Dimon because Carney subsequently became even more powerful as governor of the Bank of England and chairman of the Financial Stability Board. In interviews, Dimon can get belligerent as well, especially when arguing against financial reform and in favor of higher remuneration. Neither does Dimon have any qualms to openly fight for his power. After JPMorgan suffered its record $6 billion “London Whale” trading loss in 2012, investors opposed Dimon’s dual role as CEO and chairman, arguing that his overseeing himself obviously hadn’t worked so well. Amongst much media attention, Dimon threatened to resign if forced out of his chairman role and in the end prevailed against his critics. As Wall Street’s unofficial ambassador in Washington, Dimon also became the leader of the pack among big bank CEOs.

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He impressed the bureaucratic establishment with his business acumen and charm, quickly becoming the Beltway’s darling. For a long time, he was even considered to be President Obama’s favorite banker. The president repeatedly praised Dimon publicly, and the presidential cufflinks Dimon wore during his testimony at the Senate Banking Committee in connection with the London Whale loss were rumored to have been a present from the president himself. EQ: CONNECTING EMOTIONALLY One of the most indispensable skills leaders must possess is emotional intelligence. Finance is a Darwinian environment, where only the strongest survive. Most firms render similar services without any intellectual property to protect, and in general all top-level managers are smart, educated, and hard working.

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See Financial leaders thought, 47–51 LeFrak, Richard, 129, 192 Legal norms, 222 “Legalized corruption,” 175–176 Lehman Brothers, 8, 20, 41, 56, 61, 157, 172, 177, 181–183, 205 Lending Club, 189 Lennon, John, 199 Levitt, Steven, 140 Leyne, Strauss-Kahn & Advisors, 195 Leyne, Thierry, 195 Liar’s Poker, 221 Liberia, 27, 171 Limits to Growth, The, 220 Links definition of, xxvi to hubs, 19 in human relationships, 19 system stability through, 215 Lipton, David, 165 Liversis, Andrew, 205 Lloyds, 137 Lobbying, 122 Lobbyists, 175 Loeb, Daniel, 91, 109 London, 43 London Business School, 48, 166, 175 London School of Economics, 16, 63, 142 “London Whale,” 57 Long Term Capital Management, 207–209 Loungani, Prakash, 50 Louvre, 132 Lowenstein, Roger, 208 Loyalty, 23 LTCM. See Long Term Capital Management “Lucky Sperm Club,” 137 Lutnick, Howard, 76 M Ma, Jack, 103 Macroeconomic trends, 70 Magic Mountain, The, 2 “Magic roundabout,” 134 Malloch-Brown, Lord Mark, 27 Manchurian Candidate, The, 67 Mankiw, Greg, 84 Mann, Thomas, 2 Mannesmann AG, 142–143 “Mansplaining,” 152–153 Marks, Howard, 90 Marrakech, 194 Marron, Donald, 209 Marx, Karl, 219 Massachusetts Institute of Technology, 36, 81, 84, 149, 185 Masters, Blythe, 156 “Matchers,” 104 Matrix Advisors, 184 “Matthew Effect,” 52 McDonough, William J., 209 McKinsey, 87, 115, 152 Meade, Michael, 201 Media scrutiny, 136–137 Meditation, 62, 70 Medley, Richard, 43 Mentoring gap, 154–155 Meritocracy, 71, 80, 83, 213 Meriwether, John, 207–209 Merkel, Chancellor Angela banker interactions with, 174 at Davos, 114 in Euro crisis, 177 general references to, 39, 61, 193 Josef Ackermann and, 142–144 Merrill Lynch, 56, 179, 183 Merton, Robert, 52, 208 Metropolitan Museum of Art’s Costume Institute Benefit, 76 Metzler, Jakob von, 136 Microsoft, 153 Middle East, 171 Milgram, Stanley, 18 Miliband, Ed, 137 Milken, Lowell, 191 Milken, Mike, 63–64, 129, 190–193 Milken Institute, 190, 192 Min Zhu, 27 Mindich, Eric, 109, 170 “Mind-reading,” 149 Minimum wage, 211 Minorities discrimination against, 148 integration of, 226 old boys’ network exclusion of, 82 Misinformation, 41 MIT.

Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else
by Chrystia Freeland
Published 11 Oct 2012

Rules are only as good as the supervisors who enforce them, and good supervisors look beyond the letter of the rules to their spirit.” Eight months later, Dimon inadvertently bolstered Carney’s case. On May 10, 2012, JPMorgan revealed that a trader known as the London Whale had made a bet on credit derivatives that went sour, leading to a loss of at least $2 billion, and which analysts close to the bank believed could rise to $6 billion. Wall Street, led by Dimon, had spent the previous three years warning that Washington’s regulatory overreach was stifling the financial system. The London Whale’s trades suggested that the real danger was still too much risk. As Congressman Barney Frank put it, “The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today

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I., 86, 93 Levchin, Max, 183 Levy, Frank, 17 Levy, Gus, 286–87 Lewis, Michael, 69, 129 Li, Stella, 32–33 Libya, 215 Lightyear Capital, 142 Lin, Alfred, 233–34 Lin, Jeremy, 140 Lincoln, Abraham, 39 Lincoln, William, 98 Linden, Greg, 24–26 Lindert, Peter, 12, 16, 43 Lindsay, Michael, 43 LinkedIn, 141, 183–85 LinkExchange, 234 Li Peng, 208 Lithuania, 149 Li Xiaolin, 208 Li Xiaopeng, 208 LLC Smart Group, 191 Lloyd W. Dinkelspiel Award, 181 lobbying, 222–24, 247, 260–62, 273 Loeb, Dan, 242 London, City of, 211, 214, 217, 218, 219, 227 London School of Economics, 227 London Whale, 260 Long Depression, 7, 9, 41 long tail, 100, 126–27 López-Calva, Luis-Felipe, 197 Lora, Eduardo, 31 Los Angeles Times, 76 lucky job club, 175–76 Luddites, 12–13, 96–97 Ludicorp, 172 Lu Guanqiu, 204 Lumière, Louis and Auguste, 98 Luxos, 46 luxury goods and services, 102, 104, 106 Mac 400 electrocardiograph, 157–58 Macpherson, Elle, 74 Maddison, Angus, 8–9, 16 Madonna, 107 Magna Carta, 148 Mail.ru, 66, 163 Maira, Arun, 201 Major, John, 148 Malaysia, 149 managerial class, 131–36, 138 Mankiw, Greg, 268 Manning, Alan, 24 Manny, The (Peterson), 1–2 Mantle, Mickey, 108–9 Maples, Mike, 165 Marron, Donald, 142 Marshall, Alfred, 50, 95–97, 99, 101, 105, 108–12, 116, 118–19, 123, 131 Marshall, George C., 181 Marshall Scholarship, 181–82 Martin, Bradley, 6–7, 8, 14, 36, 37, 114 Martin, Cornelia, 6–7 Martin, Paul, 216–17, 250–51 Martin, Roger, 116–17, 123, 135 Marx, Elisabeth, 63 Marx, Karl, 42, 75, 89, 118, 284 Marxism, 14 material power index (MPI), 81 Matthew, Saint, 122–23 Matthew effect, 123, 126, 127–28 Mazumdar-Shaw, Kiran, 33 McCartney, Paul, 109 McFaul, Mike, 144 McKinsey, 52, 60, 121 Bloomberg/Schumer report by, 211–15, 227 Global Institute, 165–66 Means, Gardiner, 131–34, 138 Mediaite, 164 Mellin, Joe, 172 Merrill Lynch, 102, 119, 214–16 Merton, Robert, 50, 123–24, 127, 175 Mexico, 193–98 Slim and, 195–96 Meyer, Christopher, 222 Microsoft, 171, 176, 191, 234, 280, 282, 283 middle class, 240–41, 285 Midler, Bette, 127–28 Milanovic, Branko, ix–x, 16, 26, 194–96 Mill, John Stuart, 43 Miller, Steve, 27 Milner, Yuri, 52, 163–64, 171 Mindich, Eric, 271 minimum wage, 17, 91 Mir Osman Ali Khan, 191 Mishra, Prachi, 222, 223 Missner, Marshall, 124 Mittal, Aditya, 59, 161–62 Mittal, Lakshmi, 161, 192 Mittal Steel, 161, 191–92 Mokyr, Joel, 16–17 Monaco, 63 Moneyball (Lewis), 129 Monitor Group, 222, 227 Morgan, J.

The Divide: American Injustice in the Age of the Wealth Gap
by Matt Taibbi
Published 8 Apr 2014

Jamie Dimon’s megabank was caught up in dozens of scandals during the same period covered by the Abacus investigation—everything from money laundering to energy price manipulation to mismanaging customer funds to robo-signing to antitrust violations to charging excess overdraft fees to hiding billions of dollars of losses in the infamous “London Whale” episode, in which the bank hid the fact that one of its lunatic traders in Europe had nearly destroyed the firm by doubling and tripling down on exotic bets on corporate credit. All told, in just the three years since Vera Sung stumbled into Ken Yu’s real estate closing, Chase—again, a Covington & Burling client—had paid out more than $16 billion in regulatory settlements.

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Because, thanks to all these various factors, executives from giant multinationals simply don’t end up in the prison population, law enforcement soon starts to operate on the reverse principle, that those huge companies are not the places where jailable crimes take place. So even white-collar investigators start to look for targets elsewhere, like at smaller businesses. A commissioner for the SEC, Daniel Gallagher, even talked about this out loud, in April 2012, when he gave a speech in Denver, Colorado. This was right in the middle of the Chase “London Whale” story and just before the LIBOR story, the HSBC story, and a half-dozen other financial scandals of various degrees of horribleness blew up. Despite all this, Gallagher came out with an interesting take on where to look for white-collar crime. “It is critically important that our enforcement program be extremely efficient,” Gallagher said.

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Holder also talked about raising the statute of limitations on Wall Street cases, to give themselves another shot at all the crimes they ignored in the last five years, warning that those who committed crimes are “not out of the woods yet.” Hedge fund villain Stevie Cohen is being put out of business. As this book goes to press, criminal cases are reportedly coming against the megabank Chase for the “London Whale” episode and perhaps other misdeeds, including some related to its status as Bernie Madoff’s banker. At the very least, on the federal level, officials seem to recognize the political necessity of saying these things out loud, and this has to be in very large part due to the public outrage over the lack of Wall Street prosecutions.

How to Kick Ass on Wall Street
by Andy Kessler
Published 4 Jun 2012

There is a firm-wide limit, known as VaR or Value at Risk – the most a firm could lose on any given day. The better you get trading, the higher your personal limit and the bigger chunk of the firm’s capital you get to play with and turn into more money (or end up as a smoking hole in the ground, see Nick Leeson and JP Morgan’s London Whale.) Bond trading is a little different, but not much. Again, trading government bonds and munis and corporate debt is mostly facilitating trades for clients. But there is no exchange. These are negotiated transactions. It’s you against the client, even though you are providing a service for the client.

Arguing With Zombies: Economics, Politics, and the Fight for a Better Future
by Paul Krugman
Published 28 Jan 2020

And real-world policy—policy that will blight the lives of millions of working families—is being built on that foundation. THE EXCEL DEPRESSION April 18, 2013 In this age of information, math errors can lead to disaster. NASA’s Mars Orbiter crashed because engineers forgot to convert to metric measurements; JPMorgan Chase’s “London Whale” venture went bad in part because modelers divided by a sum instead of an average. So, did an Excel coding error destroy the economies of the Western world? The story so far: at the beginning of 2010, two Harvard economists, Carmen Reinhart and Kenneth Rogoff, circulated a paper, “Growth in a Time of Debt,” that purported to identify a critical “threshold,” a tipping point, for government indebtedness.

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Treasuries, 205 zero, 111–12, 111, 142–43, 153 Interior Department, U.S., 248 Internal Revenue Service (IRS), 350 international diplomacy, 244 International Monetary Fund, 97–98, 208 international trade, 243–45, 249–53 arbitration in, 252 backlash from, 244–45 conflicts of interest in, 246–47 and corporate assets, 249 and corruption, 246, 247, 254, 255–56 free trade, 249 literature on, 400 political realism in, 251–52 producer interests vs. consumer interests in, 250 protectionism, 247, 250, 252 reasons for agreements in, 246, 247, 249–50, 255 in recent history, 250–51, 251, 255–56 role of executive branch in, 250, 252–53, 255–56 as rules-based system, 244, 245, 247, 250–51, 252, 254–55, 256 tariffs, 244, 246–48, 252–53, 254–56 trade war, 353, 361, 371–72 and U.S. credibility, 256 investment: as accounting fiction, 228–29 debt-financed, 212 lure of personal wealth in, 93 Madoff’s Ponzi scheme in, 92–94 negative, 230–31, 231 overseas, 228 private, 204, 205, 208 progressive expenditure, 210–11 public “shovel-ready” projects, 116, 133, 205–6, 206 rate of return on, 205 uses of the term, 7 investment-savings, liquidity-money (IS-LM), 109–12, 111 invisible bond vigilante, 160–61 Iran-Contra, 300 Iraq war: based on false premises, 13, 26, 343, 381 failed reconstruction in, 299 support from Very Serious People, 157 unpopularity among voters, 27 Ireland: austerity-with-growth in (1980s), 161 banks in, 179 and Europe, 178 foreign investment in, 228 and recover, 183 irrational behavior, 132, 146 Irrational Exuberance (Shiller), 84 Irwin, Neil, 315, 316 “IS-LMentary” (Krugman), 103, 109–12, 111, 125 Israeli stabilization (1985), 127 Italy: economy of, 188 elections in, 188 Mussolini regime in, 346 “It Can’t Happen, It’s a Bad Idea, It Won’t Last” (Jonung and Drea), 184–85 “It’s Baaack: Japan’s Slump and the Return of the Liquidity Trap” (Krugman), 9, 82 Japan: Bank of Japan, 104 financial crisis in, 81–82, 103, 116, 164 jargon, avoiding, 7 Jensen, Michael, 135 jobs: creation of, 120, 293 cuts in, 107, 120 employment benefits, 286, 317 full employment, 96, 114 health insurance covered in, 39 involuntary part-time employment, 60 in knowledge-intensive industries, 292 monopsony power in, 316–17 new geography of, 292 and real earnings, 316 taken by robots, 288–89 work opportunities for less-educated men, 286, 292 see also unemployment Johnson, Lyndon B., 53, 54, 55n Johnston, David Cay, 350 Jones, Alex, 356, 357 Journal of Money, Credit and Banking, 137 JPMorgan Chase, 163 Kaiser Family Foundation, 39, 58 kakistocracy, 350 Kamin, David, 239 Kansas: education in, 293 taxes in, 216, 229, 293 Kavanaugh, Brett, 345, 346, 352 Kentucky, health care in, 68 Kerry, John, 366, 380, 381, 382 Kerry, Teresa Heinz, 380, 381 “ketchup economists,” 136, 141 Keynes, John Maynard, 81, 123, 134, 135, 143, 394, 402 The General Theory of Employment, Interest and Money, 132–33 “The Great Slump of 1930,” 137 Keynesian economics: and business cycle, 276 and Capitol Hill Baby-Sitting Co-op, 137–38 and dysfunctional finance, 147 free-market, 124, 125, 133, 394 macroeconomics, 123, 407–8 as “moderately conservative,” 4, 123, 133, 408 New Keynesian views, 129, 139–40, 143, 145, 147 and the 1980s, 129 opponents of, 4, 95, 124, 133–34, 143 re-embracing, 147–48 “khaki election,” use of term, 13 Khashoggi, Jamal, 330 Kinsley, Michael, 126 Kiyotaki, Nobuhiro, 147 Kleiman, Mark, 48 Klein, Ezra, 51, 356 Klein, Joe, 29 Koch brothers, 60, 303, 331, 336, 355 Kocherlakota, Narayana, 384 Kristol, Irving, 299 “Krugman calculation,” 267–70, 268, 272, 273, 274, 276 K Street project, 283 Kudlow, Larry, 330 Kydland, Finn, 139 Laffer curve, 385 Lancaster, Kelvin, 398 Langone, Ken, 95, 96 language: avoiding jargon, 7 specialized, 393–94 writing in clear English, 6–7 Latvia, slumps in, 162 Lazear, Eddie, 384 Lehman Brothers, 123, 146, 157 Leonhardt, David, 5 Lerner, Abba, 152–54 liberalism, 324 death of, 13 liberal professional economists, 149, 150 libertarians, 5 life expectancy, 199 liquidity, 89, 90 IS-LM, 109–12 liquidity trap, 112 Logic of Collective Action, The (Olson), 354–55 London market, banks lending in, 89 “London Whale” venture, 163 Longman, Phillip, 42 Lucas, Robert, 128, 130, 131, 138–39, 143 Maastricht Treaty, 405 macroeconomics: business cycle vs. long-term growth in, 275–76 and Capitol Hill Baby-Sitting Co-op, 137–38 Dark Age of, 131, 408, 409 as divided field, 123–25, 136–37 false peace in (1985–2007), 142 Keynesian, 123, 407–8 rational-expectation, 128 “saltwater” vs.

Makers and Takers: The Rise of Finance and the Fall of American Business
by Rana Foroohar
Published 16 May 2016

13 Indeed, the Volcker Rule was changed, thanks to the financial lobby, to allow for what’s called “portfolio hedging,” meaning that banks can still do risky trades, as long as they are in the interest of protecting their existing assets rather than making new money. The problem is how to tell the difference. Even the heads of the banks often can’t. Remember the 2012 “London Whale” trading debacle, in which J.P. Morgan suffered a $6 billion loss when synthetic derivatives trades went awry? The write-down represented a major loss of face for Jamie Dimon, who had been nicknamed “the Teflon banker” for his reputation for managing risk and had lobbied hard against reregulation after 2008, particularly against the Volcker Rule.

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Morgan executives and representatives met with federal regulators twenty-seven times on the issue between July 2010 and October 2011.)14 Famous for his command of banking detail, Dimon was forced to eat a huge helping of humble pie following the incident, which he had at first dismissed as no big deal, admitting only later that the offending trade had been “flawed, complex, poorly reviewed, poorly executed and poorly monitored.” It’s hard to believe that J.P. Morgan’s chief investment office, which made the trades, wasn’t designed to be a profit center, given that its head, who was let go from the bank following the London Whale event, earned $15 million a year. But even if you buy that claim, the case underscores that any kind of portfolio hedging carries what’s known as basis risk. In the case of a huge bank like JPMorgan Chase, which is several times as big as the world’s largest hedge funds, its very size is bound to create a market-moving event when it takes a position large enough to protect itself.

Flash Boys: Not So Fast: An Insider's Perspective on High-Frequency Trading
by Peter Kovac
Published 10 Dec 2014

Today’s trading algorithms evaluate the risk of a position before the trade is made, while the trade is executing, and every millisecond thereafter. Many firms have multiple redundant systems checking risk at all times. The “traders” are actually risk managers, continually responding to mini alarms that signal the slightest anomaly. There are no hidden positions – like the ones that caused the $6 billion “London Whale” loss for JPMorgan – because all the trades automatically flow into these risk management systems, instantly double-checked against redundant data feeds from the exchanges. Rogue traders have no room to hide risky positions. Unlike banks trading opaque financial instruments that only a few insiders understand, high-frequency firms transact in liquid, well-understood exchange-traded securities.

The Finance Curse: How Global Finance Is Making Us All Poorer
by Nicholas Shaxson
Published 10 Oct 2018

‘We had no idea what the ramifications would be in our financial system, and where, because these trades were booked in the Cayman Islands,’ Gensler said. ‘It was a terrible feeling.’ Then there was JP Morgan Chase’s multi-billion-dollar trading loss from credit default swaps executed in its UK branch by a trader known as the London Whale.1 Gensler could have mentioned, but didn’t, the case of Enron, the financialised US energy company whose collapse in 2001 was the largest bankruptcy in history at the time, and which turned out to have parked assets out of view in hundreds of financial vehicles in the Caymans and in the even murkier Turks and Caicos, both British overseas territories.

…

122, 136–7 Cadbury’s 113 Cameron, David 48 Capital Group 84 capital requirements 148–63 Careline Homecare Limited 190–3, 202–5, 206, 216, 220 care sector 4, 190–4, 202–9, 216–17, 220, 228, 229, 234 Carillion 46, 231, 237 Carlyle Group 214 Carvalho, Arnaldo Lago de 233 Cassano, Joe 161 Cayman Islands 1, 2, 3, 59–60, 62, 63–7, 93, 125, 136, 140, 141, 145, 150, 151, 152, 153–4, 157, 162, 179, 188, 200, 211, 228, 242 Cayman Trust Law (1967) 62 Celtic Tiger (Ireland economy) 4, 115, 116–39 Central Bank of Ireland 129, 136 Cheney, Dick 244 Cherwell, Lord 53 Chicago School 28, 29, 30, 46, 71, 74, 98, 110, 197, 209, 253 China 13, 23, 50, 55, 84, 85, 87, 92, 104, 108, 110, 117, 138, 200, 258, 262–7, 272, 274 China General Nuclear Power Corporation (CGN) 262–3 Chinese Communist Party (CCP) 258, 264, 265, 266, 267, 272 Christensen, John 5, 11, 48, 67–8 Christensen, Professor Clayton 197, 198 Citibank/Citigroup 11, 59, 83, 129, 140, 159 City of London 37, 38, 84, 92–3, 183, 185, 252, 271, 272, 273; Big Bang 104, 143–4; capture of British establishment 13, 142, 166–7, 257–60, 265, 266; Chinese influence upon 262–7; evidence machine/lobbying and 257–60; financial brain drain and 6, 108, 259; global financial crisis and see global financial crisis; monopolies and 84; neoliberalism and 37, 38; organised crime and other abusive activities linked to 11–12, 93, 97, 141–6, 154, 166, 167, 168; penetrated and captured by reckless global finance (London loophole) 140–68; rebirth as global financial centre after fall of British empire 4, 10, 50–69; tax havens and see tax havens; Third Way and 92–3, 97, 98, 102, 104, 108, 109, 113; UK economy and growth in size of 5–14, 108, 218–40, 257–61, 262–74 City of London Corporation 257–8 Clearing House Group 130–1 Clinton, Bill 91, 97, 101, 114, 115, 122, 159 Clinton, Hillary 91, 100 Coase, Ronald: The Problem of Social Cost 72–4, 79 Coelho, Tony 98–9 Cohen, Benjamin J. 57 Cohen, Sheldon 254 collateralised debt obligations (CDOs) 165, 235 collateralised loan obligations (CLOs) 165, 200 Commodity Futures Modernisation Act (CFMA) (2000) 159–60 Community Mental Health Fund, Missouri 44 comparative advantage concept 105, 108 Competition and Markets Authority 70 competitiveness of nations/competitiveness agenda 8–9, 13–14, 23, 28–49, 62, 68, 70–1, 73, 80, 95, 97–8, 100–15, 130, 131, 132–3, 136, 142, 143, 149, 159, 160, 161, 164, 165, 180–1, 184–5, 207, 218, 241–3, 246–7, 250, 252–3, 258, 266, 267, 270, 271, 273 Conservative Party 37, 53, 71, 78, 102, 157, 165, 168, 220, 229 consultants 40, 41, 42–3, 66, 117, 230, 232, 233 controlled foreign company (CFC) reforms, U.K. 249–50 Cook Islands 177, 186, 272 Cornfield, Bernie 93 corporation: complexity of 3, 205–6; concept of 196–7 credit, control of 21 credit default swap (CDS) 128, 141, 147, 155–9, 165 Credit Suisse 11, 180, 183 crime/criminal money 12, 56, 58, 61, 62, 63, 64–5, 93–4, 142–3, 144, 145, 153, 154, 167–8, 175, 180, 187, 223, 264, 272, 273 Cromwell, William 22 Daily Mail 113, 251, 252 Darling, Alistair 257 Davidson, Charles 182, 189 Davidson, Kenneth 81, 252 Davies, Will 36, 39, 102 Deaton, Angus 181 debt 7, 34, 58, 69, 121, 152, 160, 165, 169, 186, 190, 193–6, 198–201, 205, 206–7, 208, 210, 215, 221, 234, 235, 244, 248, 262 Delaware, U.S. 181 Deloitte 235, 237 Delors, Jacques 100 Democratic Party, U.S. 39, 97, 98–100, 102, 141, 245 Deng Xiaoping 117 Depfa 133 deregulation, financial 13, 31, 35, 64–5, 68–9, 91, 97, 104, 107, 109, 117–18, 138, 142, 143, 146, 152, 159–60, 164, 165, 260 derivatives 12, 140–1, 142, 144, 146–7, 149, 151, 155, 158–60, 161, 164, 193 Desmond, Dermot 129–30 de Tocqueville, Alexis 75–6 Deutsche Bank 83, 95, 111, 160 Devereux, Professor Mike 243 Director, Aaron 71–2, 78, 79 DIRT (Deposit Interest Retention Tax) 136 Down’s Syndrome North East Association (UK) (DNSE) 169–70, 174 Drexel Burnham Lambert 161, 195 drugs: gangs/money 12, 61, 64–5, 92, 142–3, 145, 167, 185–6; pharmaceutical/Big Pharma 85–6, 126, 247 Dunbar, Nicholas 152, 161 dynamic scoring/dynamic modeling 253–4 East India Company 50, 75 Eddy, Bruce 44 Efficient Markets Hypothesis 150 Elf Affair 94, 187 Enron 46, 141, 165, 235–6 Epstein, Professor Gerald 10–11, 259; Overcharged: The High Costs of Finance 10– 11 Ernst & Young 163, 235, 238 Espino, Ovidio Diaz: How Wall Street Created a Nation 23 Essilor 82; EssilorLuxottica 82 Eurodollar markets/Euromarkets 55–9, 60, 61, 62, 63, 64, 68, 69, 77, 91, 93, 104, 142 European Central Bank (ECB) 137 European Commission (EC) 84, 94, 100, 111, 137; Liikanen Report (2012) 135 European Economic Community (EEC) 77, 98, 118, 123, 124–5 European Round Table of Industrialists (ERT) 100 European Union (EU) 98, 109–10, 111, 124, 132, 147, 238 Export Profits Tax Relief 118 Facebook 23, 71, 84, 88, 171, 173, 185, 226, 271, 274 fallacy of composition 107–8, 247 Fallon, Padraic 124 Fanning, John 126 Fantus Factory Location Service 40 Farm Aid 87–8 Federal Reserve Bank of New York 57 Ferguson, Niall: The Ascent of Money 242 Fiat 250 Finance Acts, Ireland: (1968) 120; (1987) 131 finance curse, concept of 3–14, 15, 18, 19, 22, 31, 37, 48, 68, 71, 103, 108, 111, 132, 136, 174, 184–5, 193, 198, 216, 228, 239, 257, 261, 265, 267, 269, 270, 271, 272, 273, 274 financial capture 13, 68, 96, 153, 257, 259, 265, 266 Financial Conduct Authority (FCA) 25–6, 246 financial crisis, global (2007–8) 4, 6, 25, 83, 90, 99, 109, 113, 114, 116, 128, 130, 133–4, 135–6, 140–68, 169, 195, 202, 224–5, 233, 235, 236, 240, 257 financialisation 2–4, 6, 9, 10, 11, 37, 68–9, 71, 88, 90, 174, 180, 185, 190, 191, 194, 198, 205, 217, 224, 225, 226, 228, 232, 259, 267, 274 Financial Services Authority (FSA) 104, 160, 161, 166, 167 Financial Stability Board (FSB) 83 Financial Times 68, 84, 94, 107, 146, 214, 218, 226, 232, 243, 256 Finger, Bernd 168 Fischel, William 38 Fordism 80 foreign direct investment (FDI) 110, 118–19, 123, 124, 132, 250 Fox News 71, 253 Franks, Oliver 52 Fraser, Ian: Shredded 227 free markets 18–19, 71–2, 99, 126, 128, 241 free-rider problem 30–1, 43, 47, 38 free trade 31, 50–1 Friedman, Milton 28, 30, 37, 59, 72, 73–4; ‘The Social Responsibility of Business Is to Increase Its Profits’ 196–7, 198, 209 Friedmaniacs 28, 30 FTSE 100 228, 238 Gapper, John 232–3 Gash, Tom 230 Gates, Bill 127, 185 Gauke, David 249 Gaydamak, Arkady 186 Gazprom 84 GDP (gross domestic product) 6, 8, 111, 112, 123, 147, 153, 174, 241, 245, 254, 256, 260, 266 General Electric (GE) 86–7 Gensler, Gary 140–1 Gibraltar 60, 63 Giddens, Anthony: The Third Way 105 Gilbert, Martin 83 Gilead 85–6 Giles, Chris 218 Glasman, Baron 258 Glass-Steagall Act (1933) 76, 147, 158–9 globalisation 10, 35, 59, 93, 94–5, 97, 98, 101, 102, 103, 106, 107, 109, 165, 177, 251, 254 Golden Age of Capitalism 34, 69, 91, 92, 118, 196, 251, 254–5 Goldman Sachs 113, 159, 160, 183, 213, 235, 242 Google 71, 88, 226, 271 Graphite Capital Partners VIII A LP 191–2, 205, 206 Great Depression (1929–39) 31, 98 Greenspan, Alan 75, 159, 160 gross national income (GNI) 112, 119, 122–3, 134 Guernsey 60, 181, 191, 220, 222 Hahneman, Daniel 181 Haldane, Andrew 225 Hands, Guy 181 Hansen, Lee 28 happiness, wealth and 181–3, 189 Harlech, Lord 34 Harrington, Brooke 186, 188 Hartnett, Dave 113 Harvard Business School 101, 196, 197 Harvie, Alicia 87–8 Harvoni 86 Haughey, Charles 114–15, 120–3, 129–30, 136 Hayek, Friedrich 35–6, 37, 59, 76; The Road to Serfdom 36, 37 Hayes, Jerry 229 Heaton, David 234 hedge funds 6, 13, 83, 104, 108, 128, 130–1, 140–1, 154, 164, 177, 178, 189, 193, 200, 209, 213, 214–15, 217, 233 Henry, James 166, 260 Hewlett-Packard 39–40 Hinkley C 262–3 HMRC 62, 104, 113, 168, 173, 234, 241, 242, 245, 246, 249, 252–4; Computable General Equilibrium model 241, 252–4 HNWI (high net worth individuals) 180; ultra-HNWI 180 Hodge, Margaret 168, 239 Hofri-Windogradow, Adam 180 Hong Kong 50, 130, 138, 171–2, 266 HSBC 12, 54, 83, 107–8, 167, 266 Hundred Group 242 Hunt Companies 221 HypoVereinsbank 133 Industrial Development Authority (IDA), Ireland 118, 124–5, 126, 129, 131, 135 inequality 4, 11, 31, 34, 36, 47, 48, 59, 90, 109, 138, 179, 187, 225, 251, 255, 256, 257, 259, 267–8, 270, 272, 274 inflation 34, 80, 107, 129 Innes, Abby 229 Institute for Fiscal Studies (IFS) 247 Intel 125 internal rate of return (IRR) 198, 211 International Financial Services Centre (IFSC), Dublin 128–35, 251 International Monetary Fund (IMF) 137, 164, 219, 250, 251, 257 International Public Partnerships Limited (INPP) 220–1 International Swaps and Derivatives Association (ISDA) 158 Intruders 113 Investec Wealth & Investment Limited 220 investment funds 2, 88, 110, 140 Investors Overseas Services (IOS) 93 Iran 53–4 Ireland: Celtic Tiger economy in 4, 114–15, 116–39 Isle of Man 60, 136 Jackson County, Missouri, U.S. 44 Jenkins, Robert 11 Jensen, Professor Michael 196, 197, 198, 209, 215 Jersey 1, 2, 3, 5, 60, 63, 67–8, 131, 136, 169, 171, 173, 174, 202, 221, 222, 223, 228, 258 Jiang Zemin 117 Johnson, Boris 218, 219, 222 Johnson County, Kansas, U.S. 41–4 Johnson, Paul 247 Johnson, Simon 257 Joly, Eva 187 Journal of Political Economy 29, 46 JP Morgan Chase 83, 95, 141, 146, 147, 155, 158, 160, 214 Juncker, Jean-Claude 94–5, 97, 102, 103, 104, 111, 114, 122 Kansas, U.S. 41–4, 244–5, 255–6 Kay, John 9 Kennedy, Edward 78–9 Keynes, John Maynard 31–2, 34, 37, 38, 52, 59, 68, 251 KKR (Kohlberg Kravis Roberts) 2, 3, 195, 214 Koch, Charles 74 Kohlberg Junior, Jerome 194, 195, 199 Kohl, Marius 95 KPMG 114, 235, 237, 238–9 Kraft Heinz 81, 113 Kravis, Henry 2, 195 Kroes, Neelie 110 Krugman, Paul: ‘Competitiveness: A Dangerous Obsession’ 105 Labour Party 77, 97, 102–5, 132, 192, 220, 247, 257 Lack, Simon 214; The Hedge Fund Mirage 214 Laffer, Arthur/Laffer curve 244–5, 254 Lazonick, Bill 225, 226 Leaver, Professor Adam 207, 224–5, 234 Lehman Brothers 140, 162–4 Leigh-Pemberton, Robin 145 LeRoy, Greg 40–1 leveraged buyout (LBO) 195–6 Levin, Carl 134 Liberty Global 250 Libor (London Inter-Bank Offered Rate), manipulation of 12, 85, 109, 166 Linares, Adolfo 185, 188 Linklaters 163 Lloyds Bank 52 Local Government Association (LCA) 224 Loch Alpine Economics 253 London School of Economics (LSE) 37, 105, 229 London Stock Exchange (LSE) 167, 220 London Whale 141 Long-Term Capital Management (LTCM) 140–1 Luxembourg 1, 2, 3, 13, 55–6, 92, 93–7, 98, 111–13, 125, 130, 138, 142, 166, 201, 211, 221, 222, 228, 243 Luxleaks scandal (2014) 95, 109 Luxottica 82 Lycamobile 168 Lydian Capital Partnership 202 Lynn, Barry 87, 88 Macdonald, Ken 168 Macmillan, Harold 34, 53–4 MacSharry, Ray: The Making of the Celtic Tiger 118, 127 Madoff, Bernie 94, 96 Madrid, Miguel de la 58 Major, John 220 Maloney, Carolyn 141 Manafort, Paul 183 Manne, Henry 74 Marchant, David 157 Marx, Karl 15, 18 Masters, Blythe 158 Maugham, Jolyon 156 Maurer, Ueli 45–6 Mazerov, Michael 255 McAlpin, Clovis 62 McCarthy, Joseph 29 McCarthy, Justine 119 McCreevy, Charlie 132 McDonald, Duff 197 Mellon, Tamara 208 mergers and acquisitions (M&A) 26, 71, 81, 82, 83, 84, 87, 99, 110, 155, 225, 226, 251 Metcalf, Stephen 36 Microsoft 125, 185 Midland Bank 34, 54–5 Milken, Michael 195 Missouri, U.S. 41, 43, 44, 244–5, 255 money laundering 12, 145–6, 167, 168, 183 Money Trust Investigation, U.S.

The Payoff
by Jeff Connaughton

But whatever the causes of the Dow’s daily rollercoaster ride, millions of Americans are getting off it. Ordinary investors withdrew more than $135 billion from domestic stock mutual funds in 2011. Now, as I write in the spring of 2012, the azaleas and banking scandals are in bloom, including J. P. Morgan for failing to supervise complex derivatives positions by the “London Whale,” one of its traders, leading to billions of dollars in losses. And worse, Barclays and other banks have been exposed for manipulating LIBOR, which sets rates for trillions of dollars of financial instruments, leaving the credibility of the banking community in tatters. In the summer of 2012, the stock markets went haywire again when Knight Capital was battered by its own software glitch and in 45 minutes lost $440 million.

Tomorrow's Capitalist: My Search for the Soul of Business
by Alan Murray
Published 15 Dec 2022

None of this, of course, means that big businesses have become paragons of virtue, or that the rules of human nature have been repealed. Greed-driven misbehavior always has been and always will be part of the business landscape. Many, if not most, of the companies mentioned in this book have been involved in activities that cast shadows over their more altruistic efforts. JPMorgan was home to the London Whale scandal, where a single trader accumulated outsized positions in credit default swaps that led to a $6 billion loss and called into question the bank’s risk management systems. Google, despite its initial “Don’t Be Evil” motto, has been dogged by accusations that its business has been built on its misappropriation of other people’s work, and that its search engine favors its own services over outside competitors.

What They Do With Your Money: How the Financial System Fails Us, and How to Fix It
by Stephen Davis , Jon Lukomnik and David Pitt-Watson
Published 30 Apr 2016

The Federal Housing Finance Agency sued the bank, alleging it fraudulently claimed that the loans behind some $33 billion in mortgage derivatives met underwriting guidelines. The Securities and Exchange Commission and the US Attorney’s Office were prosecuting the bank for its public statements about a $6 billion trading loss fancifully nicknamed “the London whale” after the market heft of the trader who caused the blowup. The SEC also was investigating how the bank came to hire the children of well-connected Chinese in a potential bribery scheme. The US Attorney continued to explore the bank’s potential manipulation of the energy markets, even after the bank paid a $410 million settlement to the US energy regulator, but did not admit or deny criminality in that situation.

Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe
by Greg Ip
Published 12 Oct 2015

The beauty of capital is that it works no matter what causes the loss. Banks’ risk management seeks to protect against adverse movements in financial prices, excessive exposure to particular borrowers, a counterparty reneging on a deal, rogue traders and criminals. Yet it regularly fails. In 2012, J.P. Morgan Chase & Co. learned that a trader nicknamed “the London whale” had taken on huge derivatives positions in what seemed to be a flawed attempt to hedge the bank’s positions. The loss eventually grew to a staggering $6.2 billion. Yet the loss never threatened J.P. Morgan’s survival, thanks to the billions of dollars in capital it already had, some of it raised under pressure by regulators.

Capitalism: Money, Morals and Markets
by John Plender
Published 27 Jul 2015

In September 2013, Jamie Dimon, chief executive of JPMorgan Chase, America’s biggest bank, sent a memo to staff revealing that the bank had added a whopping 3,000 employees to bolster controls, devoted 500 people to fulfilling the Federal Reserve’s stress tests, and given staff 750,000 hours of training on compliance matters. Whether all this effort will be productive is moot. A failure of internal controls at JP Morgan that led in 2012 to the loss of around $6 billion in a London trading operation – the so-called London whale scandal – demonstrated that neither Jamie Dimon nor his fellow top executives knew what was going on inside the bank. Given that Mr Dimon is generally reckoned to be the most accomplished banker of his generation, there could be no clearer indication that today’s financial behemoths are too big and too complex to manage.

Deep Sea and Foreign Going
by Rose George
Published 4 Sep 2013

Kraus and Rosalind M. Rolland, (eds.), The Urban Whale: North Atlantic Right Whales at the Crossroads, Cambridge, MA: Harvard University Press, 2007, p.382. 6 Enormous Carnivores, Microscopic Food Ibid., p.140. 7 A whale sailed through the middle of London Euan Ferguson, ‘After a day of struggles, the London whale dies a lonely death’, Observer, 22 January 2006. – 67 right whale carcasses Kraus and Rolland, op. cit., p.410. 8 A foghorn-like signal Michael Jasny, ‘Sounding the Depths: The rising toll of sonar, shipping, and industrial ocean noise on marine mammals’, Natural Resources Defense Council (NRDC), November 2005, p.3

Pound Foolish: Exposing the Dark Side of the Personal Finance Industry
by Helaine Olen
Published 27 Dec 2012

This is something many women’s cheerleaders would rather not acknowledge. But how then to account for Lehman Brothers CFO Erin Callan, who went on television less than a week before the venerable bank crashed to assure investors that all was right with her books; JPMorgan Chase’s Ina Drew, the supervisor of the infamous “London Whale” trader who lost the bank billions of dollars; or alleged Bernard Madoff accomplice Sonja Kohn who, according to a lawsuit filed against her by Madoff bankruptcy trustee Irving Picard, “masterminded a vast illegal scheme”? Embracing theories about women, money, emotion, and risk also ignores women who are good with money in ways traditionally viewed as male, such as Mary Anne and Pamela Aden, two sisters who made their reputation as stars of the commodities trading world with astute but risky calls on gold over a period of decades.

Making It Happen: Fred Goodwin, RBS and the Men Who Blew Up the British Economy
by Iain Martin
Published 11 Sep 2013

It subsequently had to seek a recapitalisation from the Gulf. Then the fourth, HSBC, had those money-laundering difficulties. Registered outside the UK, some of those who navigated the sub-prime mortgage crisis most deftly, and were smug as a result, later hit trouble. In 2012 the ultra-safe J. P. Morgan was temporarily beached by the ‘London Whale’. Its trading vehicle based in London ran up losses of $6.2bn that stunned those in charge in New York. J. P. Morgan’s celebrated risk-control processes had simply failed. The scale and potential ungovernability of the biggest banks does not mean that small is always beautiful. Some of the banks and building societies that had to be rescued during the crisis were relatively small, and narrowly focused on particular types of lending, with no investment banking activities.

What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences
by Steven G. Mandis
Published 9 Sep 2013

Another person I interviewed suggested that if Goldman partners collectively had to disproportionately pay the $550 million settlement with the SEC out of their bonus pool, or if J.P. Morgan had a partnership structure and the partners together had to disproportionately pay the losses from the “London whale,” perhaps they collectively would take stronger action to prevent such behavior. He pointed out that when Goldman paid settlements related to Robert Maxwell, all the partners paid, not just the one responsible for the relationship, and the firm went back retroactively to those who were partners at the time for payments.

The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge
by Faisal Islam
Published 28 Aug 2013

The ‘fatal flaw’ of VaR, as Haldane argues, is that it is silent about the tail risk. A trader could be given a so-called 99 per cent VaR limit of $10 million, but VaR would be blind to the trader’s construction of a portfolio that gave a 1 per cent chance of a $1 billion loss. J. P. Morgan itself discovered in May 2012 that the ‘London Whale’ corporate credit portfolio that was assessed with a 95 per cent VaR of $67 million in early 2012 had lost them $2 billion within weeks. In its February 2008 annual results, RBS calculated a 95 per cent VaR on its trading book at £45.7 million. The disastrous purchase of the toxic asset-laden ABN Amro had increased that measure by just £6 million.

The Volatility Smile
by Emanuel Derman,Michael B.Miller
Published 6 Sep 2016

Markets are plagued with anomalies that violate standard financial theories (or, more accurately, theories are plagued by their inability to systematically account for the actual behavior of markets). For example, the negative return on a single day during the crash of 1987 was so many historical standard deviations away from the mean that it should never have occurred in our lifetime if returns were normally distributed. More recently, JPMorgan called the events of the “London Whale” an eight-standard-deviation event (JPMorgan Chase & Co. 2013). Stock 8 THE VOLATILITY SMILE evolution, to take just one of many examples, isn’t Brownian.1 So, while financial engineers are rich in mathematical techniques, we don’t have the right laws of science to exploit—not now, and maybe not ever.