Let's not hedge about JP Morgan's losses

[marmar]

Let's not hedge about JP Morgan's losses
This wasn't hedging; it was a huge bet. Wall Street's titans just hope we and regulators are too mystifed by high finance to know

Charles Geisst
guardian.co.uk, Tuesday 15 May 2012


The recent revelations by JP Morgan Chase of large hedging losses ultimately bring too big to fail to the forefront once again. But the issue needs to be rephrased in a slightly different context. Is an institution's exposure to the markets actually too big to hedge?

The term "hedging" is a red herring in banking. Banks regularly hedge foreign exchange exposure and bond exposure by taking opposite positions to offset potential losses. The hedge positions usually are of the same size or proportion as the actual positions. But when a bank decides to hedge the market – a macro hedge – then a new set of risks is presented. What seems safe most likely is nothing more than a large bet.

A hedging loss implies that the hedge did not match the position to be offset. This is another category of risk, when hedging enormous positions by adopting counter-positions. Even worse, a loss or gain in hedging means that the hedged position or the hedge itself was lifted, leaving the other side still in place exposed again.

That is not hedging; it is outright speculation. ...................(more)

The complete piece is at: http://www.guardian.co.uk/commentisfree/cifamerica/2012/may/15/lets-not-hedge-about-jpmorgan-losses

[xchrom]

1. I'm not hedging this rec. Nt