May 23, 2012
– Comments (5) |
RELATED TICKERS: JPM
The Hidden Culprit Behind JPMorgan's Losses: The Fed
The purpose of the CIO is to hedge against investment risks taken in the other parts of the company. "Over-reaching for yield" may produce losses in the rest of the company (which is generally long credit), but not hedging losses in the CIO (which is generally short credit).
If you review the history of trading losses, you will see they happen all the time, whether interest rates are high or low.
Does anyone else blame the low yield environment for this loss? You don't give much support for this claim. It really does not make sense to me.
Also, I think "reaching for yield" is a good thing in our current economic climate.
"Over-reaching for yield" only occurs when lenders fail to make an accurate assessment of credit quality. It can happen (and frequently does) in any interest rate environment.
Lots of people are blaming the Fed for their own stupid mistakes. They are holding down interest rates until the economy starts to take off again and this is causing investor's who want to earn more than nothing on their investments to try to look elsewhere. It's part of their strategy. The less money is just sitting around earning interest and is in the actual economy, then there is more activity to happen. It vastly increases risk to get something close to inflation which is unfortunate.
The Fed is going to keep this up until the economy happens. Blaming them for that is like blaming the rain that wrecks your house at a flood. Do you think the rain gives a rats ass what is going to happen to you?
I agree with talan123!
Yup. Low rates = stop sitting on your cash. Lend it, invest it, do something with it!