Bloomberg, JPMorgan CIO Swaps Pricing Said To Differ From Bank, here. This is one of the Bloomberg stories reporting that the CIO used different CDS levels to mark the London Whale positions versus the Credit Desk’s positions. presumably in the same US Corp names. Level of surprise here is zero. Different trading desk almost certainly migrate to their own marks in cases where 1. there is no obvious market close mark used uniformly by everyone that covers the desk’s entire inventory or 2. the risk and valuation analytics used on the desk display idiosyncratic sensitivity behavior wrt the desk’s inventory that can be addressed or ameliorated by massaging the closing marks. Think about hedging corporate loans w CDS, Counterparty Risk Valuation, the Synthetic credit desk, and Flow CDS desk for example. The quant models are all different even though the exposure is to many of the same credit names. Happens in lots of places and its very well known to trading management mostly I suspect because of the internal exposure to traders arbing the desk. Go look for the Junior JPM trader who is arbing the London Whale from the inside, that would be a cool story. This is kinda, meh.
Bloomberg, JPMorgan’s Iksil Said To Take Big Risks Long Before Loss, here. London Whale has a VaR exceeding 60 million USD. So the CIO is ready to signoff on daily MTM fluctuations that would feed a hungry wolf pack hedge fund for a long long time. OK so far, but then Bloomberg reporters run their story into the weeds. Lots of prose about changes in VaR, the model nobody really looks at, ever. Go ask Taleb his opinion about people who think about VaR levels. This is his time to shine.
Then there are interviews with retired heads of risk quant methodology, quotes from CEOs, and off the record chats with regulators. Reporters could actually be quoting interest group discussions on LinkedIn to clarify the more subtle issues:
Andrew Abrahams, who had been head of quantitative research and model oversight at JPMorgan, reporting to the chief risk officer, retired in May, according to his profile on the website LinkedIn. He’s now a founder at Gnana Inc., according to LinkedIn. He’s also an instructor at Stanford University near Palo Alto, California, where in January he taught aseminar on “model risks, safeguards and new directions,” according to the school’s website.
If you had to make a list of people most likely not to know anything about the London Whale positions, these folks would be near the top of the list. This is like getting interview footage on what it is like to defend LeBron James and DWade in Game 7 playoff situations from Dennis Rodman, David Stern, or the referees.
Guys here’s a plan, there is a lonely, overworked, underpaid associate who works in the JPM CIO preparing the London Whale daily P&L Excel reports and celebrates to the point of inebriated collapse at some Isle of Dogs watering hole listening to Julie Brown every Friday starting sometime around 6 to 7pm, how about talking to that guy? I don’t know his name, it’s not important now. OK, let’s call him Basil. A dozen 16-ounce-max Extra Stouts and a bucket of batter dipped wings separate you and the Pulitzer, you can smell it, right?
A. See if you can get the names of the top Counterparties on the Whale’s CDX tranche trades, even just by outstanding notional would be fine.
B. Whenever you want to mention “VaR” to the lightly inebriated Basil, instead substitute “FPGA Gaussian Copula” and see what happens. e.g., “Those revised FPGA Gaussian Copula levels were really whack, Broham!”