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Investment Analysis Clubs / Macro Economic Trends and Risks
|Subject: Countdown to the next financial bomb||Date: 10/7/2012 12:01 AM|
|Author: yodaorange||Number: 405446 of 505833|
As an investor, I spend a lot of time thinking about:
1) What I think I know (It’s a swan and it’s white)
2) What I am sure I do NOT know (It’s a swan, but I can NOT tell if it is white or black.)
3) What is so unknowable, that I cannot even postulate the problem (Do not see any swans on the horizon)
I am increasingly convinced that one or more firms will have meltdowns like MF Global and JP Morgan Chase. I know classify this is as “What I think I know.” It is NOT a mathematically provable point, so each investor will have to decide on their own.
The New York Times published a short story length article in this week’s Magazine that reinforces my belief. The article is about Ina Drew, who was the Chief Investment Officer of JP Morgan Chase when the “London Whale” trade went bad.  The story is entitled The Woman Who Took the Fall for JPMorgan Chase.
The London Whale trade was a single trade that the London office put on that is estimated to result in a $ 6 billion loss. The loss is manageable for JPMC and they will survive mostly with a damaged reputation. Obviously, the same is not true for MF Global where a single trade gone wrong killed the firm.
There are several themes in the article and it does NOT conclude that another large bad trade is inevitable. The article is more a matter of fact presentation about the history of Ina and the London Whale trade.