Articles Posted in politics

J.P. Morgan’s Loss as a Red Herring By R Tamara de Silva May 14, 2012

Much ado is being made about J. P. Morgan’s disclosure of over $2 billion in trading losses and one hopes the media and regulators do not use this as yet another opportunity to completely miss the point. Wall street must not rely exclusively on its present risk models that are based exclusively on VaR and variations of VaR-it must learn to think outside its own box and anticipate worse case scenarios. We cannot afford to have many more systemic crises that threaten to bring down the financial system simply because yet again, the unexpected and un-modeled occurs.

Chief Executive Jamie Dimon’s public self-flagellation aside, this loss compromises merely 20% percent of J. P. Morgan’s pretax profit for the first quarter of this year. Put another way, J. P. Morgan has a market capitalization of $137.4 billion of which $2 billion comprises a bit more than 1 percent–hardly fodder for anyone’s angst against quasi-public Wall Street juggernauts that seem to privatize profit and publicize loss being ‘too big to fail.” Mr. Dimon is wrong to assert that the trading losses were the result of hedges. It would be more wrong for lawmakers on either side of the aisle to call for hasty regulations on an industry they have never really understood and from whose pockets they are lobbied and receive the heftiest campaign contributions. A cursory look at what has happened to the Volcker Rule illustrates this point. The real lesson of J. P. Morgan’s $2.3 billion loss is that Wall Street must once and for all adjust the way it manages and understands risk.

Federal Judge in Health Care Case Orders Executive Branch to Explain Speech

By R Tamara de Silva April 4, 2012

It not typical in the course of oral arguments for a Federal Judge to assign the Department of Justice and the Attorney General a homework assignment. Yesterday, the Court of Appeals for the Fifth Circuit heard oral arguments involving the Patient Protection and Affordable Care Act (“ACA” or “Obamacare”) when something extraordinary happened. The Court was hearing oral arguments on an appeal by the Physicians Hospitals of America and Texas Spine & Joint Hospital, Lts, for the dismissal of an action they had filed for declaratory and injunctive relief against Kathleen Sebelius, as Secretary of the United States Department of Health and Human Services to prevent enforcement of Section 6001 of the ACA. During the Appellee’s arguments, Judge Jerry Smith, interrupted the Department of Justice’s lawyer, Dana Lydia Kaersvang to ask her whether the Department of Justice, an arm of the Executive Branch, agreed with statements made by President Obama that seemed to indicate that the Executive Branch did not believe the Judicial Branch had the power to overturn laws it found violated the Constitution.

Difficult Legal Issues in the Healthcare Case Before the Supreme Court

By R Tamara de Silva March 27, 2012
Arguments began yesterday before the United States Supreme Court on the future of President Obama’s healthcare bill, the Patient Protection and Affordable Care Act (“ACA” or “Obamacare”). The question of whether President Obama’s national health care plan would withstand the Constitutional challenges brought by the Attorneys General in twenty-six states was destined to be determined by the Supreme Court when after August 2011, the Court of Appeals for the Eleventh Circuit issued a 304 page opinion that the ACA would violate the powers of Congress under the Commerce Clause. After the Eleventh Circuit’s ruling there were two conflicting Circuit Court opinions on the law because the Sixth Circuit had upheld the ACA as not violative of the Constitution in June of 2011. The Supreme Court will decide upon the Constitutionality of the ACA based upon three criteria, the Commerce Clause, the Taxing Clause and the Necessary and Proper Clauses within the United States Constitution. None of the arguments are quite as clear cut, however as many people believe.

Comparing the Incomparable- Credit Ratings Agencies Revisited

By R. Tamara de Silva January 17, 2011

Yesterday, Standard & Poor’s relieved the Eurozone’s bail-out fund, the European Financial Stability Facility (“EFSF”) of its AAA credit rating, possibly hampering the fund’s ability to contain the European debt crisis. This comes on the heel’s of the S&P stripping both France and Austria of their triple-A rating in favor of a rating of AA+.[1] The effect of the S&P downgrade may be negative. Ratings agencies exist to level asymmetries in information and evaluate risk but one of their inherent oddities is that they seek to compare things whose differences in scale make them incomparable. Ratings agencies also have conflicts of interests, they often evaluate financial products (like collateralized debt obligations) that they do not understand, they seem to lack fixed ways to measure absolute risk, and they are at times, catastrophically wrong.