JPMorgan’s Cautionary Tale of Position Monitoring

“JPMorgan Chase Loses $2B in Poorly Monitored Synthetic Hedge.” Headlines like this have abounded since Thursday, screaming out for a standup comedian, you know, one of the smart-mouth ones like Jon Stewart, to riff off:

• “Hey, when I lose my keys, I look behind the fridge … did they try that yet?”
• “Jeez … for $2B I can get them a real hedge, and I can even throw in a shrubbery!”

But this event further opens the door for critique from those of us who have been selling real-time analytics software – and frequently discussing our key use cases on trade and position monitoring.

The bank’s strategy was “flawed, complex, poorly reviewed, poorly executed and poorly monitored,” JPMorgan CEO Jamie Dimon said in a conference call Thursday. He described the bank’s derivatives position that bet on market recovery via corporate bonds as “egregious, [and] self-inflicted,” adding, “We will admit it, we will fix it and move on.”

Now I like Jamie Dimon, and I think this probably started and escalated below his personal radar, so I don’t blame him directly. However it seems amazing to me that a bet can be so poorly designed and poorly monitored.