| | | | | | | | |
GUARDIAN Sun, 13 May 2012 13:15:00 GMT
Behind the $2bn loss lies the complexity of the derivatives JP Morgan sold – but, in context, it's really not that bad
On hearing about JP Morgan's announcement I found it hard to care. In the context of the company's earnings as a whole, it's simply not that bad. The unit responsible for the $2bn trade still made enough in other trades to post a loss of (only) $800m. This unit was one of seven that as a whole posted a profit of about $4bn – for the quarter. I've never celebrated any of the times it has posted record profits, so it does feel a bit churlish to berate it for not making quite as much money this time.
I wholeheartedly agree that we as taxpayers shouldn't be responsible for propping up the banks. I've always viewed the financial system as organic, using that to justify lack of regulation. However, this requires that when things don't work out we let banks die, and what's the worst that would happen if we did? Up to £50,000 of savings is covered by a government compensation scheme, and I for one am not worried about those with more than £50k of savings in a single bank account. I thought the people we needed to care about didn't even have bank accounts. What about small businesses (I hear you cry)? What about them? If a bank goes under, I guess small businesses will no longer not get any loans from that bank and will have to go elsewhere not to be lent money.
The question this throws up is: is this the straw that broke the back of the bank-regulation camel under the Volcker rule? For me, the question should be "Why aren't we enforcing the implementation of the Basel 3 capital requirements on a shorter timetable?" as this would massively reduce the risk of a taxpayer-funded bailout. But should a retail bank offering a retail service with returns far removed from the returns of its investment arm be able to be culpable for big losses stemming from the associated risks? Clearly not. If the investment divisions were to separate from the retail division, it would be easy to justify never bailing them out anyway (there being no-one except shareholders who would suffer).
Interestingly, according to Jamie Dimon, the bank's chief executive, the trades that led to the loss would be allowed under the terms of the Volcker rule (there are no restrictions on hedging activity), a concession that Dimon, JP Morgan and other banks have negotiated themselves. Many commentators, however, think the number, size and time-frames of the trades would imply that the department responsible for hedging is actually undertaking proprietary trading (which the Volcker rule outlaws). This, if anything, demonstrates the quandary and complexity of financial regulation. Doesn't the hedging unit undertaking prop trading prove the toothlessness of the Volcker rule?
Also, is it me or have the French become the lone gunmen in the book depository building of the finance world? First, we had Jerome Kerviel, a relatively junior trader who managed to evade hundreds of compliance and risk-monitoring hurdles with absolutely no assistance from his superiors. Then, the only person named in an enormous lawsuit against Goldman Sachs (which essentially encapsulated the whole disaster behind the financial crisis) was a Frenchman named Fabrice Tourre. This week, despite having the backing of the various levels of management he reported to (the risk issues had been raised internally several times), the name we are throwing around as responsible for the losses is another Frenchman, even if he is known as the London whale.
There is another point about hedging. Generally, the more predictable a situation, the more likely you are to make money, and the more unpredictable a situation, the more you would hedge your position to mitigate risk. So if this trader was there to hedge the rest of the company's positions and the rest of the company makes $4bn, I guess the hedging must have worked. If the rest of the business had lost money, then maybe we could have....
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
GUARDIAN Fri, 04 May 2012 22:00:46 GMT
Planning ahead for a family member with a disability, mental illness or dementia can be daunting. That's where the Cairn Trust comes in
Name Cairn Trust Management
Founders Nicola Smith and Sophie Dobson
Company started April 2010
Number of employees 2
Based GlasgowWhat's the big idea?
Helping people set up a trust during their lifetime or in their will to provide for a family member with a learning disability, mental illness, brain injury or dementia. Smith and Dobson dismiss the idea that trusts are only for people trying to preserve wealth and avoid tax. Their clients' biggest worry is what will happen when they are no longer around to support their family member – Smith says a trust is a way to provide for the future without affecting entitlement to benefits and community care services.What do they do differently?
The company puts people with disabilities or dementia at the forefront of financial and succession planning. "Too many corporate trustees see their role as purely administrative but we use a traditional trust model to provide a modern, flexible and proactive service," Smith says. They encourage involvement of friends and family and put the client's needs at the centre of all decisions. They visit people at home, write in plain English and understand the benefits and community care systems. People often assume trusts will be expensive, but Dobson says they can establish a trust for as little as £250, whilst trust management fees start at £650 a year.How did it come about?
Smith and Dobson worked together for four years before establishing Cairn. According to Smith they "knew there was an unmet need for a person-centred trust service that combined technical trust knowledge with an understanding of the other issues facing clients". Neither saw themselves as an entrepreneur but, Dobson explains, "we had too many afternoons talking about how we would do things, until one day something just clicked, and we realised that we actually had the right skillset to go it alone".Who are their clients and how do they work with them?
Most of their clients are families who include someone with a disability, brain injury, mental illness or dementia. They help them to think about and plan properly for the future. A typical case would be advising the parents of an adult with a learning disability about the best way to provide for their child. This would usually involve setting up a discretionary trust to receive a future inheritance. That trust could then be used to fund things such as holidays, specialist equipment, hobbies or even buying a house.How is the business plan going – and where do they hope to be in five years?
The business is "going from strength to strength". The business plan has evolved to include a wider range of services. They make a point of being flexible. Smith says: "This means listening to feedback and responding to client needs. For example, lots of our clients wanted us to draft their wills or powers of attorney, so we set up Cairn Legal in response to that demand."
The company aims to be recognised as a provider of expert but straightforward and accessible advice. Dobson says: "Part of our appeal is that we're small, friendly and approachable. We plan to expand, but we don't want to grow too much if it means sacrificing those things."Their killer advice for new start-ups
At the outset, your to-do list can seem endless. Dobson says: "Don't feel overwhelmed. Take things a step at a time and before you know it you'll be sitting in your office, running your business." Smith suggests approaching those you think can help: "We did and were surprised at how generous people were with their time and advice – experts like to show off their knowledge."
Work & careers
Family finances
Consumer affairs
Small business
Disability
Mark King
guardian.co.uk © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions |......
| | | | | | | | | | |
| Full List of Small Business articles |
|
|
Latest POS Solution from Encore
Resident Power Explains Electricity Competition At New Hampshire...
Small IT Companies Are Growing through Mergers and Acquisitions
Customer Complaints Can Help Your Company
Mother and Entrepreneur Meeta Shah Develops Popular Mobile Apps with...
CBS’s '2 Broke Girls' On-Air Fawning of Voice Over Talent,...
DHS Recognizes LRS Federal with Small Business Award
ReBath Northeast Continues to Support Local Relay for Life Team
iCandy Preview on Kickstarter Funding Platform Puts All Eyes On the...
TalkPoint Announces Convey, the First SaaS-based, Self-service...
Harvest Academy is Now Offering Risk Free Tutoring Services in Los...
RedHorse Systems Sponsors “Sales Lead Development” Educational Webinar
GLASS RECYCLED Hires Marketing Communications Representative
Affinity Consulting Group Joins Clio’s Certified Consultant Program
ConsumerBase Expands Database with New Green Industry Files
Graduation Season Brings a Host of New Talent for Job Recruitment...
Viewpoint: Why New York City is best for small businesses
MyReviewNow.net Spotlights New Affiliate Partner Nerium...
100 fastest growing inner city businesses
How small businesses grow, even in a tough economy
