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interestrateripoff

Banks Shared Clients’ Profits, But Not Losses

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http://www.nytimes.com/2010/10/18/business/18advantage.html?_r=1&ref=business

JPMorgan Chase & Company has a proposition for the mutual funds and pension funds that oversee many Americans’ savings: Heads, we win together. Tails, you lose — alone.

Here is the deal: Funds lend some of their stocks and bonds to Wall Street, in return for cash that banks like JPMorgan then invest. If the trades do well, the bank takes a cut of the profits. If the trades do poorly, the funds absorb all of the losses.

The strategy is called securities lending, a practice that is thriving even though some investments linked to it were virtually wiped out during the financial panic of 2008. These trades were supposed to be safe enough to make a little extra money at little risk.

JPMorgan customers, including public or corporate pension funds of I.B.M., New York State and the American Federation of Television and Radio Artists, ended up owing JPMorgan more than $500 million to cover the losses. But JPMorgan protected itself on some of these investments and kept millions of dollars in profit, before the trades went awry.

How JPMorgan won while its customers lost provides a glimpse into the ways Wall Street banks can, and often do, gain advantages over their customers. Today’s giant banks not only create and sell investment products, but also bet on those products, and sometimes against them, putting the banks’ interests at odds with those of their customers. The banks and their lobbyists also help fashion financial rules and regulations. And banks’ traders know what their customers are buying and selling, giving them a valuable edge.

Some of JPMorgan’s customers say they are disappointed with the bank. “They took 40 percent of our profits, and even that was O.K.,” said Jerry D. Davis, the chairman of the municipal employee pension fund in New Orleans, which lost about $340,000, enough to wipe out years of profits that it had earned through securities lending. “But then we started losing money, and they didn’t lose along with us.”

Through a spokesman, JPMorgan’s chairman and chief executive, Jamie Dimon, declined a request for an interview. The spokesman, Joseph Evangelisti, said that JPMorgan had a long record of success in securities lending, and that the losses represented only a small fraction of the funds in the program.

Moreover, Mr. Evangelisti said, all of the investments had been permitted under guidelines negotiated with the bank’s clients. JPMorgan, he said, did not take undue risks.

“We have powerful incentives to take only prudent investment risks,” Mr. Evangelisti said. If customers lose money that they have entrusted with the bank, he said, that “can lead to a loss of clients and can affect the reputation of the business.”

So the banks take 40% of the profits and charge you for the losses.

This is an excellent system, you take all the risk and they just help themselves to any money that they make with your money.

No wonder the elites want to be bankers, I mean it's a job where you can't possible fail and if you do the fairy taxpayer comes to the rescue.

Edited by interestrateripoff

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these people are not moms and pops with their 401K. This is pored over by white shoe law firms, negotiated all the way and is a completely arms' length transaction.... and has been going on for decades, including here in the UK and just about everywhere else.

It's more surprising that the NY Times is going all Daily Mail in its sensationalism.

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Nice headline but that's not how stock lending works.

A poorly researched sensationalist article by a junior journo IMHO.

(And no, I'm not any sort of related party / VI)

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  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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