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Re: JP Morgan Chase Execs Vaporize $2B

Posted by Charles G on Wed May 16 14:42:10 2012, in response to Re: JP Morgan Chase Execs Vaporize $2B, posted by Stephen Bauman on Wed May 16 12:58:39 2012.

Been there, done that. London Market Spiral (LMX) -- late 1980's and early 1990's. We were well ahead of the investment banks on the subject of being stupid. Between LMX (progressive churn leading to systemic bankruptcy -- took down Lloyd's of London) and the Unicover Workers Comp scam/scandal in the 1998-2000 era (progressive churn of business with intermediaries taking fee income out of risk premium with each successive churn leading to massive losses though fewer bankruptcies), we've seen it all before.

With those two as history, you manage not only the risk, but also the length of the payment tail and require collateralization beyond certain thresholds. The industry requires counterparties to be transparent about their financials. If a firm doesn't retain enough of the risk it takes on or is just too highly leveraged in other ways then you don't cede business to it.

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