Submitted by Tyler Durden on 04/05/2012 14:53 -0400
In an article that is about three years overdue, “JPMorgan’s practices bring scrutiny” the FT finally takes aim at that other “vampire squid”, JP Morgan, which technically is incorrect: because if Goldman is a nimble and aggressive creature, with infinite tentacles in every governmental office, and unencumbered by massive liabilities, JPMorgan is just as connected, but unlike Goldman, it is a behemoth in every other possible capacity, and with its trillion in deposits, matched by tens of billions in bad loans, is a true Bank Holding Company. As such ‘Jabba the Hutt‘ would be a far more appropriate allegory to describe the the firm, whose reach, scope and scale lead the FT to classify it as “Three times a pallbearer, never a corpse.”
As some may recall, back in October 2009, Zero Hedge did an exhaustive expose on the relationship between JPMorgan and the then version of MF Global, Lehman Brothers, whose perfectly functioning division, its North American Brokerage, ended up being scooped up by Barclays for pennies on the dollar. In the meantime, however, JPMorgan, with the backing of the Fed, proceeded to demand as much extra collateral for Lehman repo positions on hold with JP Morgan and the Tri-Party repo system, of which JPM is one of only two custodians, simply because it could, and because this is the easiest way for the bank that is even closer to the Fed than Goldman Sachs, to procure liquidity during times of broad distress. Such as when the money market is about to freeze to death. Since then, the topic of just how much JPMorgan may have ripped off the Lehman estate has escalated, and is set to be an epic showdown in the form of a lawsuit which “accuses JPMorgan of using its “life and death power as the brokerage firm’s primary clearing bank” to put a “financial gun” to its head and demand excess collateral.” And here is the kicker: “It claims JPMorgan abused its access to US government officials and then “accelerated Lehman’s free fall into bankruptcy”, hoovering up collateral to protect itself to the detriment of the firm and other eventual creditors.”
And therein lies the rub: because of all TBTF banks, JPMorgan is literally at the nexus of the entire $16 trillion shadow banking system, the very system that the Fed, much more than traditional liabilities, knows and uses constantly to hypothecate and rehypothecate assets, in essence creating money out of nothing, and which in conjunction with the other Tri-Party repo dealer, Bank of New York, as well as State Street, provides the US financial system with over $30 trillion in shadow credit money in the form of custodial assets – liquidity the bulk of which is not accounted for in any conventional monetary textbook or in any modern theory of money as it is such a novel development, yet which is still 100% fungible, and is by far the biggest secret of the American monetary system. It can be seen as summarized in the following graphic, first created by Citi’s Matt King back in the week before Lehman failed (full report can be read here, and should be by anyone who wishes to understand just what is truly going on behind the scenes in modern finance).