I'm not sure how much debate this will generate but it might be of interest to some. FT Alphaville have an excellent analysis of the trade it seems The London Whale put on (background reading also here) that has potentially caused a $2bn mtm loss at JP Morgan.

Two interesting bits here for me:

1. the demonstration of how ineffective regulators still are: (from the FT article) "99 per cent of all CDS trades live in an information warehouse called DTCC, to which the regulators of the banks have access in however much detail they want!!! What kind of regulator doesn’t go and look at the that". It's highly unlikely that these trades were in the 1% of trades that are paper confirms (ie. outside DTCC) so you have to wonder how this wasn't spotted by a regulator? They're asking banks to build global trade repositaries and yet they don't even (know how to?) use them.
2. the demonstration of how easily a trader can go from putting on a perfectly legitimate hedge to breaching the Volcker rule. Blogger Economics of Contempt provides some excellent analysis of the Volcker that demonstrates just how messy the regulation is getting in banking for those who don't work in the industry. Particularly when the regulation is being drawn up by people who have little to no understanding of what actually happens within a bank.

I'm not sure how much debate this will generate but it might be of interest to some. FT Alphaville have an excellent analysis of the trade it seems The London Whale put on (background reading also here) that has potentially caused a $2bn mtm loss at JP Morgan.

Two interesting bits here for me:

1. the demonstration of how ineffective regulators still are: (from the FT article) "99 per cent of all CDS trades live in an information warehouse called DTCC, to which the regulators of the banks have access in however much detail they want!!! What kind of regulator doesn’t go and look at the that". It's highly unlikely that these trades were in the 1% of trades that are paper confirms (ie. outside DTCC) so you have to wonder how this wasn't spotted by a regulator? They're asking banks to build global trade repositaries and yet they don't even (know how to?) use them.
2. the demonstration of how easily a trader can go from putting on a perfectly legitimate hedge to breaching the Volcker rule. Blogger Economics of Contempt provides some excellent analysis of the Volcker that demonstrates just how messy the regulation is getting in banking for those who don't work in the industry. Particularly when the regulation is being drawn up by people who have little to no understanding of what actually happens within a bank.

Apparently he is very different from what you describe - LINK

This type of transaction shouldn't be regulated, it should be abolished. It offers absolutely no benefit to anyone other than the protagonists, it is not an investment, simply because there is buggerall to invest in. It is gambling, pure and simple, no different to the turn of a card or a roulette wheel. The fact it is generally used to mitigate potential losses in real investments is no excuse, all it does is offer a safety net to those making the investments. If they need that, perhaps they shouldn't be making the investment in the first place.

Apparently he is very different from what you describe - LINK

This type of transaction shouldn't be regulated, it should be abolished. It offers absolutely no benefit to anyone other than the protagonists, it is not an investment, simply because there is buggerall to invest in. It is gambling, pure and simple, no different to the turn of a card or a roulette wheel. The fact it is generally used to mitigate potential losses in real investments is no excuse, all it does is offer a safety net to those making the investments. If they need that, perhaps they shouldn't be making the investment in the first place.

I should have resisted the temptation to describe his possible appearance. It is the fact he even had a nickname and what that says about the culture prevalent in investment banking post 2008 is what is important IMO.

I agree the transactions should be abolished. It's all a bloody great ponzi scheme. They produce nothing but can generate income out of thin air. The income is so far removed from any form of real production it's untrue.

I should have resisted the temptation to describe his possible appearance. It is the fact he even had a nickname and what that says about the culture prevalent in investment banking post 2008 is what is important IMO.

I agree the transactions should be abolished. It's all a bloody great ponzi scheme. They produce nothing but can generate income out of thin air. The income is so far removed from any form of real production it's untrue.