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By Pam Martens and Russ Martens
The nonstop crime news swirling around JPMorgan Chase for a solid 18 months has started to feel a little spooky – they do lots of crime but never any time; and with each closed case, a trail of unanswered questions remains in the public’s mind.
Just last month, JPMorgan Chase acknowledged that it facilitated the largest Ponzi scheme in history, looking the other way as Bernie Madoff brazenly turned his business bank account at JPMorgan Chase into an unprecedented money laundering operation that would have set off bells, whistles and sirens at any other bank.
The U.S. Justice Department allowed JPMorgan to pay $1.7 billion and sign a deferred prosecution agreement, meaning no one goes to jail at JPMorgan — again. The largest question that no one can or will answer is how the compliance, legal and anti-money laundering personnel at JPMorgan ignored for years hundreds of transfers and billions of dollars in round trip maneuvers between Madoff and the account of Norman Levy. Even one such maneuver should set off an investigation. (Levy is now deceased and the Trustee for Madoff’s victims has settled with his estate.)
Then there was the report done by the U.S. Senate’s Permanent Subcommittee on Investigations of the London Whale episode which left the public in the dark about just what JPMorgan was doing with stock trading in its Chief Investment Office in London, redacting all information in the 300-page report that related to that topic.
Wall Street On Parade has been filing Freedom of Information Act (FOIA) requests with the Federal government in these matters, and despite the pledge from our President to set a new era of transparency, thus far we have had few answers coming our way.
One reason that JPMorgan may have such a spooky feel is that it has aligned itself in no small way with real-life spooks, the CIA kind.
Just when the public was numbing itself to the endless stream of financial malfeasance which cost JPMorgan over $30 billion in fines and settlements in just the past 13 months, we learned on January 28 of this year that a happy, healthy 39-year old technology Vice President, Gabriel Magee, was found dead on a 9th level rooftop of the bank’s 33-story European headquarters building in the Canary Wharf section of London.
The way the news of this tragic and sudden death was stage-managed by highly skilled but invisible hands, turning a demonstrably suspicious incident into a cut-and-dried suicide leap from the rooftop (devoid of eyewitnesses or motivation) had all the hallmarks of a sophisticated covert operation or coverup.
The London Evening Standard newspaper reported the same day that “A man plunged to his death from a Canary Wharf tower in front of thousands of horrified commuters today.” Who gave that completely fabricated story to the press? Commuters on the street had no view of the body because it was 9 floors up on a rooftop – a rooftop that is accessible from a stairwell inside the building, not just via a fall from the roof. Adding to the suspicions, Magee had emailed his girlfriend the evening before telling her he was finishing up and would be home shortly.
If JPMorgan’s CEO, Jamie Dimon, needed a little crisis management help from operatives, he has no shortage of people to call upon. Thomas Higgins was, until a few months ago, a Managing Director and Global Head of Operational Control for JPMorgan. (A BusinessWeek profile shows Higgins still employed at JPMorgan while the New York Post reported that he left late last year.) What is not in question is that Higgins was previously the Senior Officer and Station Chief in the CIA’s National Clandestine Service, a component of which is the National Resources Division. (Higgins’ bio is printed in past brochures of the CIA Officers Memorial Foundation, where Higgins is listed with his JPMorgan job title, former CIA job title, and as a member of the Foundation’s Board of Directors for 2013.)
According to Jeff Stein, writing in Newsweek on November 14, the National Resources Division (NR) is the “biggest little CIA shop you’ve never heard of.” One good reason you’ve never heard of it until now is that the New York Times was asked not to name it in 2001. James Risen writes in a New York Times piece:
[the CIA’s] “New York station was behind the false front of another federal organization, which intelligence officials requested that The Times not identify. The station was, among other things, a base of operations to spy on and recruit foreign diplomats stationed at the United Nations, while debriefing selected American business executives and others willing to talk to the C.I.A. after returning from overseas.”
Stein gets much of that out in the open in his piece for Newsweek, citing sources who say that “its intimate relations with top U.S. corporate executives willing to have their companies fronting for the CIA invites trouble at home and abroad.” Stein goes on to say that NR operatives “cultivate their own sources on Wall Street, especially looking for help keeping track of foreign money sloshing around in the global financial system, while recruiting companies to provide cover for CIA operations abroad. And once they’ve seen how the other 1 percent lives, CIA operatives, some say, are tempted to go over to the other side.”
We now know that it was not only the Securities and Exchange Commission, the U.S. Treasury Department’s FinCEN, and bank examiners from the Comptroller of the Currency who missed the Madoff fraud, it was top snoops at the CIA in the very city where Madoff was headquartered.
Stein gives us even less reason to feel confident about this situation, writing that the NR “knows some titans of finance are not above being romanced. Most love hanging out with the agency’s top spies — James Bond and all that — and being solicited for their views on everything from the street’s latest tricks to their meetings with, say, China’s finance minister. JPMorgan Chase’s Jamie Dimon and Goldman Sach’s Lloyd Blankfein, one former CIA executive recalls, loved to get visitors from Langley. And the CIA loves them back, not just for their patriotic cooperation with the spy agency, sources say, but for the influence they have on Capitol Hill, where the intelligence budgets are hashed out.”
Higgins is not the only former CIA operative to work at JPMorgan. According to aLinkedIn profile, Bud Cato, a Regional Security Manager for JPMorgan Chase, worked for the CIA in foreign clandestine operations from 1982 to 1995; then went to work for The Coca-Cola Company until 2001; then back to the CIA as an Operations Officer in Afghanistan, Iraq and other Middle East countries until he joined JPMorgan in 2011.
In addition to Higgins and Cato, JPMorgan has a large roster of former Secret Service, former FBI and former law enforcement personnel employed in security jobs. And, as we have reported repeatedly, it still shares a space with the NYPD in a massive surveillance operation in lower Manhattan which has been dubbed the Lower Manhattan Security Coordination Center.
JPMorgan and Jamie Dimon have received a great deal of press attention for the whopping $4.6 million that JPMorgan donated to the New York City Police Foundation. Leonard Levitt, of NYPD Confidential, wrote in 2011 that New York City Police Commissioner Ray Kelly “has amended his financial disclosure forms after this column revealed last October that the Police Foundation had paid his dues and meals at the Harvard Club for the past eight years. Kelly now acknowledges he spent $30,000 at the Harvard Club between 2006 and 2009, according to the Daily News.”
JPMorgan is also listed as one of the largest donors to a nonprofit Foundation that provides college tuition assistance to the children of fallen CIA operatives, the CIA Officers Memorial Foundation. The Foundation also notes in a November 2013 publication, the Compass, that it has enjoyed the fundraising support of Maurice (Hank) Greenberg. According to the publication, Greenberg “sponsored a fundraiser on our behalf. His guest list included the who’s who of the financial services industry in New York, and they gave generously.”
Hank Greenberg is the former Chairman and CEO of AIG which collapsed into the arms of the U.S. taxpayer, requiring a $182 billion bailout. In 2006, AIG paid $1.64 billion to settle federal and state probes into fraudulent activities. In 2010, the company settled a shareholders’ lawsuit for $725 million that accused it of accounting fraud and stock price manipulation. In 2009, Greenberg settled SEC fraud charges against him related to AIG for $15 million.
Before the death of Gabriel Magee, the public had lost trust in the Justice Department and Wall Street regulators to bring these financial firms to justice for an unending spree of fleecing the public. Now there is a young man’s unexplained death at JPMorgan. This is no longer about money. This is about a heartbroken family that will never be the same again; who can never find peace or closure until credible and documented facts are put before them by independent, credible law enforcement.
The London Coroner’s office will hold a formal inquest into the death of Gabriel Magee on May 15. Wall Street On Parade has asked that the inquest be available on a live webcast as well as an archived webcast so that the American public can observe for itself if this matter has been given the kind of serious investigation it deserves. We ask other media outlets who were initially misled about the facts in this case to do the same.
On Sunday a former Senior Deutsche Bank manager, William Broeksmit, was found hanged at his house. He was the retired Head of Risk Optimization for the bank and a close personal friend of Deutsche’s Co-Chief Executive, Anshu Jain. Mr Broeksmit became head of Risk Optimization in 2008. He retired in February 2013.
Early this morning, Gabriel Magee, a Vice President of CIB (Corporate and Investment Banking) Technology at JP Morgan jumped to his death from the top of the bank’s 33 story European Headquarters in Canary Wharf. As a VP of CIB Technology Mr Magee’s job would have been to work closely with the Bank’s senior Risk Managers providing the technology which monitored every aspect of the bank’s exposure to financial risk.
These deaths could well be completely unrelated and just terribly sad for their respective families. On the other hand neither of these men had any obvious problems and both were immensely wealthy. So why would two senior bankers commit suicide within a couple of days of each other?
One place to start is to note that JP Morgan Chase had, at the end of 2012, a mind boggling, but only silver medal, $69.5 Trillion with a ‘T’ gross notional Deriviatives exposure . While the gold medal for exposure to Derivative risk goes to …Deutsche Bank, with $72.8 or €55.6 Trillion Gross Notional Exposure. Gross Notional means this is the face value of all the derivative deals it has signed. Which the bank would be very quick to tell you would Net Out to far, far less. Netting Out, for those of you who do not know just means that a bet/contract in one direction is considered to balance or cancel out a similar sized bet/contract betting the other way. But as I wrote in Propaganda War – Risk Weighted Lies and further in Propaganda Wars – Balance Sheet Instabilities ,
…this sort of cancelling out is fine on paper but in reality is more akin to people trying to swap sides in a rowing boat.
Both of the men who killed themselves were intimately concerned with judging and safeguarding their bank from risk.
To give you an idea what sort of risk that size of a derivatives book is consider that the entire GDP of Germany is €2.7 Trillion. Remember that Derivatives are what Warren Buffet dubbed “weapons of financial mass destruction.”
Next question might be, when do these weapons become dangerous? The answer obvioulsy varies in accordance with the type of derivative you are considering. One huge group of derivatives that both JP Morgan and Deutsche both deal very heavily in are currency and interest rate swaps. They become dangerous when there are large moves in currency values and interest rates.
At the moment The Tukish Lira has been in free fall for days. The Turkish central bank tried to defend it and could not stem an unstoppable tide. It then stunned everyone by raising its over-night lending rate (the interst rate it charges to lend to banks over-night) from 4.25% to 12 %!
This did not work either and today the Lira continues to be in crisis, as is the whole Turkish stock market.
The Hungarian Florint is also crashing. As is the entire Argentinian economy. The Peso fell 10% in a single day recently. At the same time there is massive uncertainty surrounding Ukraine as there is also surrounding the interest rates and stability of South Africa.
So imagine you are a large bank with huge derivatives business much of which covers bets in your equally large Foreign Exchange business. Essentially that boat in which you are hoping you can ‘net out’ about 70 Trillion dollar’s worth of derivatives positions is now being bounced about by several large storms.
Many of those derivatives contracts would have been entered into during Mr Broeksmit’s tenure at Deutsche, while Mr Magee would have been overseeing and advising on his bank’s risk exposure as it swayed about over at JP Morgan.
All in all I don’t think it is far fetched to think both these men may have been under huge strain and possibly more afraid than the rest of us, because they were in prime position to know much more than the rest of us.
All of which brings to mind yet another banker who recently fell to his death.
Just under a year ago, in March of 2013, David Rossi, head of communications at one of Itay’s largest and most catastrophically insolvent banks, Monte dei Paschi, fell from the balcony of his third story office at the bank’s head-quarters. How a man who isn’t drunk and who, as far as I am aware, left no suicide note just ‘falls’ from a balcony is a mystery. But the Italian authorities, I have no doubt, did a bang up job.
Monte dei Pasche…had engaged with shady derivatives deals with Deutsche Bank to cover up hundreds of millions of euros in loses, and then employed some creative accounting to hide the trades from share holders and the public.(My emphasis).
Now what I find strange about this man’s death is that as Head of Communications he would not have done any banking himself. Therefore, he would not have been guilty of any wrongdoing. So why would he kill himself? It seems to me the worst that could have happened to him is that he became aware of rather serious wrongdoing that other people and other banks even, might have not wanted brought to light….
And then I remembered one more death. Pierre Wauthier, the former Chief Financial Officer (CFO) of Zurich Insurance Group hung himself last year, at his home. Now this death you might think has no possible connection with the others. In fact it has two. Both are, as with the rest of what I freely admit is a speculative piece, circumstantial.
The CEO of Zurich Insurance group at the time of Mr Wauthier’s suicide was Josef Ackermann, former CEO of Deutsche Bank. Mr Ackermann resigned shortly after it was revealed that Mr Wautheir, in his suicide note, had named Mr Ackermann. According to Mr Wauthier’s widow it was Ackermann who had placed her husband under intolerable strain. Of course we don’t know what the issue was that caused the ‘intolerable strain’. But let’s look a little closer at what tied these two men together.
Mr Ackermann stepped down as CEO of Deutsche Bank in 2012 after ten years at the helm. During that time he had transformed Germany’s largest bank from a large but slightly dull national player into one of the very largest and most agressive of the global banks. One of the ways Ackermann had grown Deutsche so spectacularly was to make it the world’s largest player in the derivatives market. Nearly all of that 72 Trillion dollars’ worth of derivative exposure was accumulated under his leadership.
Mr Ackermann had built a derivatives position 18 times larger than the GDP of Germany itself.
A year and a half after Mr Ackermann took over at Zurich Insurance Group, Zurich announced it was going to start offering banks a way of holding less capital against their risky assets/loans by offering to insure or ‘buy’ the risk from them. This is know as Regulatory Capital Trade. As one of the archtiects of the trade was quoted at the time,
“We are looking at products where banks would buy insurance for their operational risks issues. These are normally risks that are not covered by traditional insurance.”
This new insurance venture was, on the one hand, in response to the European regulators insisting that banks had to hold more capital against their risky assets and on the other, a result of the dire need of Insurers to find products that could yield them a profit. The trade is a classic result of a period of extended low interest rates where traditionally safe investments like Soveriegn bonds and vanilla loans and securities just don’t pay enough to cover insurers’ needs let alone let them make a tidy profit. In other words those insurers who understood what banks were exposed to and were willing to take the risk on themselves – because they thought they were cleverer – could find yield where others feared to tread. And of course one of the largest pots of risky assets on bank books is derivatives. All those lovely foreign exchange bets and interest rate bets, and derivative trades which underpin the rapidly growing European ETF market (in which guess who is a massive palyer? Yes, that’s right, Deutsche) – they would all have levels of risk the banks would love to off-load.
Holding more capital against risk might be prudent but it is hell on bank growth and bonuses. Regulatory Capital Arbitrage, is how you game (quite legally, of course) that particuar regulation. The bank gets to keep the underlying asset, while the risk is ‘sold’ to or insured by (depends on how you account for it at both ends) someone else. In this case Ackermann’s Zurich Insurance Group.
In some ways it was a creative move – in the way finance is creative , like making a better land mine I suppose – since Zurich already ran the world largest derivative trading exchange, Eurex. With the new trade Zurich would not just be running the exchange but would now become a major player in the risk trade. Of course this is fine so long as the risk never materializes. Which brings us back to the present spreading turbulence in markets from Ukraine, to Argentina and Turkey. It is also worth noting Zurich also offers insurance against about 50 or so emerging market banks going under. Might not seem quite so safe a market to be in just at the moment.
As Chief Financial Officer Mr Wauthier would have had to be on side with Mr Ackermann about the wisdom of this bank-risk insurance trade.
Now I realize, as I said above, that this is all circumstantial and speculative. But derivatives are, as Warren Buffett said, very dangerous. Deutsche is sitting on the world’s biggest pile of them and J P Morgan the second biggest pile. And right now global events are making those risks sweat. When HSBC tries to limit cash withdrawals and so does one of Russia’s largest banks then something somewhere is not healthy. We are , I think, circling around another Morgan Stanley moment.