Explaining Southern California's economy

Peter Liguori becomes new Tribune CEO, calls the company a startup

2010 Winter TCA Tour - Day 6

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Meet the new CEO of Tribune Co., owner — and possible soon a seller — of the L.A. Times.

Tribune Co. emerged from bankruptcy last year owned by a bank, JP Morgan, and private equity investors from Los Angeles-based Oaktree Capital Management. Now it's going to be run by an executive whose most recent job was at the giant private equity firm the Carlyle Group. Peter Liguori landed there for a stint after serving as the Chief Operating Officer at Discovery Communications.

Last year, the bankers and private-equity guys who now control the company started to talking to yet more bankers about possibly selling Tribune Co.'s newspapers, which include the Los Angeles Times and Chicago Tribune, as well as local TV station KTLA.

In an interview with the L.A. Times published Thursday, Liguori said that he's isn't interested in selling, say...the L.A. Times for a "fire sale" price. And then he said some other things:

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Big bank living wills: Outsourcing the obituary

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The JP Morgan Chase building in New York City. This is one of the big banks that's filing a "living will" with federal regulators — and dealing with a potentially $9-billion trading loss.

The biggest U.S. banks are delivering their so-called "living wills" to the Federal Reserve and the FDIC today. This is all part of the implementation of the Dodd-Frank financial reform legislation, and it follows the stress tests that the big banks were all subjected to several months back — and that they all passed, some more auspiciously than others.

Today's plans are part one of the living-will process: banks will explain how they intend to enter bankruptcy, if they get in trouble. Obviously, a big bank could enter restructuring and emerge as a new bank, with reduced debts. Part two is more menacing: big banks are being asked to detail how they would work with the FDIC to be taken down, their assets merged with more stable institutions. That's the nightmare scenario.

It's critical that the big banks deal with both possibilities because even though we had a bunch of too-big-to-fail banks before the financial crisis, we have what I call too-bigger-to-fail banks now. The crisis forced the consolidation of failing banks into stronger ones. Additionally, big banks have been buying up weaker smaller banks. So we have a less diverse financial ecosystem now than we did before the Great Recession. This is why a big trading loss at JP Morgan, initially reported at around $2 billion but now climbing to $9 billion according to some reports, is cause for alarm. 

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Why lending can be riskier than not lending for banks

Jamie Dimon Testifies At Senate Hearing On JPMorgan Chase

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President and CEO of JPMorgan Chase Co. Jamie Dimon testifies before a Senate Banking Committee hearing on Capitol Hill June 13, 2012 in Washington, DC. The committee is hearing testimony from Mr. Dimon on how JP Morgan Chase lost what could amount to five billion dollars in complex trades.

At the L.A. Times, Michael Hiltzik has a Money & Co. post about JP Morgan CEO Jamie Dimon's congressional testimony today. Hiltzik zeroes in on an exchange between Dimon and Sen. Bob Corker of Tennessee:

Corker: "Mr. Dimon, you've said that the biggest risk a bank takes is making loans, is that correct?"

Dimon: "Yes."

Let's unpack this, just for a moment. If what Dimon says is true, he's essentially pleading that his entire industry is operated by hopeless incompetents. 

Which sounds about right. Except that it isn't. Incompetence isn't the problem. Because when Dimon says making loans is a big risk, he's not talking about the risk of losing money. He's talking about the risk of not making money.

Here's what happened with JP Morgan's now $5 billion trading loss, centered on its London office. The bank had an historically immense amount of "excess deposits" on its books — that is, deposits that it wasn't lending out, in the form of various products (Felix Salmon has a chart.). A bank can use excess deposits to "hedge" against the risk of loan defaults. And this is what Dimon says JP Morgan was doing. Because if the bank wasn't hedging but rather making bets with those excess deposits...well, that's potentially a violation, because JP Morgan's deposits are guaranteed by the FDIC. You can't play poker with taxpayer money!

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Felix Salmon takes a whack at JPMorgan

You might be wondering what all this brouhaha is over JPMorgan Chase and its now $3 billion trading loss. It's all enormously complicated.

But at Reuters, Felix Salmon does an excellent job of not just explaining it but also turning a spotlight on the real scandal: it's bad that JPMorgan lost billions, but it's even worse that JPMorgan was doing the trade in the first place.

One small addendum: Note that JPMorgan takes the excess deposits that Felix mentions and "ships them off" to London. By which he means the City of London, England's equivalent of Wall Street — if Wall Street were even more reckless than Wall Street was in the lead-up to the financial crisis. This is a place that went into such a cold sweat when the European Union proposed restraints on buccaneer trading activity that Prime Minister David Cameron had to step in and throw his weight around to rescue what is effectively a solid square mile of pure unadulterated hedge fund.

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