JP Morgan takes a bath

Well, this one came out of left field: a $2bn loss for JP Morgan this quarter from "bad execution, bad strategy, but also the environment -- because this is mark to market" according to Jamie Dimon, the man who could previously do no wrong.

Investors were not amused and (to use a technical term) took a large and smelly dump over JP Morgan shares, leaving them down 6.75%, burning up $10.8bn of share value

Dimon said the losses were caused by "errors," "sloppiness" and "bad judgment."

Well Jamie, those are certainly necessary, but I'd bet they're not sufficient for this magnitude of screw-up at JPM. Some searching questions are going to be (or should be) asked about the controls and risk management at JPM.

This apparently happened since the start of April, and there is speculation that credit default swaps purchased by a London-based JP Morgan employee may be at the root of the losses. The story on this one is going to be really interesting when (and if) the FSA and Fed finally tease out and publicise the details.

JP Morgan, like Goldman Sachs, is supposed to be a master of risk and mark-to-market; look at how adroitly they avoided the worst of the 2008 financial crisis. Quite where all this went wrong is anybody's guess; if they were truly marking to market, why didn't they spot the losses building up? I don't believe the markets have moved unusually sharply in the past month, so a sudden unforeseeable event seems... unlikely.

Now everyone is wondering: a) what other dangerous positions are under-valued for risk at JP Morgan, and b) if this could happen at JP Morgan and show up almost immediately due to rigorous mark-to-market, has it happened at other banks which are even now desperately trying to sweep it under the carpet with a mark-to-fairyland approach?