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Friday, May 11, 2012

J.P. Morgan and the Zero Sum Game

It's interesting to observe the performance of the Fed's and Wall Street's favorite sons. They have all the connections and insider info that most of us could only dream of and they routinely make lots of money, quarter by quarter. But are they really so smart?
If money supply and growth were constant, investing should be a zero-sum game. That is, if someone is making money, someone has to be losing money. But in these times of rampant money creation, it is possible for most of us to win most of the time, at least in nominal inflated dollars. The part that I find interesting is that every time the money creation machine slows down a bit (we are awaiting QE3/4, no?) and markets waver a bit, folks like Jamie Dimon often start tripping over their shoelaces, even though the odds are seemingly so stacked in their favor. It happened with Lehman and AIG a few years ago. Maybe Morgan won't go that way. But I can't help thinking that these mega-remunerated CEO's could not run a real business in the real world without being back-stopped by bailouts when things go wrong, without counting on huge money creation off which they can skim almost risk-less profits and without their priveleged connections and information sources. After all, who runs the Federal Reserve?
Yes, in spite of the supposed odds, they still manage to make mistakes, really big ones, sometimes. Sometimes big enough to bankrupt the company. How long can the world's central banks accelerate their printing and backstopping operations to keep these guys and our supposed economy afloat? Methinks that the zero-sum game will return with a vengeance one of these days.