What Might $6 Billion Buy?
By Geraldine Henze
When I was a youngster back in the middle of the last century, one of my favorite TV programs was “The Millionaire.” In each episode, some unsuspecting citizen received a visit from a neatly dressed stranger named Michael Anthony, who bore a check for one million dollars from a mysterious benefactor named John Beresford Tipton, Jr. The remainder of the episode showed viewers how the million-dollar check altered the life of the recipient.
I was about 10 years old when I started watching “The Millionaire,” and a million dollars simply represented a huge sum of money. A million dollars was enough to buy anything I could possibly want with plenty left over. From time to time, my father, an industrial engineer, tried to help me grasp the magnitude of a million. How long, he once asked, would it take to count to a million? “A whole day?” I guessed. “No,” said Dad. “Not even close. If you did nothing but count all day and all night—and never lost your place—it would take you one whole week.” He added that if I had a million dollars in one-dollar bills, I wouldn’t be able to lift it: it would literally weigh a ton.
Now, I live in Greenport on the North Fork of Long Island and think of “The Millionaire” almost every month when my mortgage payment comes due. Where’s John Beresford Tipton, Jr. when you need him?
He probably lives in Southampton on Meadow Lane, Murray Lane, or Dune Road. He has doubtless graduated from being a multimillionaire to being a multibillionaire and may well be a she. In any case, s/he no longer writes million-dollar checks to ordinary folks in Greenport, Galveston, Granville, or Glendale every week. And folks in such communities today could barely move to a modest home in Southampton with a million dollars. Forget a yacht docked in front of a waterfront mansion.
Several months ago, a trading loss at JPMorgan-Chase (JPMC), America’s largest bank, began to make news. CEO Jamie Dimon initially dismissed the loss, which was estimated to total about 2 billion dollars, as “a tempest in a teapot.” The story behind the loss seemed to underline its triviality.
Ina Drew, Chief Investment Officer at the bank, had contracted Lyme disease. During her illness, she was understandably down on her game and away from her desk more than usual. Normally, she would have reined-in the frisky London bankers who executed the unfortunate trade. Because of her debility, Ms. Drew allowed the job to fall into less forceful, younger hands in her NY office. They were unable to control the Londoners, who were pushing a risky position as a hedge. Thus, a tick-induced trading tic lost a mere $2 billion.
In investing terms, a hedge is an investment made to counterbalance a possible loss. Theoretically, a hedge should reduce the overall risk of an investment portfolio. But hedges have become more complex than particle physics. Often, it seems, hedges involve convoluted bets for and against the same underlying securities through complex derivatives. The overall risk of a hedge may not become apparent until the bet is “called” and the position is “unwound.” As the JPMC position unwound, the tempestuous little loss of a couple billion grew to about 6 billion, according to revised estimates.
Back in Greenport where, we sometimes joke, the “sushi” of the Hamptons is called “bait,” I wondered what to call the several-billion-dollar loss of a bank whose local branch I happen to use (full disclosure). Should I call it a disastrous loss, run to the local branch, and withdraw my assets? Or, should I call it a teapot tempest and consider refinancing my mortgage (now in the hands of Bank of America—fuller disclosure) through JPMC? After all, JPMC might be seeking new ways to invest its capital in unpredictably risky investments.
Dad suddenly came to mind. How would Dad go about making sense of the magnitude of the JPMC loss? Born in 1917, my father grew up during the Great Depression. He often made clear his thoughts about home mortgages—“Just say NO.” Scrimp, save, do without or do it yourself, but don’t share your home with a bank. Perhaps I should have paid more attention to that lesson. But the lesson that stuck with me was the one about a million taking a full week to count—what a rotten, boring way to spend a week—and about one million dollar bills amounting to a ton of paper.