Saturday, January 24, 2009

JPM's case of "shrinkage"

Ok, enough already, the whole world knows that the two best houses in the worst neighborhood are JP Morgan and Goldman Sachs. And JPM doesn't want anyone to forget it, even if they have to resort to "shrinkage."

The top graph is JP Morgan's sophomoric attempt to prove that they are still Wall Street's BSD's (Big Swinging Dick-with apologies to Liar's Poker)'s_Poker. JPM put out these circles, whose diameters represents the billions of value of market cap of the banks in Q2 of 2007 in the larger blue circles, and then the banks billions of value of market cap on January 20, 2009 represented by the diameter of the smaller green circles.

The only problem is that JPM forgot sophomore geometry! You can't represent linear measurements in circles, when the area is the diameter multiplied by pi if you don't account for pi in your graphs!

The second graph is the "corrected" graph put out by JPM the next day, where the banks market caps are now correctly represented by the area of the circles. Here the "shrinkage" is clearly visible, and while the circles still make their point, at least it is now made correctly!

Luckily JPM only makes mistakes like these in their research, and not in their multiple trillions of dollars of derivatives that we can never see! We'll never see JPM when the tide goes out!

Because if we did, we would see "shrinkage" in JPMorgan's capital!

No comments: