JPMorgan Chase's $2 billion failed credit risk hedge is different than the investments that led to the corporate credit union crisis. However, there are also similarities, according to industry investment experts. Specifically, overleveraging and a drive for income that compromised risk management.
Jason Haley, fixed income strategist for ALM First Advisors, admits he wasn't in his current position during the corporate crisis, so his knowledge regarding the specific securities that led to the corporate meltdown is limited. However, he said high-leverage investments like the JPMorgan Chase deal could cause big losses anywhere, even at credit unions.
"It was highly leveraged, so any changes in the underlying securities can have a huge effect and lead to big mark-to-market losses," he said. "Any investor could get themselves in over their heads, even with a simple agency product, if they don't have good risk management or regulatory oversight. There can always be someone who makes imprudent decisions even within regulations."
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