Hello kids, today we will be discussing the future. Yes it is scary, I know. It gets worse. We will be discussing the future of...a financial firm!!! At this point you should be really scared. If not, then you're either not scared easily or maybe you don't watch the news. The collapse of the subprime mortgage market put a heavy strain on many banks and financial institutions, threatening the very existence of some. Some predicted it, many didn't believe it. JP Morgan Chase was one of the companies that was forces to write off over a billion dollars worth of debt. Now they have to deal with it and continue operations, although the extent of the damage may not be fully realized just yet. So what other events may occur in the future that will challenge JP Morgan Chase?
One possibility is a nationwide depression. The way things are going now, I would estimate that there is about a 5% chance of this happening. For this to be a serious problem most Chase customers will have to withdraw their deposits at once. Of course banks keep reserves on hand, but it might not be enough in case of a nationwide economic crisis. Its practically impossible to hedge yourself against such a loss of assets except to limit the percentage of assets held as short term deposits, and I'm sure they already do this. But I'm sure in such a situation, the firm's equity would be devalued dramatically regardless along with all other financial institutions.
Another event that could create very serious problems for JPM Chase is if their corporate headquarters in NY and their retail financial services and commercial banking headquarters in Chicago were completely destroyed in a terrorist attack. Considering the turbulent times we live in, the possibility of this is close to 0. Nonetheless, heavily armed guards throughout the buildings , anti-aircraft weaponry on top of the buildings, bomb proof glass and possibly electric fences might prevent this kind of incident.
Finally, its possible that in the future, people will not have a need for commercial banking or financial services. There might be no money in the far away future and everything will be bartered or free. The possibility of this in the near future is probably 0, but maybe 500 years from now, this will be the case. To protect themselves against this, Chase will have to create their own government and print their own money. But I don't think we have to worry about this any time soon. So don't get scared just yet.
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7 comments:
Haha that's some crazy future you thought of. I don't think any of them could possibly happen anytime soon. Even depression is way out there. Recession, yea, depression, nah.
Hey you never know! Plus 5% chance is pretty slim. Aside those I don't see any serious problems they might face that they aren't already facing.
The scenarios that you've mentioned are kind of out there. Perhaps a more realistic obstacle that JP Morgan could face is another credit crissis. This time credit card debt. I read in Fortune magazine that consumer credit card dept is somewhere around 950 billion dollars and it might be the next credit diseaster that will cripple financial compaies such as JP Morgan.
Very reasonable threats
I don't see a possibility of a problem with credit card debt. A person's ability to pay off debt is analyzed very closely before they can get a credit card. I know a couple of my friends who were in bad financial standing before, they couldn't get a credit card if their life depended on it. Plus, even if you do manage to get one with a very high APR, you still won't get a limit larger than $500-1000 on it.
haha, interesting in turning JPM Chase into something like an anti-aircraft tower in NYC...who then would dare go into Chase bank to withdraw their money when the fear of a direct terrorist attack is place on Chase? lol
Lenny,
you crack me up! I like the way you think with the bater system...just imagine no money being exchanged :)
but as you said there is a 0% chance of that happening because banks are not going to let their bread butter just fly out the door.
Your other point about Chase's write off of a billion dollars could change the way they do business and that means not give loans to some what risky people that easily.
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