Not wanting to be the lone moron on the local news who failed to participate in the run on Washington Mutual before its impending collapse in June of 2008, I dutifully stood in line with the rest of the panic-stricken depositors, fortified by the thought that I wouldn’t anytime soon be eating cat food in a trailer park in Odessa, Texas, and drained my account before it was engulfed by the housing collapse.  It wasn’t long, however, before the government’s orchestrated sale to JP Morgan Chase turned my smug satisfaction into some kind of private shame – I had overreacted by failing to correctly read the tea leaves so dourly exposited by the hermeneuts at Bloomberg and CNBC.  By doing absolutely nothing, my funds would have been safely ensconced behind the gleaming six-foot thick steel doors of the nation’s bellwether financial institution, rather than sitting in a cardboard box at the Prison Guards’ Credit Union.  In the wild churn of financial chaos, I worried, what else would I get wrong?

Yet how the winds of fate can change: JP Morgan Chase just reported a $2 billion loss (experts now put the tally at closer to $7 billion) betting on the very instruments – credit default swaps – that took down AIG and, indirectly, General Growth Properties.  What remains perplexing is that Morgan is actually long $102 billion of investment grade CDS on bonds with maturities exceeding five years.  Yes, they are short $54 billon maturing in less that a year, but it is highly unlikely that, despite the imminent demise of the Euro, these will pay out in the next 12 months.  Couldn’t the bank simply let them roll off and profit from their massive bet on economic vitiation?  True, these are thinly traded instruments, based on “synthetic indices” and subject to price swings governed by esoteric mathematical formulae and less than robust financial engineering, but still, I can’t find the flaw in shorting something that’s going to zero.  And there’s the rub, because once again what makes sense doesn’t, and I am freshly overtaken by fears of hoarding cans of Friskies® and huddling against the lazy tumbleweeds of West Texas.