Information Arbitrage

I'm not too surprised losses from this trade have continued to grow, because whenever such trades become public, other Wall Street firms tend to gang up on the other side of the trade, putting themselves in a position where they can demand growing exit costs from the party that is suffering the losses.

Moreover, when the instruments being traded are thinly traded or illiquid (as is the case here), the ability of other firms to inflict pain on the losing party is magnified. In the worst case, this can force the losing party into "sell what you can, not what you should" mode, possibly leading not just to firm failure but also turbulence in other seemingly unrelated markets.

No one knows with certainty how this situation will evolve, but many seasoned Wall-Streeters have been expecting JPMorgan Chase to announce growing losses for months -- for example, see http://informationarbitrage.com/post/23227611033/ltcm-amaranth-jp-morgan

Other people did a good job explaining the basics. The issue is about book value and the complexity of the risk. The risk is similar to what the firm Citadel did with E*Trade.

The risk on the books of Bear Stearns can't be fully calculated and JP Morgan is assuming that risk, hence the low price. The Fed is possibly going to limit the downside risk of JP Morgan to keep stability in US financial markets, though they are not putting up any additional capital upfront.

Roger Ehrenberg has some great blog posts on the topic (he used to run a big hedgefund and now has an NYC startup called Monitor110):

http://www.informationarbitrage.com/2008/03/the-bear-facts.html

http://www.informationarbitrage.com/2008/03/i-bear-ly-knew.html

Entrepreneurship:

http://cdixon.org/

http://derekandersen.me/

http://davidcummings.org/

http://viniciusvacanti.com/

http://www.steveblank.com/

http://37signals.com/svn

Startup/Tech Marketing:

http://www.responsys.com/blogs/nsm/

http://startup-marketing.com/

http://blog.kissmetrics.com/

http://unbounce.com/blog/

Venture Capital:

http://bhorowitz.com/

http://www.bothsidesofthetable.com/

http://www.feld.com/wp/

http://www.avc.com/

http://vcinjerusalem.typepad.com/vcinjerusalem/

http://sixkidsandafulltimejob.blogspot.com/

http://redeye.firstround.com/

http://informationarbitrage.com/

This company is from the guy who started/funded monitor110.com - which ultimately failed. Interesting post-mortem found here:
http://www.informationarbitrage.com/2008/07/monitor110-a-po.html

Seven deadly sins of a startup:
1. The lack of a single, "the buck stops here" leader until too late in the game
2. No separation between the technology organization and the product organization
3. Too much PR, too early
4. Too much money
5. Not close enough to the customer
6. Slow to adapt to market reality
7. Disagreement on strategy both within the Company and with the Board