The growing problem in the layers of positions probably stayed below the surface because of the way the portfolio was constructed, said Janet Tavakoli, an expert in derivatives and structured financial instruments.

"The nature of JPMorgan's large CDS book is that even a fool will appear to be making money as revenues pour in" from selling protection against default, said Tavakoli, adding that in her view the kind of valuation models JPMorgan uses "cannot distinguish between dumb trades and smart trades." The overwhelming flaw is that assumptions can be manipulated - whether intentionally or otherwise - so that an income stream that isn't hedged appears to be hedged, she said.

But hedge funds and other institutions in the market smelled weakness and dozens took advantage of the bank, according to traders. Reports by the Wall Street Journal and Bloomberg in early April about the bank's giant positions only made awareness of JPMorgan's problem and its isolation greater.

While Dimon has declined to describe the specific positions, he said the bank made the portfolio "more complex" as it tried to "rehedge" its positions over time.

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