Monday, May 14, 2012

JPMorgan Chase and Jamie Dimon

Dear Madame L,

I've been hearing a lot on the news about JPMorgan Chase's loss of $2 billion, and I can't believe they're going to get away with that. Apparently world markets plummeted at the news, but what is the U.S. government going to do about it? Just let them get away with it? 

And their CEO, Jamie Dimon, what a jerk! Giving that fake apology and saying it was mostly his fault, blah blah blah, as if that would make everybody say he's a good guy after all and let him keep his $23 million per year salary. Are you kidding me?

Sincerely,

Where's MY Bailout?


Dear Bailout Sufferer,

Madame L feels your pain, but because her understanding of economics and the world of finance is about as deep as a very small puddle, she has only been able to do some quick research to get a feel for the issues involved and to point you to some other websites with more information.

Even that much, however, has engendered in Madame L a sense of outrage to match yours.

It appears that Jamie Dimon objects to federal regulation of investment banks such as his own, while supporting bailouts.

In addition, while Dimon claimed to accept responsibility for the huge loss, he actually let someone else take the fall for it: JPMorgan Chase's chief investment officer, Ina Drew, who had to resign, along with two other JPMC officers in London, Achilles Macris and Javier Martin-Artaj.

Yet experts in the field know Dimon is completely to blame: "Those excess deposits [from trading mistakes in the London office] weren’t gifted to Dimon on a plate so that he could gamble them on the CDX NA IG 9. Rather, Dimon’s job is to take those deposits and lend them productively into the real economy. Every extra dollar in the CIO is a sign of his failure to do that. And the $2 billion loss is really just a symptom of what happens when banks get too much money, and don’t really know what to do with it all."

In fact, under Dimon's leadership, "... total shareholder returns for J.P. Morgan have recently trailed peers significantly. Over the past three years, ISS says J.P. Morgan’s shareholder returns have risen 3.3%, compared to a 13% gain for its peer group.  Dimon has been chairman and CEO since 2006."

What's worse is that Dimon "...sits on the board of the New York Federal Reserve Bank—the very organization that is supposed to oversee his bank’s financial practices, the organization that is supposed to issue all sorts of regulations that control what his bank can do, the very organization he has been lobbying to relax the rules about the bets he wants to make."

Is this like putting the fox in charge of guarding the chickens, or what?

Then what should be done to Dimon? At the very least, he should resign from the New York Fed, as Eliot Spitzer points out. Spitzer's article is full of information and is easier to read than some of the analyses Madame L found. Here are some bits from it:

"It was Chase’s own lobbying on Capitol Hill and with the Treasury, the Fed, and other agencies that made these bets arguably permissible within the scope of hedging under the Volcker rule. Had they not lobbied and pushed and delayed and made the rule more complicated, these bets  would have been illegal or at a minimum so transparent as to have been smaller and less damaging.  The banks love to complain about the complexity of these rules. But the rule as proposed by Paul Volcker was simple. It is only because of the very lobbying by the banks that the complexity and loopholes crept in.

"...Warren Stephens, CEO of the Stephens Bank, argues that we should slim down “too big to fail” institutions by a significant factor, reducing their deposits and assets as a percentage of GDP to a more manageable 5 percent from the existing 10 percent—and bring back Glass-Steagall, which separated commercial from investment banking.  That way taxpayers would guarantee only what should be guaranteed: deposits and basic lending...."

"So here is a modest solution: Dimon should resign from the New York Fed board immediately, acknowledging that his role is incompatible with what he has been trying to do in terms of lobbying and his abject failure as a manager to control risk within his own organization." (Emphasis added by Madame L)

Madame L likes this suggestion from Slate's Alex Pareene even better, though: Let's put him on trial:

"So let’s haul him before a judge (I would be fine with Judge Judy) and ask him to explain, without jargon, what positive role JPMorgan plays for the American and world economies that a few much smaller, less leveraged firms couldn’t also play while not being at risk of losing billions of dollars by accident in a “hedge” and sending world markets reeling.

"I mean, I’m sure he’d never admit to any sort of culpability for our current morass (it’s the gubmint’s fault!) because he clearly believes his own bull@#$% and he’s never faced any sort of serious challenge to his viewpoint, but it still might be very good television."

Sincerely,

Madame L

1 comment:

Jeff said...

That's the best and most succinct explanation I've yet seen on this. Thanx for the links, especially.

So... would you like to explain why Congress is carefully avoiding doing anything about this incredible gambling of taxpayers and investors money?
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