Last week’s World Economic Forum in Davos, Switzerland turned out to be a bad time for The Dimon Dog to stage a “righteous indignation” fit. One would expect an investment banker to have a better sense of timing than what was demonstrated by the CEO of JPMorgan Chase. Vito Racanelli provided this report for Barron’s:
The Davos panel, called “The Next Shock, Are We Better Prepared?” proceeded at a typically low emotional decibel level until Dimon was asked about what he thought of Americans who had directed their anger against the banks for the bailout.
Dimon visibly turned more animated, replying that “it’s not fair to lump all banks together.” The TARP program was forced on some banks, and not all of them needed it, he said. A number of banks helped stabilize things, noting that his bank bought the failed Bear Stearns. The idea that all banks would have failed without government intervention isn’t right, he said defensively
Dimon clearly felt aggrieved by the question and the negative banker headlines, and went on for a while.
“I don’t lump all media together… . There’s good and there’s bad. There’s irresponsible and ignorant and there’s really smart media. Well, not all bankers are the same. I just think this constant refrain [of] ‘bankers, bankers, bankers,’ – it’s just a really unproductive and unfair way of treating people… People should just stop doing that.”
The immediate response expressed by a number of commentators was to focus on Dimon’s efforts to obstruct financial reform. Although Dimon had frequently paid lip service to the idea that no single institution should pose a risk to the entire financial system in the event of its own collapse, he did all he could to make sure that the Dodd-Frank “financial reform” bill did nothing to overturn the “too big to fail” doctrine. Beyond that, the post-crisis elimination of the Financial Accounting Standards Board requirement that a bank’s assets should be “marked to market” values, was the only crutch that kept JPMorgan Chase from falling into the same scrap heap of insolvent banks as the other Federal Reserve welfare queens.
Simon Johnson (former chief economist at the International Monetary Fund) obviously had some fun writing a retort – published in the Economix blog at The New York Times – to The Dimon Dog’s diatribe. Johnson began by addressing the threat voiced by Dimon and Diamond (Robert E. Diamond of Barclay’s Bank):
The newly standard line from big global banks has two components . . .
First, if you regulate us, we’ll move to other countries. And second, the public policy priority should not be banks but rather the spending cuts needed to get budget deficits under control in the United States, Britain and other industrialized countries.
This rhetoric is misleading at best. At worst it represents a blatant attempt to shake down the public purse.
* * *
As we discussed at length during the Senate hearing, it is therefore not possible to discuss bringing the budget deficit under control in the foreseeable future without measuring and confronting the risks still posed by our financial system.
Neil Barofsky, the special inspector general for the Troubled Assets Relief Program, put it well in his latest quarterly report, which appeared last week: perhaps TARP’s most significant legacy is “the moral hazard and potentially disastrous consequences associated with the continued existence of financial institutions that are ‘too big to fail.’ ”
* * *
In this context, the idea that megabanks would move to other countries is simply ludicrous. These behemoths need a public balance sheet to back them up, or they will not be able to borrow anywhere near their current amounts.
Whatever you think of places like Grand Cayman, the Bahamas or San Marino as offshore financial centers, there is no way that a JPMorgan Chase or a Barclays could consider moving there. Poorly run casinos with completely messed-up incentives, these megabanks need a deep-pocketed and somewhat dumb sovereign to back them.
After Dimon’s temper tantrum, a pile-on by commentators immediately ensued. Elinor Comlay and Matthew Goldstein of Reuters wrote an extensive report, documenting Dimon’s lobbying record and debunking a good number of public relations myths concerning Dimon’s stewardship of JPMorgan Chase:
Still, with hindsight it’s clear that Dimon’s approach to risk didn’t help him entirely avoid the financial crisis. Even as the first rumblings of the crisis were sounding in the distance, he aggressively sought to boost Chase’s share of the U.S. mortgage business.
At the end of 2007, after JPMorgan had taken a $1.3 billion write-down on leveraged loans, Dimon told analysts the bank was planning to add as much as $20 billion in mortgages from riskier borrowers. “We think we’d get very good spreads and … it will be a drop in the bucket for our capital ratios.”
By mid-2008, JPMorgan Chase had $95.1 billion exposure to home equity loans, almost $15 billion in subprime mortgages and a $76 billion credit card book. Banks were not required to mark those loans at market prices, but if the loans were accounted for that way, losses could have been as painful for JPMorgan as credit derivatives were for AIG, according to former investment bank executives.
What was particularly bad about The Dimon Dog’s timing of his Davos diatribe concerned the fact that since December 2, 2010 a $6.4 billion lawsuit has been pending against JPMorgan Chase, brought by Irving H. Picard, the bankruptcy trustee responsible for recovering the losses sustained by Bernie Madoff’s Ponzi scam victims. Did Dimon believe that the complaint would remain under seal forever? On February 3, the complaint was unsealed by agreement of the parties, with the additional stipulation that the identities of several bank employees would remain confidential. The New York Times provided us with some hints about how these employees were expected to testify:
On June 15, 2007, an evidently high-level risk management officer for Chase’s investment bank sent a lunchtime e-mail to colleagues to report that another bank executive “just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”
Even before that, a top private banking executive had been consistently steering clients away from investments linked to Mr. Madoff because his “Oz-like signals” were “too difficult to ignore.” And the first Chase risk analyst to look at a Madoff feeder fund, in February 2006, reported to his superiors that its returns did not make sense because it did far better than the securities that were supposedly in its portfolio.
At The Daily Beast, Allan Dodds Frank began his report on the suit with questions that had to be fresh on everyone’s mind in the wake of the scrutiny The Dimon Dog had invited at Davos:
How much did JPMorgan CEO and Chairman Jamie Dimon know about his bank’s valued customer Bernie Madoff, and when did he know it?
These two crucial questions have been lingering below the surface for more than two years, even as the JPMorgan Chase leader cemented his reputation as the nation’s most important, most upright, and most highly regarded banker.
Not everyone at Davos was so impressed with The Dimon Dog. Count me among those who were especially inspired by the upbraiding Dimon received from French President Nicolas Sarkozy:
“Don’t be accusatory of us,” Sarkozy snapped at Dimon at the World Economic Forum in Davos, Switzerland.
“The world has paid with tens of millions of unemployed, who were in no way to blame and who paid for everything.”
* * *
“We saw that for the last 10 years, major institutions in which we thought we could trust had done things which had nothing to do with simple common sense,” the Frenchman said. “That’s what happened.”Sarkozy also took direct aim at the bloated bonuses many bankers got despite the damage they did.
“When things don’t work, you can never find anyone responsible,” Sarkozy said. “Those who got bumper bonuses for seven years should have made losses in 2008 when things collapsed.”
Why don’t we have a President like that?