By Simon Johnson
Jamie Dimon, CEO of JP Morgan Chase, is a member of the board of the New York Federal Reserve Bank. Mr. Dimon’s role there is sometimes presented as “advisory” but he sits on the Management and Budget Committee; here is the committee’s charter, which includes reviewing and endorsing “the framework for compensation of the Bank’s senior executives (Senior Vice President and above)”. His advice apparently extends to important aspects of how the New York Fed operates, including its personnel policies.
The New York Fed is a key part of our regulatory and supervisory apparatus, involved in overseeing the activities of banks and bank holding companies, like JP Morgan Chase (currently the largest bank in the US). Within the Federal Reserve System, the New York Fed also has some of the deepest expertise on financial markets and complex products, such as derivatives. Almost all of the relevant supervision takes place behind closed doors, with representatives of the industry – including big banks – typically taking the position that they should be allowed to operate in a particular way or use various kinds of risk models. The staff of the New York Fed often has a decisive voice in determining what kinds of risks are acceptable for systemically important financial institutions.
In recent weeks, risk management apparently broke down completely at JP Morgan Chase. Even the most sympathetic accounts portray Mr. Dimon as out of touch with large parts of his business. There are also press reports that one or more of Mr. Dimon’s hand-picked executives failed to understand and report on risks that became greatly magnified and quickly got out of control. Puzzles remain about what exactly Mr. Dimon did not know and when he did not know it, including the question of whether he disclosed all adverse material information in a timely and appropriate manner. Presumably, the New York Fed will be involved – directly or indirectly – in ongoing and future investigations (including answering questions about what its staff did or did not know).
At the end of last week, Treasury Secretary Tim Geithner called for Mr. Dimon to step down from the board of the New York Fed. Mr. Geithner is former president of the New York Fed and fully understands how the board operates – and how big bankers win friends and influence people. Mr. Geithner spoke in the usual Treasury Department diplomatic code – he suggested there is a “perception” problem that must be addressed. To officials, this is as clear a statement as is needed. As chairman of the Financial Stability Oversight Council, Mr. Geithner is ultimately responsible for the health of the financial system and its systemically important components. He is telling Mr. Dimon to go.
Mr. Dimon is likely to resist, but the blatant conflicts of interest in the current situation are too great. Mr. Dimon should not be in any position to influence or affect an organization that plays such an essential role in overseeing the activities of his company. Given the evident breakdowns in risk management at JP Morgan Chase and the possibility that there were again problems with bank supervision in this instance, we need to have a proper independent investigation – and to changes the parameters of this banker-supervisor relationship going forward.
To have Mr. Dimon involved in overseeing the management of the New York Fed, an organization that oversees his activities, decisions, and potential losses, is no longer acceptable. We do not accept such conflicts of interest in other parts of American society and we should not accept them in this instance.
The Baseline Scenario 
Another superb post, Simon. Let’s see how things work out in the next few days.
Putting the proverbial fox in charge of the hen house has never been a good idea. Allowing banks, in effect, to regulate themselves is beyond inane. This is especially the case after the financial meltdown they precipitated on the planet with their “off-the-radar” unregulated financial wheelings and dealings. This is just “common sense.” However common sense is in such short supply in this country these days it has, for all practical purposes, died.
‘At the end of last week, Treasury Secretary Tim Geithner called for Mr. Dimon to step down from the board of the New York Fed.’
Not even remotely accurate. Geithner was asked a question;
‘“JEFFREY BROWN: Do you think Jamie Dimon should be off the board [of the New York Federal Reserve Board]?’
To which he gave a non-answer.
‘His advice apparently extends to….’
‘…risk management apparently broke down completely at JP Morgan Chase. ‘
‘Puzzles remain about what exactly Mr. Dimon did not know and when he did not know it….’
‘Presumably, the New York Fed will be involved ….’
‘…the possibility that there were again problems with bank supervision in this instance….’
Verdict first! Trial afterwards.
It’s even worse than I originally thought. Here’s the full exchange between Geithner and the interviewer on the Lehrer NewsHour;
————————-quote————————-
JEFFREY BROWN: Elizabeth Warren, who helped set up the Consumer Protection Agency for the administration, now running for the Senate in Massachusetts – she said that Jamie Dimon, head of JPMorgan, should not be sitting on the board of the New York Fed, that that just – it isn’t right, because they help regulate those banks.]
TIMOTHY GEITHNER: That’s not a new observation, not a new concern. It’s been made by many people over the last several years.
JEFFREY BROWN: Do you think it’s right?
TIMOTHY GEITHNER: I think it is true. And I think it’s a problem that that – the structure of the Fed, established 90 years ago, and it’s true for Federal Reserve banks across the country, creates that basic perception. And I think that’s something worth trying to change. But the American people should understand that although the Fed was set up that way, those banks and the members of the board play no role in supervision. They have no role in the writing of the rules, and they play no role in decisions the Fed makes about how to respond to a financial crisis. Their role is a much more limited role, and the role is to help provide a perspective on what’s happening in the economy as a whole. But I agree with you that the, that perception is a problem. And it’s worth trying to figure out how to fix that.
JEFFREY BROWN: Do you think Jamie Dimon should be off the board?
TIMOTHY GEITHNER: Well, that’s a question he’ll have to make and the Fed will have to make. But again, on the basic point, which is it is very important, particularly given the damage caused by the crisis, that our system of oversight and safeguards and the enforcement authorities have not just the resources they need, but they are perceived to be above any political influence and have the independence and the ability to make sure these reforms are tough and effective so we protect the American people, again, from a crisis like this. And we’re going to, we’re going to do that.
———————endquote—————-
Three times Geithner is invited to ask Mr. Dimon to resign, and he declines each opportunity.
Secretary Geithner’s remarks at the end of last week, were WIDELY interpreted, to suggest to Mr. Dimon, that he needs to step down from the NY Fed Res Bank.
It’s hardly surprising that this has been twisted to suggest otherwise.
Simon,
Thanks for another great post, but really, we have to call for Jamie to resign from the Fed board?
He, and all his TBTF cohorts, should have been fired from everything in 2008. That he is still running JP Morgan, and that the TBTF banks are even larger than in 2008 should be the true indicators that we have had no real bank reform, no real Wall St reform.
Our government, our political system, has completely failed.
Why would a wisdom —tooth, be named as such, if it were a once only thing.
‘Secretary Geithner’s remarks at the end of last week, were WIDELY interpreted…’
Widely? Any more examples?
Don’t you read anything?
http://current.com/shows/viewpoint/videos/spitzer-to-jpmorgan-ceo-jamie-dimon-resign-from-the-new-york-fed-board/
It’s a talkie, Pat
“JPMorgan Chase is a FDIC bank. And as such, they should not be allowed to gamble money on bets. And they certainly shouldn’t be allowed to gamble taxpayer money in the form 0% interest loans from the government.
Some of our “wisest” business minds on CNBC…and Romney himself, have said that while Chase lost 3 billion dollars, someone else profited. Really? The derivatives market is a bubble market, just like real estate. As I remember, in 08 real estate wealth “vanished” in the bubble that burst…which also happened in the dot com bubble. People lost great amounts of wealth with NO ONE profiting. That’s what a “bubble” does, and that’s what JPMC is gambling in…a bubble…with taxpayer (low risk) money.
Bubbles look real pretty when you blow on them…but they do eventually pop.”
So are you calling for a revision of the Federal Reserve Act, to change the public-private nature of the Fed?
Given that from March 2007 through the end of August 2008, Simon Johnson was Chief Economist of the International Monetary Fund, and therefore perfectly placed to speak out, loudly, and did not say a word… should he resign from being a tenured professor at MIT?
“People lost great amounts of wealth with NO ONE profiting.”
Woopsie – “My Bad”….. Correction…..A very “FEW” amount of people profited. But this is what is called “free” capitalism. This is what is called “DEMOCRACY”.
Wealth does not vanish, but it does change hands. True, today, true with a bubble burst.
@ PER, yes, Simon should resign his MIT Position IF he was placing $100 BILLION dollar bets at the time, with OPM…..Other Peoples’ Money. Absent this, we respond, “negative”.
The whole question of whether Jamie Dimon should resign from the NYFed reflects more on the Fed than it does on Jamie Dimon.
Presumably, those who support his resignation believe the Fed will be enhanced by that action. If that is true then should all similar present individuals be encouraged to give up their positions at the Fed, thus enhancing it even more? Or perhaps only those should leave whose banks have suffered a quarterly loss in their trading book? There’s a criteria for service…
As I’ve expressed before, I agree with Dr. Johnson that Dimon should leave the NYFed.
But in my case, I think he should leave as a token of honor that he would disassociate himself from that organization. Maybe we’ll all learn something about the Fed. I am disinclined to be automatically enthralled with the uprightness, probity, and regulatory efficiency of the NYFed.
A Learnable Moment?
‘The Bond Man | May 21, 2012 at 5:50 pm |
Don’t you read anything?’
Since you’re unable to come up with any example, I guess we know you don’t.’
‘markets.aurelius | May 21, 2012 at 6:57 pm |
http://current.com/shows/viewpoint/videos/spitzer-to-jpmorgan-ceo-jamie-dimon-resign-from-the-new-york-fed-board/
It’s a talkie, Pat’
Whatever Client #9 thinks (and, having listened to him before, it’s clear he’s an ignoramus when it comes to econ), what he didn’t say is what Simon Johnson is claiming here; that Geithner called for Dimon to resign.
Care to try again, either of you?
‘A Learnable Moment?’
From a newspaper editorial?
It was over to the right, Pat
http://current.com/shows/viewpoint/videos/eliot-spitzer-to-tim-geithner-ny-fed-jamie-dimon-conflict-of-interest-not-just-perception-issue/
While we all debate how Jamie Dimon’s head should be served on a platter, and whether Simon’s head for its earlier strategic silence should join it, a small diversion that makes my heart lift a bit – Facebook’s underwriters reduced their earnings estimates and told only key investors during the IPO:
http://finance.yahoo.com/blogs/daily-ticker/facebook-bankers-secretly-cut-facebook-revenue-estimates-middle-133648905.html
I love it when the entire premise of a rent-seeking enterprise is taken down a peg.
And now, back to our discussion in progress.
To all the tea totalers:
Oh there’s more:
And More:
Now, he’s demeaning the time-honored editorial-op ed form of communication. What next?
What is a blog, besides an ongoing editorial? Stop making stuff up, too.
To all my amusing fans: Hey sheriff, it me, Billy…..the kid. I blame all the burnings on willy.
m/a, are you new at this?
Bond man made this claim;
‘Secretary Geithner’s remarks at the end of last week, were WIDELY interpreted, to suggest to Mr. Dimon, that he needs to step down from the NY Fed Res Bank.’
You’ve now provided a link to Eliot Spitzer showing that Geithner did no such thing–which is what I’ve been telling you. Spitzer wishes Geithner had, in fact done what Simon Johnson is claiming, but complains that he didn’t.
Or are you attempting to concede I’m right…again.
‘Stop making stuff up, too.’
Stuff, like; ‘…WIDELY interpreted, to suggest to Mr. Dimon, that he needs to step down from the NY Fed Res Bank.’?
Patrick, we’re you comatose, or merely forgetful, or disinclined to review information leading to severe cognitive dissonance?
You’re the ONLY person in *print* who missed the story, so, quit fobbing it off on others, as a way to deflect the inadequacy that is you.
BTW< I really hope you are GETTING COMPENSATED for your unabashed * suck-presentation* relative to bank executives and the bank involved.
As blog readers, we need to collect on your behalf and buy you kneepads, so as to protect you for the ardors of your assignment.
BAWAHAAAAAAAAAAAA.
Bond Man –
“Wealth does not vanish, but it does change hands. True, today, true with a bubble burst.”
Can you be that naive? In 08, real estate equity vanished in a bubble. Who gained that wealth? Maybe a few….but the bubble of the wealth, the “total “of the “bubbles” value … did not transfer equally to others hands. Just a small amount did. So yes, “wealth” in a bubble, did and does vanish. Because it wasn’t all “Real” …which is why it is called a “bubble”.
“So are you calling for a revision of the Federal Reserve Act, to change the public-private nature of the Fed?”
Jerry C – what I am calling for is an FDR type “moment” against the TBTF banks.
‘You’re the ONLY person in *print* who missed the story, so, quit fobbing it off on others, as a way to deflect the inadequacy that is you.’
Then it should be a simple matter for you to provide examples of anyone else but Simon Johnson ‘interpreting’ Geithner’s answers to be calling for Dimon to resign (from a post to which he was elected by the member banks, btw).
Yet no one can provide even one such example.
Now, go on and spin this is not “even on such example” by adding a new stipulation or complexity to your complaint. I expect more disinformation and propaganda out of you, always. I expect nothing less from a troll of your calibre.
I’m done now, schills have no conscience.
http://www.slate.com/articles/business/the_best_policy/2012/05/jamie_dimon_s_2_billion_mistake_the_jp_morgan_chase_fiasco_and_how_to_fix_wall_street_.html
@freedomny Bond Man is right. The last person to sell the over inflated asset before the bubble pops is the one who makes the money. The last person to buy the over inflated asset before the bubble pops is the one who loses the money.
Anynominous, I’m making the same stipulation yet again; you need to provide an example of someone claiming that Geithner’s answers to three questions on the Lehrer NewsHour were calls to Dimon to resign.
In your latest, Spitzer doesn’t even mention Geithner, it’s just more ignorant drivel. Mouthing OWS bumper stickers merely exposes Spitzer for the fraud he is.
Not to mention that it should be worthy of a Pot, Kettle, Black Award, i.e. Client #9 complaining about someone else’s bad judgment in risk taking.
Considering the regulatory role of the Federal Reserve, a role which is by the way at odds with its role as lender of last resort and its mission to increase full employment , its inappropriate for banks who are supervised to be in a position to influence that regulatory role.
Pat, is m/a me?
Patrick, figures.
Here’s what you wrote, Patrick:
“Then it should be a simple matter for you to provide examples of anyone else but Simon Johnson ‘interpreting’ Geithner’s answers to be calling for Dimon to resign (from a post to which he was elected by the member banks, btw).
Yet no one can provide even one such example.”
That’s clear. But then, you added a complexity, a diversion, a stipulation not present in that particular post you wrote:
“Anynominous, I’m making the same stipulation yet again; you need to provide an example of someone claiming that Geithner’s answers to three questions on the Lehrer NewsHour were calls to Dimon to resign.”
This is classic disinformation-propaganda methodology you elect to employ on this forum. As such, this proves you unworthy of further intercourse on this board. Sorry, but you brought this on, not Simon, not Baseline, not the commentators…..you have only yourself to consider.
@ Anynominous
re p/r/s: I was going to make a similar point. p/r/s’s mode of argumentation is purely ad hominem attack and misdirection.
p/r/s is not Gottlob Frege-type precise. p/r/s’s style is somewhat akin to the misdirection employed by Tariq Ramadan: contra-word-sense-disambiguation. (I say somewhat, because next to Ramadan, even p/r/s is a piker.)
Yet another analysis that acts as if the newly erected billion dollar apparatus providing *homeland security* does NOT exist. As much as issues like Bain the Vulture, and Chase the Jamie are fair-game topics, so is this – what ROLE did/does the Patriot Act play – and what ROLE are they playing NOW….?!
The *game* of taking my HONEST EARNED $$$$ and use it to slam my financial future below the GLOBAL PSYCHO LORDS continues!
JUST WAR back atcha!
http://www.huffingtonpost.com/charles-ferguson/how-wall-street-became-a-_b_1536475.html
‘This is classic disinformation-propaganda methodology you elect to employ on this forum. As such, this proves you unworthy of further intercourse on this board. Sorry, but you brought this on, not Simon, not Baseline, not the commentators…..you have only yourself to consider.’
I’m paying attention to YOU GUYS. Reading what YOU WRITE. Maybe you should try considering others sometime.
Geithner’s a politician, remember? Politicians don’t tell you what to do, they simply offer you the sword that they’d like you to disembowel yourself with.
This pseudo-scientific parsing of who said what, why they said it, and what it means is classic navel-gazing. You look in there and see the bellybutton lint forming into your favorite rorschach. That becomes the interpretation of the moment.
OK. Dimon appears to have an economic conflict of interest vis a vis his position at Chase, and his work at the NY Fed Reserve Bank.
Generally, this disqualifies someone from holding both offices, and is normally considered, at a minimum, an ETHICS violation.
For these reasons, it is incumbent on Mr. Dimon to resign from the NY Fed Reserve Bank, lest he be further accused of improprieties, or worse.
What was the NY Fed Res Bank THINKING in allowing this role for Mr. Dimon?
Watch the full documentary now Free.
http://topdocumentaryfilms.com/power-principle/
The Power Principle
“A gripping, deeply informative account of the plunder, hypocrisy, and mass violence of plutocracy and empire; insightful, historically grounded and highly relevant to the events of today.
This documentary is about the foreign policy of the United States. It demonstrates the importance of the political economy, the Mafia principle, propaganda, ideology, violence and force.
It documents and explains how the policy is based on the interest of major corporations and a tiny elite to increase profits and the United States governments own interests in maintaining and expanding it’s imperialistic influence.”
http://topdocumentaryfilms.com/power-principle/
The Power Principle
@Woych – so when did USA get all hog-wild imperialistic?
They almost did not get involved in WWII….
Public perception of JP Morgan CHASE now in the Thomas Crapper!!
http://www.huffingtonpost.com/2012/05/23/jpmorgan-chases-consumer-reputation-yougov_n_1540582.html
‘What was the NY Fed Res Bank THINKING in allowing this role for Mr. Dimon?’
Following the rules;
http://www.newyorkfed.org/aboutthefed/governance.html
‘Under Section 4 of the Federal Reserve Act, each Federal Reserve Bank, including the Federal Reserve Bank of New York, operates pursuant to the supervision of a Board of Directors, in addition to the general supervision of the Board of Governors in Washington, D.C. The Bank’s Board of Directors has nine members, all chosen from outside the Reserve Bank, who are divided into three equal classes—designated A, B, and C. The Class A and Class B directors are elected by the member commercial banks of the Second District. ….
‘Class A directors are required to be representative of the member banks in the District and for the most part they have been officers or directors of member banks or their holding companies. ‘
This language suggests a prior relationship, a past-tense, something removed and removable from the present day:
“…and for the most part THEY HAVE BEEN OFFICERS OR DIRECTORS….” etc.
And this: ” Further, Class A directors may not participate in personnel or budget decisions related to the Bank’s Financial Institution Supervision Group. These constraints are designed to minimize the risk of an actual or perceived conflict of interest at the Board level.”
It would be instructive to examine emails and memos from the Board, in a determination whether this stricture was observed, since participation along these lines, as the guideline correctly noted, increases risk related to actual or perceived conflict of interest.
There is a wide distrust, fittingly, of bankers, given their marked propensity for lying, cheating, stealing, and massive fraud.
Dimon stepping down would calm the waters, in a small way, relative to this issue, that of PERCEIVED conflict of interest.
Politicians, judges, lawyers, and predatorclass corporate titans and minions will NEVER work in the people’s best interests. We – the people must demand that criminals are held accountable for crimes and that those responsible for rank failure be held culpable for that failure.
If enough Americans DEMAND that failed leaders, who may be culpable for crimes like dimon – be held accountable for failure and/or criminal activity – then the force and enertia of the people’s determination will force action and inevitably, justice.
This is our only hope. Standup and demand that rank failure and criminal activity be held accountable, and that those responsible for rank failure and/or criminal activity be forced to face the terrible swift sword of justice.
A pox on the houses of dimon, jpmorgan, and that thing we call the fed!
@Tony – “….If enough Americans DEMAND that failed leaders, who may be culpable for crimes like dimon – be held accountable for failure and/or criminal activity – then the force and inertia of the people’s determination will force action and inevitably, justice….”
Seems to me like people are DEMANDING it – they just don’t have Homeland Insecurity apparatus on their side…the GOONS in Homeland Insecurity got their billions to be high tech predators who can bankrupt you at will from Wall Street – see the problem?
We have a re-engineered economy to support perpetual war in the Middle East. They did it by slamming – FINANCIALLY – the CIVILIZED Middle Class of USA below the financial FUTURES of GLOBAL Slave Lords, Drug Lords and War Lords risk-free *businesses*…
Just War using the hot-spotting technique :-))
I would like to sign for demanding Jamie Diamond’s resignation from the Federal Reserve Board. yongsun choe