Tag Archives: Jamie Dimon

JP Morgan Debacle Reveals Fatal Flaw In Federal Reserve Thinking

By Simon Johnson

Experienced Wall Street executives and traders concede, in private, that Bank of America is not well run and that Citigroup has long been a recipe for disaster.  But they always insist that attempts to re-regulate Wall Street are misguided because risk-management has become more sophisticated – everyone, in this view, has become more like Jamie Dimon, head of JP Morgan Chase, with his legendary attention to detail and concern about quantifying the downside.

In the light of JP Morgan’s stunning losses on derivatives, announced yesterday but with the full scope of total potential losses still not yet clear (and not yet determined), Jamie Dimon and his company do not look like any kind of appealing role model.  But the real losers in this turn of events are the Board of Governors of the Federal Reserve System and the New York Fed, whose approach to bank capital is now demonstrated to be deeply flawed. Continue reading

Anti-American Bankers

By Simon Johnson.  An edited version of this short post appeared today on the NYT.com’s Room for Debate: “Are Global Banking Rules Anti-American?”

Jamie Dimon claims that the new rules on bank capital “anti-American” because they somehow discriminate against American banks and American bankers.  This framing of the issues is misleading at best.

The term “bank capital” is often poorly explained in the debate on this issue.  It is just a synonym for equity – meaning the amount of a bank’s activities that are financed with shareholder equity, rather than debt.  The advantage of equity is that it is “loss absorbing,” meaning that it takes losses and must be wiped out in full before any losses fall on creditors.

More capital means that a bank is safer, both from the perspective of shareholders and for creditors.  Bankruptcy has become less likely. Continue reading

Jamie Dimon’s New Math

By Simon Johnson

On Tuesday, June 7, Jamie Dimon (CEO of JPMorgan Chase) pressed Fed Chair Ben Bernanke on the costs of bank regulation after the financial crisis of 2008.  Could this be what is slowing the economic recovery?  Bernanke was very polite in his response, but the question – as posed – made no sense at all.  (The full tape of his question is here,)

Most of what Jamie Dimon lists under the heading of changes are just symptoms of the crisis itself, e.g., badly run firms and crazy products disappeared.  His substantive issue appears – from his question – to be just about capital requirements. 

But the implication of Dimon’s question – that higher capital requirements will slow growth – is simply wrong.  I explain this in a column now running on Bloomberg.  Here’s the link: http://www.bloomberg.com/news/2011-06-09/the-missing-math-in-dimon-s-economic-argument-simon-johnson.html.

What Jamie Dimon Won’t Tell You: His Big Bank Would Be Dangerously Leveraged

By Anat Admati, Professor of Finance and Economics at Stanford Graduate School of Business.  To see her explain these issues in person, watch this Bloomberg interview.  This is a long post, about 3,500 words.

The debate is raging about banks and their size, financial regulation, and the international capital standards known as “Basel”.  Jamie Dimon of JP Morgan Chase, in his New York Times magazine profile, expresses admiration for the Basel committee and says,

“… they are asking the questions that, in theory, bankers ask of themselves: how much capital do banks need to withstand the inevitable downturn, and what is an acceptable level of risk?”

There is one problem, however. Basel may have asked the right question, but it did not come up with the right answers, mainly because it allows banks to remain dangerously leveraged, setting equity requirements way too low. This fact is not understood because the debate on capital regulation has been mired with a cloud of confusion, and filled with un-substantiated assertions by bankers and others. As a result, the issues appear much more mysterious and complicated than they actually are.

After a massive and incredibly costly financial crisis, we seem to have financial system that is a more consolidated, more powerful, more profitable and, yes, as fragile and dangerous as we had before the crisis. How did this happen and what can we do?

Here are some questions on which the confusion is staggering. Continue reading

Jamie Dimon: Becoming Too Big To Save – Creating Fiscal Disaster

By Simon Johnson

In Sunday’s New York Times magazine, Roger Lowenstein profiles Jamie Dimon, head of JP Morgan Chase.  The piece, titled “Jamie Dimon: America’s Least-Hated Banker,” is generally sympathetic, but in every significant detail it confirms that Mr. Dimon is now – without question – our most dangerous banker.

Mr. Dimon is not dangerous because he is in any narrow sense incompetent.  On the contrary, Mr. Dimon is very good at getting what he wants.  And now he wants to run a bigger, more interconnected, and more global bank that – if it were to fail – would cause great chaos around the world.  Lowenstein writes,

“Dimon has always been unusually blunt, and he told me that not only are big banks like JP Morgan (it has $2 trillion in assets) not too big, but that they should be allowed to grow bigger.” Continue reading

JP Morgan Responds To Financial Reform: The Poison Pill Strategy

By Simon Johnson

While the financial reform negotiation process grinds to its meaningless conclusion, the real action lies elsewhere – in Jamie Dimon’s executive suite. 

Dimon, the head of JP Morgan Chase, is apparently seeking to (a) become more global, (b) move further into emerging markets, and (c) become more like Citigroup. 

This is terrific corporate strategy – and very dangerous for the rest of us. Continue reading

Jamie Dimon Has Another Good Year

In May, Jamie Dimon, the head of JP Morgan Chase, told his shareholders that the bank just had probably “our finest year ever.”  Despite being close to the epicenter of the worst financial crisis since the Great Depression, Dimon’s bank was able to make a great deal of money, obtain government support when needed, and reduce that support level quickly when the overall situation stabilized – thus freeing the bank of constraints on its pay packages (and other activities).

It looks like the full year 2009 may turn out even better than Mr. Dimon expected in May.  Speaking at the Goldman Sachs US Financial Services Conference on Tuesday (December 8), Jamie Dimon presented JP Morgan Chase’s third quarter results (year-to-date).  His slides are informative, but if you want to pick up the nuances in his message, listen to the audio webcast (you have to register, but it’s free; here are back-up/alternative links). Continue reading