Tag Archives: JP Morgan Chase

One Man Against The Wall Street Lobby

By Simon Johnson

Two diametrically opposed views of Wall Street and the dangers posed by global megabanks came more clearly into focus last week.  On the one hand, William B. Harrison, Jr. – former chairman of JP Morgan Chase – argued in the New York Times that today’s massive banks are an essential part of a well-functioning market economy, and not at all helped by implicit government subsidies.

On the other hand, there is a new powerful voice who knows how big banks really work and who is willing to tell the truth in great and convincing detail.  Jeff Connaughton – a former senior political adviser who has worked both for and against powerful Wall Street interests over the years – has just published a page-turning memoir that is also a damning critique of how Wall Street operates, the political capture of Washington, and our collective failure to reform finance in the past four years.  “The Payoff: Why Wall Street Always Wins,” is the perfect antidote to disinformation put about by global megabanks and their friends.

Specifically, Mr. Harrison makes six related arguments regarding why we should not break up our largest banks.  Each of these is clearly and directly refuted by Mr. Connaughton’s experience and the evidence he presents. Continue reading

The Need For An Independent Investigation Into JP Morgan Chase

By Simon Johnson

JPMorgan Chase is too big to fail. As the largest bank-holding company in the United States, with assets approaching $2.5 trillion as reported under standard American accounting principles, it is inconceivable that JPMorgan Chase would be allowed to collapse now or in the near future. The damage to the American economy and to the world would be too great.

The company’s recent trading losses therefore call for greater public scrutiny than would be case for most private enterprise – and demand an independent investigation into exactly what happened. (Dennis Kelleher of Better Markets has already called for exactly this.) The investigation begun by the F.B.I. is unlikely to be sufficiently public.  Given the strong political connections between JP Morgan and the Obama administration, it would also be better to have an investigation led by a completely independent counsel. Continue reading

The Bill Daley Problem

By Simon Johnson, co-author of 13 Bankers (out in paperback on Monday)

Bill Daley, President Obama’s newly appointed chief of staff, is an experienced business executive.  By all accounts, he is decisive, well-organized, and a skilled negotiator.  His appointment, combined with other elements of the White House reshuffle, provides insight into how the president understands our economy – and what is likely to happen over the next couple of years.  This is a serious problem.

This is not a critique from the left or from the right.  The Bill Daley Problem is completely bipartisan – it shows us the White House fails to understand that, at the heart of our economy, we have a huge time bomb. 

Until this week, Bill Daley was on the top operating committee at JP Morgan Chase.  His bank – along with the other largest U.S. banks – have far too little equity and far too much debt relative to that thin level of equity; this makes them highly dangerous from a social point of view.  These banks have captured the hearts and minds of top regulators and most of the political class (across the spectrum), most recently with completely specious arguments about why banks cannot be compelled to operate more safely.  Top bankers, like Mr. Daley’s former colleagues, are intent of becoming more global – despite the fact that (or perhaps because) we cannot handle the failure of massive global banks.  Continue reading

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