Jamie Dimon has all the best lines. In May 2009, he told JPMorgan Chase shareholders that 2008 was probably “our finest year ever.” That was before he thought about profits for 2009.
And today he told to the Financial Crisis Inquiry Commission, “I want to be clear that I do not blame the regulators. The responsibility for a company’s actions rests with the company’s management” (p. 9).
This is true enough – and something to reflect on during bonus season. But at a deeper level, the crisis of 2008-09 and our continued dangerous financial system are very much the fault of our regulators.
Bank executives are supposed to make money; Jamie Dimon has a fiduciary responsibility to his shareholders. It is not his responsibility to prevent bankers from taking over the state or to ensure system stability. He pursues profits – and rent extraction from the government.
It is the government’s responsibility to prevent people like Jamie Dimon – who is very good at his job – from creating massive social costs. The failures here – and they were colossal – were on the part of the people who ran the Federal Reserve, the Treasury, and associated agencies over the past 20 or so years.
Hopefully, these people will soon appear before the Commission.
By Simon Johnson
The Baseline Scenario 
“Bank executives are supposed to make money; Jamie Dimon has a fiduciary responsibility to his shareholders.”
I simply do not accept the idea that capitalists are free to rip everyone off until the feds step in to regulate. As people paid astronomical sums of money for “risk management,” they should know and behave better.
However, it is true that investment bankers act like teenagers whooping it up at a casino because they know that big daddy will rescue them if they get too irrationally exuberant with the spending. That’s not a way to run a financial organization dedicated to “risk management.”
It IS a nice way to make sure the bankers make tons of money playing risky games. They win no matter if they lose.
Too many links in original comment. See this:
“Bank executives are supposed to make money; Jamie Dimon has a fiduciary responsibility to his shareholders.”
Someone please explain this to me: how does payment of enormous bonuses benefit the shareholders?
Didn’t hear mea culpa from any of the banking executives (at least, what I could discern from one of the radio shows paralleling today’s Financial Crisis Inquiry Commission (“A Different Disaster on Wall Street” – Warren Olney interviewing Andrew Sorkin, Congressperson Brad Sherman, Prof William Black, and Financial Times writer, John Gapper: http://snipurl.com/u2oba). News sources also report that little may come from these hearings when it concludes later this year – in other words, no recommendations afterwards. If so, perhaps the better inquiry is to ask if these hearings are going to be spent in the most productive and beneficial way, since the court of public opinion is already way ahead anyways.
My line of questioning to the executives would have been something like this: What is your relationship (business or otherwise) with both the Obama and Bush administrations, in particular, Henry Paulson, Timothy Geithner, Dr. Summers, and the president himself, Barack Obama. Mr. Dimon’s remark, “I want to be clear that I do not blame the regulators. The responsibility for a company’s actions rests with the company’s management”—not kidding Sherlock Holmes!? Why would you blame your company internal management’s “best practices” when you have the U.S. government doing the bidding for you. President continues to defend Mr. Geithner’s appointment as Treasury Secretary; why, because the President just doesn’t have enough (pardon my French) to stand up to (of all people) Timothy Geithner himself because whatever I.D. politics Obama could not have overcome during the presidential contest, was more than made up for in those campaign contributions from the finance and health industries.
Earlier this evening, Susan Gharib (of NBR) did a great interview (pointy questioning) with William Dudley of the New York Federal Reserve, full transcript at their web site: http://www.pbs.org/nbr/site/onair/transcripts/nbr_transcripts_091026/
Another interesting commentator of the crisis has been Karen Petrou (also interviewed through NBR):
A portion copied here:
DHUE: Too bad says banking expert Karen Shaw Petrou.
KAREN SHAW PETROU, MANAGING PARTNER, FEDERAL FINANCIAL ANALYTICS: If they are able to raise capital because the market expects them to be bailed out, then it`s time to change that.
DHUE: Frank`s proposal also makes it harder for financial firms to borrow heavily against their assets. Petrou says what`s needed are tougher regulations and a new authority to resolve failed banks.
PETROU: If all you do is come up with a soft landing for very large financial institutions, then they`ll just get bigger.
…oooops, wrong link:
http://www.pbs.org/nbr/site/research/learnmore/one_on_one_new_york_fed_president_100113/
No, Jamie Dimon has a fiduciary responsibility to his clients.
Wikipedia: “A fiduciary duty[1] is the highest standard of care at either equity or law. A fiduciary (abbreviation fid) is expected to be extremely loyal to the person to whom he owes the duty (the “principal”): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents. The word itself comes originally from the Latin fides, meaning faith, and fiducia, trust.”
Jerks like Dimon are master communicators and masters with language. “I do not blame the regulators” Well, you massive PRICK, nobody was saying you should. It’s like saying to a child in a condescending tone “Well dear, we never said YOU were STUPID… nobody thinks you’re STUPID”—there’s a subtext there. And Dimon uses that subtext so he can have it both ways–he makes the implication that regulators should be blamed and he can still plead innocence.
It doesn’t of course. Part of what has gone wrong in the American system is in our corporate governance laws. If U.S. stockholders were allowed to vote on executive compensation as they do in the U.K. the bonuses would probably be much lower and this crisis might have been averted.
It’s Kabuki theater. Noise, pomp, and circumstance, – but in the end, all the actors will return unconstrained to thier daily duties (most notably) robbing, pillaging, and otherwise abusing poor and middleclass Americans; – or in the politicians case, pretending like they care poor and middleclass Americans, or about the skullduggery of the finance oligarchs, all the while accepting multimillion dollar campaign contributions. And NOTHING WILL CHANGE!!
It’s quite obvious. Crimes were committed, along with wild ethical abuses, and collossal failures of leadership and management. The financial world almost crumbled. Were it not for the extraordinary largess and massive interventions by first world nations to buttress or bailout their respective, and the global financial system, – well…we’ll never know. I couldn’t imagine it being worse. Of course the finance oligarchs are reaping outrageous fortunes, but the rest of us are feeling this economic crisis in painfully palpable ways. In real or true ‘free markets’, crimes and failure are appreciated, and there consequences for those institutions and individuals party to, and accountable for crimes and collossal failures.
If not, – the we inhabit a world of bandit capitalism, owned and controlled by predatorclass who operate and exist in the airy realms where no law, and no accounting or accountability touches them. The people ontheotherhand, inhabit a far more harsh and brutal world. Breaches of the law, or misrepresentations of accounting or accountability result in costly, often painful reprecussions for poor and middleclass Americans. Examine our prison system for a haunting peek into just how divided and unjust our judicial system as grown. In effect there are two sets of laws, and two entirely distinct systems for administering the law. One for the predatorclass which involve shielding and cloaking crimes and criminals, and one for the people which involves absurd prison sentences for minor drug violations, ceasing of property, crippling fines.
Ipso facto, – there are no laws. In are world there are no laws, – there are no laws for anyone predatorclass biiiiiaaaatches!
I wonder, when these chickens come home to roost, where is home? All that comes to mind is, No matter where you go, there you are.
I think Simon’s underlying point is that Jamie Dimon is essentially saying ‘this crisis was not the fault of regulators, therefore more regulation of any sort is fruitless. Us bad bankers screwed up and we won’t do it again!’ and that this line of thinking, if accepted by Washington, gets us right back to where we were pre-crisis – trusting the banks to do the right thing when history tells us they won’t.
My favourite quote from the first day of the FCIC came from Mack “We did eat our own cooking and we choked on it”. However, the Dimon quote does present the biggest quandary of this entire mess when juxtaposed against the bonus culture that exists within the financial system.When thought of from the point of view of management, their job is to maximize profits and one of the ways they do this is to exploit holes in the system. While many think that one of government’s roles is to close these gaps, there are an equal number who think that government is already doing too much. Classic Catch 22. Plus it doesn’t help that those making the rules are all in the pocket of the players! In Case You Missed It
Unlikely. Dimon pretty much explicitly stated that there should be better regulation of financial industry practices, immediately following the quote from above. Simon, and many others, would simply disagree on what ideally that regulation would be and in what magnitude (limiting the size of TBTF institutions as a prime example).
“Bank executives are supposed to make money; Jamie Dimon has a fiduciary responsibility to his shareholders. It is not his responsibility to prevent bankers from taking over the state or to ensure system stability.”
So wait… let’s suppose he was part of, say, a fruit company that encouraged military controlled slave labor in third world countries that resulted in suffering of the people there. He didn’t actually pull the trigger, he was just making a profit for his stock holders, as is his responsibility running a corporation. Are you saying you let him skate even though he KNEW the consequences of his decisions could be disastrous for millions of people less fortunate than him? We absolve him of any moral dilemmas or responsibility for the suffering of innocent pawns in his game for the sake of profit?
I mean, how is wrecking the US economy to drag out his own profits any less reprehensible than propping up a banana republic for profit? Do innocent victims not suffer enough in an economic crash to set off alarm bells?
Responsibility lies in the hands of ALL who had power to prevent this catastrophe. That includes regulators, banks, AND consumers that got themselves in debt up to their ears without considering how to pay it off. Don’t absolve Dimon of responsibility just because he gives a clever speech that apologizes for how much everyone ELSE sucks.
Did you just cite Wikipedia as a source!?!
Mr. Dimon was under oath so I hope someone can find a public statement and prosecute him for it.
Mr. Dimon is smart,he knows that the only reason he’s isn’t in jail is because the system is rigged in his favor by the regulators.
How can he blame the regulators, NY Fed, when he himself gets to appoint them and is on the board. So, he can’t blame the regulators or bankers because then he’s blaming himself
Simon Johnson writes: “The failures here – and they were colossal – were on the part of the people who ran the Federal Reserve, the Treasury, and associated agencies over the past 20 or so years. Hopefully, these people will soon appear before the Commission.”
Thank you!
“Bank executives are supposed to make money; Jamie Dimon has a fiduciary responsibility to his shareholders.”
Then why doesn’t Jamie Dimon work for free, so his salary can be distributed to shareholders? Apparently fiduciary responsibility ends where Jamie Dimon begins. I hate to introduce philosophical concepts into a blog focused on economics but this appears to be a very glaring example of what Sartre would call “bad faith”. The attempt to convince yourself that something is beyond your control when it manifestly isn’t.
Nahummer, I would also add in regards to my previous comments that a lot of commentary (not on this site, but in the world at large) about “loopholes” in the system suggests that they are oversights rather than deliberate sabotage. You can’t absolve yourself of moral responsibility for taking advantage of loopholes and claiming fiduciary responsibility as a justification if you were actively trying to create such loopholes. Are we know to assume that fiduciary responsiblity know means lobbying the state to stop being the state? If so, we are in Milo Minderbinder territory.
I’m glad to see Mr. Johnson taking on the system and being such a knowledgeable advocate for reform. But I suspect that based on this post, what probably distinguishes his reformist views from those further left is the belief that there are these two separate realms, of politics and economics. That it is the job of the state to govern well and the market do what it does well, pursue profit, within the regulations established by state. I dispute that there is, could, or should be such a distinction. The fact that such a distinction is widely accepted is itself testament to a rather succesful form of politicking that seeks to deny that is politicking, merely the way things are