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Prins writes: "Just as he was voted in for a second term as Class A New York Fed director in February 2010, Jamie Dimon was reelected chairman and CEO of JPMorgan Chase yesterday afternoon. He got to keep his $23 million pay package, too. All without breaking a sweat."

Jamie Dimon was reelected Chairman and CEO of JPMorgan Chase. (photo: Getty Images)
Jamie Dimon was reelected Chairman and CEO of JPMorgan Chase. (photo: Getty Images)



Jamie Dimon's Unshakable Hubris

By Nomi Prins, The Daily Beast

16 May 12

 

t’s official. Just as he was voted in for a second term as Class A New York Fed director in February 2010, Jamie Dimon was reelected chairman and CEO of JPMorgan Chase yesterday afternoon. He got to keep his $23 million pay package, too. All without breaking a sweat.

This means that at each of three of the top five bank-holding companies dominating U.S. derivatives exposure, loans, assets, and deposits, the same man holds the chairman and CEO positions—at Goldman Sachs, Wells Fargo, and JPM Chase.  (Bank of America and Citigroup separated those roles.). If the stock buckles under another “discovery,” shareholders can take comfort in blaming themselves, not Jamie Dimon.

Included in the proxy materials in the shareholder package that went out before the vote was a letter from Dimon to “fellow shareholders”: nestled in with earnings estimates and the explanation that “the main reason for the difference between what we are earning and we should [emphasis theirs] be earning continues to be high costs and losses in mortgage and mortgage related issues” was a wealth of negativity about regulations. The letter stressed that only two regulations would actively hurt the bank’s “competitive ability, the Volker Rule and the derivatives rules.” (JPM Chase holds nearly $70 trillion of derivatives exposure on $1.8 trillion of assets.)

This regulatory swipe, compounded with claims that lobbying Washington was JPM Chase’s “responsibility” was mixed with strains of the Dimon theme song, “We Are Great Risk Managers.”

As he wrote, “We also could add another $1 billion to our profits by increasing our interest rate exposure or credit risk. But [emphasis mine] this is not the way to build a healthy and vibrant company for the future or to produce what we would call ‘quality profits.’”

He didn’t mention that increasing interest rate or credit risk also could subtract another $1 billion (or $2 billion). Which is what happened. Because the bank takes risks. With other people’s money. And there’s no such thing as a perfect “hedge” or “bet.”

Jamie Dimon

JPMorgan Chase CEO Jamie Dimon attends a session at the World Economic Forum in Davos, Switzerland, Jan. 27, 2011. (Vincent Kessler / Landov)

At the shareholders meeting there was no mention of the details behind the “mistake” that cost the bank $2 billion, just that it “should never have happened.” (The Titanic shouldn’t have sunk either.) Most shareholders had already voted before the loss became public anyway. Ultimately, 91 percent of them approved Dimon’s pay, and 60 percent voted for him to retain both executive positions. This makes the timing of the loss announcement, if not suspicious, then, self-serving—or self-inflicted.

A self-inflicted loss conjures up images of someone shooting himself or herself during a game of Russian roulette. Sure, the shooter might have shot the gun into his or her brain, egregiously mistaken in the belief it wouldn’t be loaded. But he or she also chose to play. It’s not so much that the $2 billion loss is catastrophic, (it isn’t) but that it happened. It can continue to bleed into JPM Chase’s books, or pop up in another form elsewhere, and be equally “surprising.”

Sure, betting mistakes happen (ask former MF Global head Jon Corzine), but it’s the characterization of the loss that’s egregious. First, because by swaggering, “we will fix it—we will move on,” Dimon has claimed dominance over global markets. (No banker who truly understands risk should be so cavalier about it.)

Secondly, the fact that after a formal announcement, a friendly Meet the Press chat, and a face-to-face with the firm’s shareholders, Dimon can still call it a mistaken hedge is ludicrous. It was a directional bet on the health of North American corporate bonds that the firm got wrong, enacted via the synthetic derivatives market to worsen the blow. To the extent that it’s betting wrong, it’s a mistake, but it’s not a hedge.

Why, oh why, can’t Treasury Secretary Tim Geithner or Fed chairman Ben Bernanke have the balls to call Dimon out on this? Show some respect to the American population?

There remains debate about whether the Volcker rule (which prevents a bank from engaging in proprietary trading that is not at the behest of its clients) would have prevented this “mistake.” But on this, from his comfy reelected position, Dimon is correct. In its current form, the Volcker rule might have prohibited proprietary trading of the firm’s own funds, true. But not if you call the trade a hedge. This camouflage ability underscores a broader issue with fractional regulation of a complex industry.

Bank chairmen, like Jamie Dimon, will claim that regulation is too complex, too anti-competitive, and too un-American (putting U.S. banks at a disadvantage against other global banks). Yet, those arguments are exactly what led a cadre of bankers, an incoming and an outgoing treasury secretary (Larry Summers and Robert Rubin) and President Clinton to, in 1999, abolish the last remnants of the Glass-Steagall banking-reform act—making it fair game for banks to grow in size and complexity, plus engage in a bevy of speculative plays under the same roof as their FDIC-insured, Fed liquidity-baked deposits and loans. And that’s exactly what they did.

If you know you will be cushioned no matter how high you jump off a tightrope, and you’re getting paid to jump, you’re going to find ways to jump. Take away the tightrope, and you won’t jump.  Resurrecting a true Glass-Steagall barrier is like taking away the net.

And in response to the anti-American competition issue, the only kind of Glass-Steagall that would truly work now would be a GLOBAL one. Render the separation of speculation from deposit-taking global (and, considering that few days pass when international banks aren’t getting downgraded, now is a good time to consider this) and you put the onus of jumping off a tightrope on the clowns.

It was considered anti-competitive and difficult to maneuver a bank separation back in 1933, when Glass-Steagall was passed. And yet it was the head of the second-largest bank in the U.S., Winthrop Aldrich, of Chase Bank, who loudly, strongly, and insistently advocated for it. Why? Not because he lacked a competitive streak, but because it made sense for the greater stability of the banking system and the economy.

Pretending that it’s OK to allow dormant volcanoes of risk to remain embedded in big-bank balance sheets, supported by customer money and taxpayer guarantees, is not sensible. Nor is assuming that the Volcker rule, absent the complete segregation of commercial and investment banking, will do much more than put an interim plug in the hole of a dyke behind which surging waters wait.

Why, oh why, can’t Treasury Secretary Tim Geithner or Fed chairman Ben Bernanke have the balls to call
Dimon out on this?

Meanwhile, there are two potential outcomes that neither Jamie Dimon’s contrition, nor his ego, will alter. The first: there is no definitive restructuring of the banking system, and publications keep running banner headlines like “Is Wall Street Too Big to Regulate?” when some other “egregious” mistake permeates the likes of JPM Chase, Bank of America, or Citigroup (leaving aside the fact that Dimon’s mention of mortgage losses belies the fact that current mortgage accounting doesn’t capture the declining value of the underlying collateral). Then we have this discussion, again for 10 minutes, in the midst of greater, negative consequences.

Or, we can pull off the Band-Aid attaching the two sides of banking. We can require the commercial contingent deal with deposits and loans, and figure out a way to book profits by inhaling money at near zero percent and charging interest on it, which really isn’t that bad a business. We can allow the investment banking and speculative elements to create incestuous chain-derivatives transactions and securities in the “free markets,” by the participants who want to take the risk, without the federal safety net.

Unfortunately, the probable outcome is the first scenario—little to no structural change and more blow-ups of various sizes. As such, it’s not a question of if there will be another financial flameout, but when. It’s not whether taxpayers will pick up the tab, but in what manner. And it’s not whether those with the most power will do anything meaningful to avoid the fallout, but why we vote for their denial.

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Nomi Prins is author of It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals From Washington to Wall Street (Wiley, 2009). Before becoming a journalist, she worked on Wall Street as a managing director at Goldman Sachs and running the international analytics group at Bear Stearns in London.

 

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+13 # Stephanie Remington 2012-05-16 19:27
"Why, oh why, can’t Treasury Secretary Tim Geithner or Fed chairman Ben Bernanke have the balls to call Dimon out on this?"

They are in their respective posts precisely because they won't. If they somehow changed their minds, they would be replaced.
 
 
+2 # John Locke 2012-05-17 12:25
Stephanie its all up to us...when people get serious and take their money out of these scams we call banks, things just might change...but not enough see the problem or are just to stoned with their 6 pack and ball game to get involved...

These bankers have no worry's and neither do the shareholders, they Know the Obama or Romeny administration will continue to bail them out!
 
 
+20 # propsguy 2012-05-16 19:58
difference between what we are earning and we should be earning?

they're not EARNING anything! they are MAKING money out of thin air and stealing it from the greater economy where it might do some good and spending it on what? how many custom tailored black suits can a guy who dresses like an undertaker need anyway?

i have a better idea- replace his pin stripes with jail stripes
 
 
+3 # John Locke 2012-05-17 12:27
You forget that the Prison system has mostly been privatized and The Banks most likely controll the stock...
 
 
+6 # fdawei 2012-05-16 20:15
Why, oh why, can’t Treasury Secretary Tim Geithner or Fed chairman Ben Bernanke have the balls to call Dimon out on this?
Surely you jest!!! Where are the voices of the people, the critics, the "pundits," and others who know the real story but toe the line?
 
 
+8 # giraffee2012 2012-05-16 21:27
If President Obama CAN invoke the Glass-Steagall banking-reform act—and the Volker rules - he will. But if Congress has to pass a bill to invoke regulations - we are dead ducks. If Geitner can - I don't know why he hasn't and still has his job.

Bernake? Forget it - he's a foreigner or works for foreign banks - called The Fed

Vote Dem / Obama - or we'll go down like the Titanic
 
 
-8 # phantomww 2012-05-17 07:19
Why vote Obama? He stated that Dimon is really smart and since Chase has between 500k and 1 million of Obama's money do you think Obama will do anything? Yeah right. Obama is a tool of wall street. He got more campaign money from Wall Street than McCain. Think Geitner will do anything? Nope and who selected Geitner? Obama. Who comfirmed him? Dems in the Senate. Who let the banks go "too big to fail"? the federal government yet that is what most of you want now, BIGGER GOVERNMENT! Clueless!!!!!!
 
 
+8 # oakjoan 2012-05-16 21:31
Regarding Jamie Diamond...The problem is that almost every regulatory officer in the government is either (a) unable to do anything and/or (b) in the pay or sway of the folks he's supposed to be watching over.
 
 
+5 # wrodwell 2012-05-16 22:20
It's clear from all the excuses and reckless insider betting by Jamie Dimon and the cabal of very rich bankers that make up the Federal Reserve, that they cannot be trusted to do what's best for the country because they manipulate the money supply using the Federal Reserve as a piggy bank. Control of the country's money rightly belongs in the hands of the Federal Government's Department of the Treasury making it responsible for controlling gold reserves and the printing of money. That way, there would at least be more transparency and oversight something that doesn't exist now with the Federal Reserve, a very private bank. Do the American people really think that a private bank will do what's best for them? As long as the Federal Reserve exists our system of debacle-produci ng monetary abuses will never be controlled or ended. The Fed is a perpetual time bomb.
 
 
+8 # Johnny Genlock 2012-05-16 22:42
Who recalls Jaime Dimon's famous quote to John Corzine that he'd better come up with the missing Billion or Corzine would be feeding the fish? Anyone familiar with Dimon's role in the MF Global affair? The 560 Million wired to JPMorgan Chase? Nomi Prinz rocks!!!
 
 
+11 # walt 2012-05-17 03:30
The world is led to understand that we pay massive CEO bonuses to attract and keep only the best. Sure!

So a guy who loses $2 billion is a great leader? I guess we are supposed to believe that as we watch our 401K retirement money dwindle away as Wall Streeters reaps bundles of money like this!

The jails are filled with people for lesser offenses, but CEO's get bonuses for such activities!

As Sen. Bernie Sanders stated on The Ed Show, Wall Street owns the Congress! How amazing.

When will Americans wake up and start SCREAMING? Oops. That's right, they have in Occupy Wall Street. We need more occupiers apparently.
 
 
+4 # Ninure 2012-05-17 04:45
What does the average member of the Tea Party have with a guy whose company loses billions of dollars while receiving a 23 million dollar pay package?
 
 
+7 # Barbara K 2012-05-17 05:12
I'm not convinced that there isn't some embezzling or big bonuses paid there. Let them sink or swim on their own. We've been screwed out of enough to support the wealthy banksters.
 
 
+9 # dkonstruction 2012-05-17 05:51
what you can expect when a CEO is also their own boss (Board Chairman) and regulator (New York Fed Board).

If the rumors on the street are correct about the London trades were not hedges at all but rather doubling-down on the same bet they made on European Debt which means that they violated the Volker Rule.

As Prins states, however: "There remains debate about whether the Volcker rule (which prevents a bank from engaging in proprietary trading that is not at the behest of its clients) would have prevented this “mistake.” But on this, from his comfy reelected position, Dimon is correct. In its current form, the Volcker rule might have prohibited proprietary trading of the firm’s own funds, true. But not if you call the trade a hedge. This camouflage ability underscores a broader issue with fractional regulation of a complex industry."

What this should tell everyone is that it is misguided to place all of your faith in reinstating Glass-Steagall (though i think this should of course be done)and to believe that the Banksters would not figure out ways around this one as well. The only solution is to break up the big banks so they are no longer "too big to fail" and create public financial institutions (as well as increasing support for local credit unions) so that local, state and federal governments don't have to go to Wall Street and the private bond markets to borrow money (like the state bank of North Dakota model).
 
 
+4 # Listner 2012-05-17 07:59
dkon,
I agree Glass Steagall should be reinstated with the changes needed to include todays banking methods. Probably won't happen since we already know who owns the congress.
I absolutely agree that if we all use credit unions and in particular "not for profit" credit unions, we will be striking a significant blow to the empire.
I belong to a non profit and they offer ALL the same products that the big boys do without the B.S. They have billions invested in home mortgages and almost 0% default on same. The reason is they figured out that if you make $35,000 a year you can't afford a $600,000 home. DUH They were almost unaffected by the meltdown except for some personal loans to people whose family members were caught without resources to weather the storm.
I sincerely doubt we can change this system of greed. We can however, choose not to participate in it.
Sooner or later, the guy who sits at a computer and takes money out of the system while producing NOTHING tangible, will run out of money to steal. Then what ? Blame democrats ??
 
 
+2 # dkonstruction 2012-05-17 12:08
Listener,

I guess i am just skeptical at this point that any regulation is really going to keep the big banksters in line given their ability to move such massive amounts of money in a nanosecond...i agree we need Glass-Steagall 2.0 but even with this i am not convinced that anyone is going to be able to "regulate" a $1.2 Quadrillion market so i think the best we can shoot for is to isolate them (i.e., their funds) so that if they make risky bets with their own money and lose...tough... as long as they don't take the rest of us down with them which means we have to keep "their" monies as separate from "ours" as possible which would certainly include things like credit unions but i think at this point we also need to go after union pension funds not to mention municipal and state dollars and argue that the only way to truly protect these funds is to have them in "safe" publicly owned and or non-profit community development credit unions that will reinvest these funds in the communuities in which they are based (as this is also the only way to truly promote local community economic development as opposed to more fast food joints, shopping malls and casinos).
 
 
+3 # Vern Radul 2012-05-17 08:30
After listening to the 99%'ers complain and whine for days on end, the top 0.001%'ers finally couldn't take it anymore, and made their way down to the ongoing "Occupy Wall Street" demonstration in lower Manhattan to let the protesters know that they had "bought this democracy fair and square."

One of the billionaires told Laura Flanders of GRITtv that if the protesters didn’t like it, they should all get organized together and buy their own damn government, just like the 0.001%'ers did.

VIDEO: http://antemedius.com/content/humanitarian-intermission-buy-your-own-democracy
 
 
+3 # paulrevere 2012-05-17 08:50
...and let us not fail to mention how little Jamie Boy gets to replenish his betting funds through the front door of the Federal Reserve...AND all those supposed big balls of his are teeny tiny if nonexistant because WETHEPEOPLE insure his stupidity through FDIC etc.

Such a puny psychopath...
 
 
+1 # JSRaleigh 2012-05-17 09:16
All the comparisons between the economy and RMS Titanic are mistaken.

RMS Lusitania is a better analogy.
 
 
+2 # afrizunk 2012-05-17 09:21
"A shark in a pinstriped suit" was street comment about this type of Wall Street executive.
 
 
+7 # Cassandra2012 2012-05-17 09:40
Quoting afrizunk:
"A shark in a pinstriped suit" was street comment about this type of Wall Street executive.


I find it thought-provoki ng that the only WOMAN exec in this bankster company gambling with other people's money was forced to resign, but this slimy boy is still wandering around getting paid to steal and gamble ....
 
 
+2 # Bodiotoo 2012-05-17 11:57
I just want to know what kind of paper load this guy has that he earns 23 MILLION a year and under his watch, the company just lost 2 BILLION!
I hit red ink and I have salary.
And is his 23 million subject to full taxes, or does he also get the romney ride of less than 14%?
Just asking.
 
 
+2 # kitster 2012-05-17 15:26
oh, he gets it all right. he's jamie dimon and you're not. he holds huge purse strings. and when he yells, "jump!"...congr ess people and presidents yelp, "how high?" it's always campaign feeding time at his trough.

when a petty thief gets caught, he or she goes to jail. when a billionaire thief and grifter like jamie diamon gets caught, he gets a perk and/or a promotion.

amerika...the land of greed and the home of the slaves.

yes, we the indentured are free to choose either burger king or mcdonalds and what color levis we want to wear...but it's the one percent who choose our plutrocracy.
 

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