Testimony before the Muppets of the Senate Banking Committee by JPMorgan Chase Chairman and Chief Executive Jamie Dimon has taken a break for lunch. It’s a chance to take stock. First, some givens. The “banks own the place,” as Sen. Dick Durbin famously said (too-big-to-exist bank stocks are rallying). ProPublica details the cozy relationship here. Second, Dimon is smart, smooth, persuasive and, when he wants to be, charismatic. He gets what he wants (e.g., Washington Mutual).
Apparently, Dimon’s defense of the $2-billion-plus trading loss is that “Basel made them do it.” Basel being the international banking regulations that were set to make banks do a more rigorous assessment of their assets and setting aside capital to protect against trouble. Dimon said before the glazed eyes of the Muppet-senators:
In December 2011, as part of a firm-wide effort in anticipation of new Basel capital requirements, we instructed (Chief Investment Office) to reduce risk-weighted assets and associated risk. To achieve this in the synthetic credit portfolio, the CIO could have simply reduced its existing positions; instead, starting in mid-January, it embarked on a complex strategy that entailed adding positions that it believed would offset the existing ones. This strategy, however, ended up creating a portfolio that was larger and ultimately resulted in even more complex and hard-to-manage risks. This portfolio morphed into something that, rather than protect the firm, created new and potentially larger risks. As a result, we have let a lot of people down, and we are sorry for it.
Is that perfectly clear? Where are the old Southern lawmakers who would drawl something like, “Mister Die-mon, I’m just a simple country boy, but I didn’t understand a thing you said, and considerin’ you’re basically gamblin’ with taxpayer money, why the heck is your bid-ness so complicated? If I didn’t know better, I’d think you were just tellin’ stories like my ole buddy Scooter, and that ole boy is now in a federal penitentiary…”
Dimon went on to say a couple of interesting things: “We made a mistake. I’m absolutely responsible. The buck stops with me.” And, although he doesn’t think the Volcker Rule against this complex, dodgy gambling is needed, the government should have the authority to shut down “big, dumb banks” with “Old Testament punishment.”
If so, the first smiting ought to begin with the resignation of one James Dimon, the one who is “absolutely responsible” for this reminder of how dangerous the banking system remains. Whether or not JPM “needed” TARP money, it would have become the ashtray that was Sodom and Gomorrah without the massive rescue of the entire system. No major changes in bank operating practices were required. The lesson: We can keep gambling because the taxpayers will save us again. At the least, Dimon should resign as chairman — and also from the board of the New York Fed, a startling conflict of interest. And “big, dumb banks”? Like ones that lose billions trading meaningless pieces of paper?
We don’t actually need Old Testament punishment. We just need to reinstate Glass-Steagall, as well as taxing Wall Street transactions and heavily taxing the bad compensation incentives for the banksters. Amen.
And Don’t Miss: Dead newspapers kill democracy dead || Salon
Today’s Econ Haiku:
Savor June’s glory
As the summer comes along
Retail sales cool off