Dimon Down but Not Out
Just recently one of the nation’s largest banks J.P. Morgan Chase posted a $2 billion loss. As a result, Obama’s regulatory lapdogs are already licking their chops using Chase’s losses as a reason to pass more rules on lending and credit institutions making it harder for them to invest in markets in order to enhance their financial standing.
To his credit, Jamie Dimon has been upfront and honest about the whole ordeal. He has admitted that the bank made mistakes but his only crime is that he trusted people under him to do their jobs. Chase is making efforts to restore public confidence in the form of seeing to it that the people under Dimon who oversaw the investments in question will be disciplined. Ultimately is not Jamie Dimon’s job to micromanage his subordinates and what is laughable about this whole ordeal is that the politicians took credit when the economy was good but now that it has gone bad or a major financial institution suffers a (admittedly) major loss they scold the very institutions (i.e. banks) that help keep the economy running and helped it prosper before the downturn. Despite the economic crash in 2008 thanks to Jamie Dimon’s leadership Chase rose above all of the other banks. Now that the bank takes a loss despite being financially healthy overall politicians and bureaucrats look to the event as proof to exert more control of a situation that they made possible to begin with.
Naturally leftist bloggers are in an uproar about the whole ordeal. David Dayen a blogger at FireDogLake states the assault on the taxpayer should end while implying that with the losses Chase took with its derivative investments that the taxpayers will soon bail them out. Never mind that that there were no government funds involved in these trades.
In 2008 Jamie Dimon and other bank chief executives were forced to take Troubled Asset Relief Program (i.e. TARP) funds when he and other bank CEO’s were called into a meeting with Bush Treasury Secretary Henry Paulson soon after the housing market crash and banks took major losses as a result. Once the CEO’s were seated in a large conference room in the U.S. Treasury building they were bluntly told by Paulson that none of them would leave the conference room without signing a document put in from of them to accept money from the program. Dimon was later quoted as saying even though Chase was financially healthy he had no alternative but to take the money since for him not to could put the bank at a disadvantage. Not surprisingly, he called the entire ordeal traumatic to say the least. A short time later Chase and 9 other banks were able to get out from under the rules associated with TARP by repaying the money they were given.
The selective memory and hypocrisy on the part of critics of financial institutions never ceases to amaze me. Initially even I had concerns with the program passed by Congress to give the U.S. Treasury authorization to issue money to the banks. In hindsight the TARP program made sense since it helped continue with the flow of credit banks could give to their customers. Without credit, the entire economy would have collapsed and, despite it’s flaws (like restrictions on executive compensation) TARP was, in fact, a recapitalization and not a bailout as many critics contend.
In terms of the investments, as Dimon points out, the bank’s balance sheet diversified enough to take into account if not outright withstand surprises such as this. Banks hire people who are knowledgeable about risky investments to manage a firm’s investment portfolio so the institution can be profitable overall even if it takes losses in other areas of business. However, thanks to Dodd-Frank and Sarbanes-Oxley Dimon’s job isn’t just about managing financial risk but also fending off political risk for his company. It is entirely possible that since keeping interest rates low banks and credit unions make up the losses with fees on other products they offer, respectfully. However, they can still offer products while being able to invest in vehicles (like derivatives) so they can remain profitable keeping losses and even fees to a minimum.
I do invest in the stock market but have no knowledge about credit default swaps. From what I have read of them and if the losses Chase took on investing in them are any indication the vehicles can be extremely volatile. However, I am sure they can be very profitable if one knows how to invest in them which is evidenced by Chase CIO Ina Drew’s role in the company. Before all of this, she masterfully managed the investments that helped Chase remain profitable. Sadly, she is one of the ones whose jobs ended up on the chopping block. Financial institutions, like banks, invest in derivatives due to the overall high returns they can pan out. That’s what Ina Drew did and did very well. Sadly, due to this single misstep she and others under her suffer for it.
Fortunately, Jamie Dimon was retained by Chase stockholders and had an enhanced compensation package approved. Like it or not, CEO’s like Dimon are hired by companies to make and keep them profitable. Chief Executive Officers work very hard in order for their company to achieve and maintain profitability and earn every dollar they get. As a result of the salaries and benefits afforded to them CEOs live elaborate lifestyles because they (rightly) can afford to do so. There is nothing wrong with being wealthy but critics of CEO’s (like Occupy Wall Street and labor unions) reel against them and the wealth they earn because of the moocher mentality they subscribe to.
Back in November Jaime Dimon has had a meeting with Republican Party Presidential front runner Mitt Romney and other candidates for the Republican nomination for President. As a result of recent events he now calls himself ‘barely’ a Democrat. Who could blame him? Obama has been openly hostile to banks and now with his re-election coming up looks to financial institutions for support even after browbeating them for the sin of making money.
You cannot have an economy without financial institutions available to lend and invest money. They not only serve their customers but also themselves in order to exist. Profits are a prime component of a capitalist system and banks play a vital role not only in the ability of people to save and invest but also to borrow and lend too. Unfortunately, because of the economic debacle we are in banks are unfairly looked at as clearing houses of debt or the enablers of the economic slump. This is not an accurate association since the choice to take on debt is ultimately the choice of the consumer. If there is any blame to go around I lay it at the feet of the Fed as the enabler who attempted to manage the Business Cycle by injecting massive amounts of credit into the banking system that created the artificial prosperity our economy experienced after the Dot-Com bubble burst and later resulted in the quasi-depression we are in now. Ultimately, bankers exist to provide valuable services in terms of lending, savings, and investment that cannot normally be taken on by individual people.
The scolding the President has given to financial institutions is a divide-and-conquer strategy on the part of the Obama Adminsitration and his comrades-in-arms since Obama ultimately hopes to profit with political contributions since he is the incumbent President. Obama’s scorn for banks is indicative of how Ayn Rand described how America’s persecuted minority is the businessman:
Only businessmen—the producers, the providers, the supporters, the Atlases who carry our whole economy on their shoulders—are regarded as guilty by nature and are required to prove their innocence, without any definable criteria of innocence or proof, and are left at the mercy of the whim, the favor, or the malice of any publicity-seeking politician, any scheming statist, any envious mediocrity who might chance to work his way into a bureaucratic job and who feels a yen to do some trust-busting.
Attempts to demonize banks and when those who work for them make mistakes like what happened with Ina Drew and the scorn leveled at Jamie Dimon are an attempt by nihilist Leftists to attack capitalism from another vantage point which translates into an overall attack on life itself.
Update 05/22: Despite the bank’s $360 billion investment portfolio, a class action lawsuit has been initiated by investors against J.P. Morgan Chase due to the $2 to $3 billion losses that occured.