In which Jamie Dimon agrees that his bank is too big
Today the Washington Post has a story on the suicide epidemic that is sweeping Greece, Italy, and Ireland. Ariana Eujung Cha writes that “so many people have been killing themselves and leaving behind notes citing financial hardship that European media outlets have a special name for them: ‘economic suicides.’” She also points out that “studies have estimated that people with employment difficulties are two to three times as likely to commit suicide than the population as whole.”
America’s economic problems were caused by a different set of circumstances than those in Europe. Yet we have one sad fact in common: millions of people are having trouble finding work. And many of them will eventually kill themselves because of this.
Let’s be clear: the economic problems in the United States were caused by the financial crisis. The financial crisis had a few causes, but the first was the collapse of the U.S. housing market. The second was the near-collapse of the banks that were overexposed to this housing market because they were greedy and careless and had stopped doing the number one thing that a bank is supposed to do: manage risk.
There were plenty of greedy and careless homeowners as well. Those that got in over their heads are now paying the price. And I’m willing to bet my life that they’ll think long and hard before making the same mistake again. This is what’s known as the School of Hard Knocks.
Banks, on the other hand, were bailed out by hundreds of billions of dollars of taxpayer money. What have they learned?
Jamie Dimon is the CEO of JPMorgan Chase, but his unofficial title is Class President of the Too Big to Fail Banks. Here’s what he recently told New York Magazine:
We made a mistake. We’re sorry. It doesn’t detract from all the good things we’ve done. I am not responsible for the financial crisis,” he adds. “I hate to tell you. We were a port of safety in the storm. I find it unbelievable that that is the general theme—that you have to walk in a room and act like you are responsible for things you are not responsible for.”
Fair enough. JPMorgan Chase weathered the housing storm. Yet it still took $25 billion in taxpayer money from TARP. Dimon has always said that the government made him do it, but this is disingenuous. What we legitimately want to know is, will something like this ever happen again? Was this crisis a fluke? Or is there something about this industry that makes another crisis a question of “when” and not “if”?
On this point Dimon is hopelessly confused.
“There are huge benefits to size,” he says instead, a distinct air of tired-of-this-shit creeping into his voice. “We bank Caterpillar in like 40 countries. We can do a $20 billion bridge loan overnight for a company that’s about to do a major acquisition. Size lets us build a $500 million data center that speeds up transactions and invest billions of dollars in products like ATMs and apps that allow your iPhone to deposit checks. We move $2 trillion a day, and you can see it by account, by company. These aren’t, like, little things. And they accrue to the customer. That’s what capitalism is.”
Number one: saying that all of these things are possible is not the same as saying that all of these things are good, necessary, or worth the risks that they entail. Number two: we need no lessons in “capitalism” from the man whose company accepted $25 billion dollars in taxpayer money so that his bondholders would lose not a single penny of theirs. All we want to know is, can you handle your shit? Can a bank of this size and complexity be managed?
Here’s what he said about the $420 million in trading losses caused by the London Whale:
“I had been told a whole bunch of stuff that made me think it was a tempest in a teapot,” he says now, adding that it was only when he laid eyes on the positions that he realized the extent of the problem. “There was a moment of, I can’t believe what we have.”
Thank you, Jamie Dimon, for illustrating why risk management cannot be delegated, why your bank is too complex to manage, and why this is all too expensive for the rest of us.
Category: Banking
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