The Rise and Rise of Jamie Dimon
As Simon pointed out earlier, Jamie Dimon has been getting a lot of good press recently. The New York Times portrayed his recent rise to prominence as not only the CEO of American’s number one bank (at least, the number one bank that has not recently been compared to a vampire squid), but as a player in Washington and, according to at least one quip, the man Barack Obama turns to on financial questions:
Now that Mr. Obama is in the White House, Mr. Dimon has been prominent when the president wants to talk to big business.
During one such meeting in late March, as Citigroup’s chairman, Richard D. Parsons, was trying to explain banks and lending, the president interrupted with a quip: “All right, I’ll talk to Jamie.”
I also just read Fool’s Gold, Gillian Tett’s book about (a) the expansion of the credit derivatives market by J.P. Morgan in the 1990s (fascinating) and (b) the financial meltdown of 2007-2008 (familiar). Tett paints a picture of Dimon as a super-competent, details-oriented, finance-savvy CEO who reshaped JPMorgan Chase during the boom and positioned it to emerge from the crisis stronger than any of its commercial banking rivals.
The issue at the center of the Times article is what changes the government will seek in the financial system, and what the major banks are doing to oppose or weaken those changes. Dimon and his colleagues are well within their rights to call their administration contacts and flex their PR muscles to lobby for less regulation as the political climate shifts more and more in their favor (because public fear for the banking system and anger at bankers is clearly receding). As Simon pointed out, it may actually be to his advantage to play along with some of the administration’s proposals, for both political and competitive reasons.
The broader policy question – which may be more a historical question by this point – is why the administration’s would-be reformers even have to fight this battle. Fool’s Gold, or any account of the onset of the panic in September 2008, serves as a reminder of what the world was like then:
Merrill Lynch, Goldman Sachs, and Morgan Stanley suddenly found it impossible to raise funds in the capital markets. So did a host of European banks in Ireland, the UK, Holland, and elsewhere. The implication was brutal: across the Wstern world, the senior managers of a host of the world’s largest banks and brokers quietly told their central banks that they could collapse within days.
That these banks even exist today is solely the result of government intervention. Like Paul Krugman, I think some form of intervention was warranted, because of the huge potential costs – to everyone – of a failure of the banking system. But like Krugman, I also think the government should have acted sooner and more forcefully to ensure that the new benefits handed to banks – most notably a much-strengthened implicit government guarantee – were balanced by new regulatory powers.
What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop — an assurance that it will rescue major financial players whenever things go wrong.
You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.
Now the last time there was a comparable expansion of the financial safety net, the creation of federal deposit insurance in the 1930s, it was accompanied by much tighter regulation, to ensure that banks didn’t abuse their privileges. This time, new regulations are still in the drawing-board stage — and the finance lobby is already fighting against even the most basic protections for consumers.
Jamie Dimon may be a great CEO. But that we have to count on his magnaminity to not torpedo the Consumer Financial Protection Agency is a bit much.
By James Kwak