The recent shareholder letter by JP Morgan CEO Jamie Dimon provides a crystal clear example of why it’s so dangerous to encourage and subsidize the corporate welfare babies known as the “Too Big to Fail” mega banks. The letter, which features a gigantic photograph of the executive seated casually with legs crossed in jeans, a shirt that appears almost uncomfortable around his neck in the absence of a tie, and all ten fingers touching flawlessly in what undoubtably took multiple takes to provide the sufficient creepiness factor (the presence of presidential cufflinks cannot be confirmed or denied), expounded on how well the mega banks performed during the financial crisis compared to the hundreds of small banks that failed.
This was understandably too much to handle for Camden R. Fine, president and chief executive of the Independent Community Bankers of America. He wrote a scathing piece in American Banker in rebuttal titled, Dimon’s Defense of Big-Bank Model: An Exercise in Hubris.
Here are some choice excerpts:
The financial crisis caused by Wall Street has been devastating for the U.S. economy, bringing on a downturn from which we are still emerging. But apparently there are some on Wall Street who still don’t understand the effect the collapse they constructed has had on the rest of us.
With baseball season underway, I get the feeling Jamie Dimon woke up on third base and thought he hit a triple.
Ridiculing the smaller financial institutions that have to answer to the free market — that do not enjoy an absolute taxpayer backstop against failure — is beyond hubris. It shows a complete unwillingness to accept responsibility. It shows that Wall Street, infantilized by privilege, has learned nothing from what it wrought in those panic-stricken months in 2008 and 2009 and in the years of economic doldrums that have followed.
That is not only infuriating to those of us who have had to survive on our wits instead of billion-dollar backstops — it is fundamentally dangerous. The danger lies in Dimon’s point that the largest banks are not the riskiest. He suggests the megabank model is nothing to worry about, even though its taxpayer-funded backstop incentivizes large institutions to continue growing and taking outsized financial risks. His point — in fact, his plea, to shareholders who might prefer to split up the massive institution into smaller, more manageable and more valuable parts — was that they’ve got a pretty good thing going and shouldn’t relinquish the benefits of their sheer size and complexity.
We as a nation cannot allow ourselves to fall back into the too-big-to-fail trap. We must continue to seek ways to end federal subsidies and funding advantages for the largest financial firms that incentivize risky behavior and put taxpayers at risk. And we shouldn’t fall victim to the siren song of the Wall Street megabanks, those institutions to which the rules of the free markets do not apply.
Simply brilliant. I have nothing to add.
For related articles, see:
Jamie Dimon’s Big $13 Billion Secret – The Truth Behind the JP Morgan Settlement
Four “Too Big to Fail/Jail” Banks Threaten to Hold Back Funds to Democrats Over Elizabeth Warren
Tim Geithner Admits “Too Big To Fail” Hasn’t Gone Anywhere (and that’s the way he likes it)
Forget “Too Big To Fail”…We Now Have “Too Big To Audit”
In Liberty,
Michael Krieger
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None Dare Call It Fraud
They were jawing again this morning about the low “natural rate” of interest on bubble vision, implying that the workers of the world have succumbed to an atavistic fit of wild-eyed thrift. Gosh, the world is so inundated in a savings glut, averred Wall Street economist Ed McKeon, that the interest rate would be near zero—–even without the concerted action of the central banks.
Hogwash! Since the turn of the century the major central banks have purchased $15 trillion worth of government bonds and other fixed income assets. Yes, these reckless money printers have suspended common sense, but they have not repealed the law of supply and demand, nor even suspended its relentless operation for a nanosecond.
So in adding massively to “demand” for something that sells at a price (the interest rate), the big fat bid of the central banks has caused fixed income markets to clear at much higher prices (lower yields) than would otherwise be the case. That’s just economics 101.
By contrast, were the market dependent solely upon the savings of America’s hand-to-mouth middle class, Europe’s legions of socialist pensioners, Japan’s mushrooming retirement colony or the millions of former peasant girls who labor for comparatively meager in Foxcon’s sweatshops, one thing would be certain: There would not be trillions of government bonds trading at negative nominal interest rates this very moment, or tens of trillions trading close to the zero bound and therefore at negative rates after inflation and taxes.
In a word, there is a $100 trillion bond market out there that has been priced by a handful of central bankers, not a planet teeming with exhuberant savers. The mad descent of the former into the whacky world of QE and ZIRP has caused a double whammy distortion in the bond markets of the world.
http://davidstockmanscontracorner.com/none-dare-call-it-fraud/?
Dimon is is reacting to brutal criticism of his bank and is wondering what it all means since he did what the US government and its allies abroad wanted done. He serviced their needs after they had spent their wads and kept the game going but he gets hit with abuse and fines galore while Goldman Sachs did nothing to service these governments, even was made a bank to get its share of TARP and goes on doing everything Morgan gets penalized for and pays next to nothing. Dimon is mad!
I don’t blame him. What fascinates me, is that his comments re the small banks being in jeopardy as the former investment groups steal bank funds and insurance are right on and none of his small bank “brothers” even realize what is happening..