Monday, September 12, 2011

Last Man Standing Won't Take It Sitting Down

Calling Basel III rules on bank capital "anti-US," JPMorgan Chase chief Jamie Dimon sizes up post-crisis banking in today's Financial Times.
In his office, looking relaxed in white shirt with two buttons undone, Mr Dimon is still exercised about what he sees as a “miscarriage of justice”. US policymakers, he says, have sold their banks down the river – the Yangtze river. “There are plenty of countries out there that are happy with the changes being implemented in the US. They realise that they can be huge beneficiaries of this. I’m talking about China, India, Singapore, Japan. I wouldn’t want to see, 20 years from now, the US asking, ‘what happened? How come the winners in the marketplace are all outside the US?’”... 
“We’re all simultaneously working on understanding and complying with Basel III rules, liquidity rules, operating capital rules, derivatives rules, Volcker rules [that ban proprietary trading], cash flow rules, Durbin rules [which limit debit card fees charged to retailers], disclosure rules, consumer rules. I do feel all of these things together are slowing recovery, but I can’t prove it.” 
“I think that market participants are overwhelmed by the amount of regulation and change being imposed at one time,” says Mr Dimon. “What the policymakers should have done is say, ‘let’s take the really important issues – particularly the ones that are really important to recovery – let’s get those fixed. Let’s put the other ones to one side.’”
So, he's been sold down the river by people he trusted and urged us to trust; been bollixed up by inept regulators.  It is churlish of Noman to suggest that Dimon, a self professed Liberal and active supporter of Democratic candidates, has only himself to blame.  Would that the bamboozled middle class could be so easily comforted.  Noman wonders if buyer's remorse has overwhelmed his political loyalties.  Has financial reform he supported made Dimon question his decision to throw in his lot with Liberal reformers?  Perhaps he now realizes that, despite some successes, it's not that easy to control a government, at least not one operating under the cover of media protection.  Regardless, he sees the danger his industry and the economy are in now, and in the future, because of governmental steps taken and not taken since the crisis.

Dimon is a savvy banker--the savviest, the last man standing--someone seemingly born for the post-Glass-Steagul era.  His command of the commercial and investment sides of the business is non-pareil.  His common sense is impressive as is his ability to quickly articulate complex connections understood at their core.  He was prescient enough to get his bank out of mortgage deluge just in time, and opportunistic enough to toss out the life savers as his competitors drowned. 

JP Morgan was the big winner in the first leg of financial crisis (2007-2009), swooping up Bear Stearns for a song with government guarantees to cover losses, and swallowing up Washington Mutual for a penny-and-a-half per dollar of assets.  Of Dimon's performance during the fateful weekend that claimed Lehman Brother's existence, Treasury Secretary Hank Paulson writes in his retelling of the crisis, "On the Brink":
Tim and I met privately with Jamie Dimon.  A number of CEOs had expressed concern to us that he was using the crisis to maneuver his bank into a stronger position.  Indeed, some were convinced that he wanted to put them out of business entirely.  We led off by raising these complaints.  Jamie assured us that JPMorgan was behaving responsibly but pointed out that he ran a for-profit institution and had an obligation to his shareholders.  I emphasized that we needed him to play a leadership role in averting a Lehman Brothers failure.  
Then, because I respected his judgment, I pressed Jamie for his assessment of the situation.  Did he think we had a chance of putting together an industry agreement to save Lehman?  He said it would be difficult but possible.  The European banks would have a tougher time getting a quick decision from their boards and regulators, but he felt they would probably come through, too.  In the end, I felt reassured that I could count on Jamie's leadership.
Ultimately, England's regulator didn't come through.  Neither, surprisingly did Amercia's.  Lehman's failure was Paulson's fault more than anyone's save CEO Dick Fuld & co.  Noman is nevertheless fascinated by crisis anecdotes of Dimon in action.  His stumping for Leftist leadership puzzles Noman, however.  How do men with ice water in their veins and the astuteness to calculate every advantage become PC Liberals?  What makes them wed political allegiance to pipe dreams?  This man faces quarterly accounting, and accountability.  Liberal policies are never measured for their results, only for their idealism and fairness in the most abstract and contentious of terms.

David Mamet writes in "The Secret Knowledge" of his coming to grips with his Liberalism:
My interest in politics began when I noticed that I acted differently than I spoke, that I had seen 'the government' commit sixty years of fairly unrelieved and catastrophic errors nationally and internationally, that I not only hated every wasted hard-earned cent I spent in taxes, but the trauma and misery they produced; and yet, I thought 'the government' was good.  What case could I point to support my feelings"?  The Emancipation Proclamation and the Voting Rights Act.  Then I would have to stop and think.
It was, of course, easier to worship my own capacity for 'good thinking' than actually to think, which is to say to compare my actions with their results.  But, I tired of it. 
Now, the people Dimon helped to put in government are relinquishing America's financial leadership in world markets, and their catastrophic errors alarm him.  (To be fair, the slide is a decade long, and picked up steam with the bipartisan passage of Sarbanes-Oxley in 2002.)  It's about time.  What did Dimon expect from a community organizer?  Business sense?  Austrian school clarity?  Non-statist governance?  An enhanced role for the private sector?  Dimon tells the FT:
“I think any American president, secretary of Treasury, regulator or other leader would want strong, healthy global financial firms and not think that somehow we should give up that position in the world and that would be good for your country,” said Mr Dimon. “If they think that’s good for the country then we have a different view on how the economy operates, how the world operates.” 
US banks are struggling to deal with new regulations and litigation, both stemming from the financial crisis. Mr Dimon said it could be “three to 10 years” before the industry emerged from lawsuits brought by investors looking for compensation for the losses incurred on structured products underpinned by bad mortgages.
Incidentally, the corporate lawsuit industry is the exclusive domain of his Party.

To the FT's question of whether the banking system is safer now, Dimon answered:
SIVs [structured investment vehicles] are gone, repos [repurchase agreements] are more conservative, mortgage underwriting is more conservative, CDOs [collateralised debt obligations] are largely gone, subprime [mortgages] is nearly gone, alt-A [mortgages] is gone, funds are less leveraged, money market funds are more conservative, companies are more conservative, companies are pre-funding longer, there’s a lot more capital in the system, there’s a lot more liquidity in the system, and all this has already happened before Dodd-Frank and other regulation.
Precisely. Dimon echos what Thomas Sowell wrote two years ago in the "The Housing Boom and Bust."  The free market was quick to learn from it's mistakes.  It was politicians who learned nothing, who scapegoated, hunkered down and brazened out their mistakes without admitting to them.

Senator Chris Dodd blamed the Republicans and dug in his spurs to defend Fannie Mae and Freddie Mac, the quasi-governmental milk maidens at the heart of the crisis that suckled Democrats from Rahm Emanuel to Barack Obama.

Representative Barney Frank inveighed against Ronald Reagan and conservative regulatory philosophy while downplaying his exertions against enhanced GSE regulatory oversight demanded, incidentally, by Republicans.   Now, Dodd-Frank-enstein is law and (in conjunction with Basel III) menaces the U.S. financial industry and its economy--all in the name of safety--and Jamie Dimon protests.

Noman doesn't know whether Dimon is merely jockeying for better position--something he evidently does well--or if he's really alarmed at America's dimming prospects for continued financial health and economic well-being.  He's a sensible man, and what he says makes sense.  Either way, Noman appreciates Dimon's periodic outbursts, which undoubtedly give pause to think in the White House.

Better late than never.

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