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Elizabeth Warren Exposes Jamie Dimon

Posted by Larry Doyle on February 9, 2010 8:37 AM |

Elizabeth Warren and Jamie Dimon

Elizabeth Warren and Jamie Dimon

How is it that some people are able to aggressively promote the virtues of truth, transparency, and integrity within our financial system while others would seem to talk a good game but do not truly walk the walk? The key, in my mind, is that the former are not beholden to a constituency focused on short term maximization of profits and revenues. Who is distinguishing herself as a leader in this category? Elizabeth Warren, the current chair of the Congressional Oversight Panel to investigate the U.S. banking bailout.

Warren writes in today’s Wall Street Journal of Wall Street’s Race to the Bottom. This race is very much a function of implementing strategies and developing products that have served to maximize the short term revenues of these firms, while eroding the very foundation of the financial system itself.

Of particular interest in Warren’s article is her comment on Congressional efforts to develop a consumer finance protection effort and the response of Wall Street’s CEOs to this effort. Warren derisively singles out JP Morgan’s Jamie Dimon, Wall Street’s top banker. She writes:

The consumer agency is a watchdog that would root out gimmicks and traps and slim down paperwork, giving families a fighting chance to hang on to some of their money. So far, Wall Street CEOs seem determined to stop any kind of watchdog. They seem to think that they can run their businesses forever without our trust. This is a bad calculation.

It’s a bad calculation because shareholders suffer enormously from the long-term cost of the boom-and- bust cycles that accompany a poorly regulated market. J.P. Morgan CEO Jamie Dimon recently explained this brave new world, saying that crises should be expected “every five to seven years.”

He is wrong.

Dimon seems to accept the fact that markets and economies will tend to excess as a normal order of business. The fact is our economy and markets have ballooned every five to seven years since the late ’80s. But, is this normal? No. What drove the ballooning was the willingness and desire on behalf of both borrowers and lenders to implement excessive leverage across a wide array of asset classes, utilizing both sides of the balance sheet, and even moving off-balance sheet as well.

Wall Street pushed the leverage because it drove short term revenues.

Who failed?

1. Wall Street management.
2. Wall Street’s boards of directors.
3. Regulators of all stripes, including the SEC, FINRA, OCC (Office of the Comptroller of the Currency), FHFA (Federal Housing Finance Agency), and OTS (Office of Thrift Supervision).
4. Congressional oversight.

Warren is right. Dimon is wrong.

Blaming the market and economy for excesses in the natural ebb and flow of capital is shirking responsibility.

The aforementioned CEOs, boards, and regulators have a responsibility to protect and promote prudent and wise use of capital. If that practice hits short term profits, so be it. This obligatory prudence is their charge and it will promote long term fiscal health and free market capitalism.

When will Jamie Dimon, his fellow CEOs, the members of the boards, and the regulators have the balls to call for real transparency and take a stand for true capitalism in the process? America is waiting.

Thank you, Elizabeth Warren.

LD

  • Patriot

    Perhaps we could have an open town hall forum in which Ms. Warren and Mr. Dimon could openly debate the merits of their respective positions and field questions from citizens.

    Make sure there is representation from all segments of our populace.

  • Lou

    Jamie just received 16 million reasons to maintain the status quo.

    To his credit Dimon did do a much better job than his CEO counterparts. He largely kept JP Morgan out of trouble. That said, JPM remains the largest CDS dealer and that product spells leverage like no other.

  • TML

    I love the idea of a town hall format. I doubt Dimon or the other CEOs would willingly attend but they should be asked. Put them in a position where they refuse.

    Maybe NPR or Public TV could coordinate. How about Jim Lehrer as host?

  • bruc2y

    While agreeing with the premise of failure (to look out for their consumer customers) by the banks, they (management) have won hands down so far. After all, the bankers are rich beyond measure, and that is winning, according to them.

    If society deems it differently, then laws must be passed to protect the consumer, not the banker. Right now bankers are thoroughly protected. Most if not all leagal protections in place after the Great Depression were removed during the last 20 years or so, right? Why should the bankers want to change a really good thing (for them)? If the economy fell to pieces, would their personal wealth go down along with everyone elses’? My answer to this question is somewhat, but they have the ability to protect themselves to watch from the sidelines, perhaps from far enough offshore their consciences would not be affected.

    We elect people to represent us in government to protect us. Theoretically anyway.

    • LD

      Good points, but what does a man win if he gains the whole world but loses his soul.

      A series of short term wins in battle does not by itself guarantee victory in the war. Right now America is losing the war badly.

      The leaders of industry and government have been proven to be severely lacking in their abilities to properly frame the debate and implement the necessary changes to create a strong foundation for our future generations.

      Thanks for your insights. Please share them often.

      • Bill

        It is rather like a virus killing its
        host.

  • fiscalliberal

    It might be good to remember that of the five original investment Banks, only Goldman Sachs and JP Morgan are survivers and they have converted to commercial banks to get to the Fed Windown. So – can we say that is really zero survivors? This is after the LTCM collapse, which means that they are not capable of learning along the way. Does the word Lemming apply?

    So – since George Bush opend the markets up to self regulation (Chris Cox and John Snow) can we come to the understanding that the Investment Bank Model does not work when self reulated.

    What is amazing is that the big banks do not seem to be comming out with a self regulation program, they want same old ways to survive. We do need to point out Diamond did keep his bank out of trouble and was able to pick up Bear, which probably deteriorated his balance sheet. I think the same can be said for Bank Of America with Merrill. They also picked up Country Wide. I bet both of those entities deteriorated their balance sheets dramatically.

    Did Goldman come to the rescule of any bank or AIG – not so – they got 100% of the dollar in their counterparty transations.

    They are the new Jimmy Cayne of the industry






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