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The Scarlet Letter

Posted by Larry Doyle on April 16, 2009 12:44 PM |

Competitive people by their very nature like to win. There is nothing wrong with that. In fact, our country was built upon risk taking entrepreneurs who blazed trails and opened markets in the pursuit of profit.

Clearly, we have experienced enormous abuses in many parts of our economy over the last decade. The fact that rating agencies and regulatory authorities have been negligent – if not complicit – in the process has only added to the turmoil. In my opinion, our legislators have been as much a part of the problem as the solution.

For many of those who have either mismanaged their business or abused business ethics along the way, the government has stepped in with billions in support. Our markets have suffered as a result.

Against this backdrop, the major rub in the world of finance is distinguishing between the strong banks and the weak banks. Well, Jamie Dimon issued as aggressive an assessment as I have ever seen on this specific topic. In a Bloomberg report on JP Morgan’s earnings,

Chief Executive Officer Jamie Dimon, who today reported first-quarter profit that beat analysts’ expectations, said his firm could repay U.S. government rescue funds “tomorrow.”

Dimon, called money received through the Troubled Asset Relief Program “a scarlet letter.”

Make no mistake, Dimon is a highly competitive and aggressive businessman. He is clearly trying to distinguish JP Morgan as one of the strongest financial institutions in the world today and gain market share and subsequent profitability in the process.

Additionally, Dimon commented on the PPIP (Public-Private Investment Program), one of the cornerstones of the government program to clear toxic assets from bank balance sheets. Bloomberg reports:

Dimon said the bank, which bought about $34 billion in mortgage-backed and asset-backed securities in the quarter, doesn’t expect to participate as either a buyer or seller in the Treasury’s Public-Private Investment Program, known as PPIP. “We learned our lesson” about borrowing from the government, said Dimon, who expects PPIP to benefit the financial system as a whole.

In short, Dimon is casting strong aspersion at Uncle Sam and the terms of engagement in receiving TARP funds.

I cannot imagine that Turbo-Tim, Larry Summers, Big Ben Bernanke, and President Obama are all that happy with Mr. Dimon at this juncture. However, Mr. Dimon has to answer to JP Morgan shareholders first and foremost. His statements are intended to protect their interests.

Last I checked, I think that is a founding principle of capitalism.

If you’d like to read Bloomberg’s full article, check it out: Dimon Says He’s Eager to Repay ‘Scarlet Letter’ TARP 


Bank Stress Test comment: Please be aware in regard to the Bank Stress Tests, the worst case scenario employs a 10.3% rate of unemployment. While that rate may be the worst case for testing purposes, virtually every economist and analyst now views a 10+% rate of unemployment to be a given, or in other words, the base case.

What does that mean? The capital needs in the banking system will potentially be greater than the government shares with the public.

I am all about hoping for the best….but preparing for the worst.


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