City Journal Spring 2014

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Spring 2014
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Nicole Gelinas
It’s Not About Jamie Dimon « Back to Story

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"Nearly four years after the financial crisis began...." Ms Gelinas...you and all others are in error. Washington knows exactly what the rules are. It is the Golden Rule as you might guess and therefore, laws are what the regulated agree to and work diligently to get the laws and regulations passed which suit their needs. In exchange, the Washington politicos, with their hands out, feign a hard nosed approach. In both cases, the Big Money guys pay off the Big Government guys and the personal enrichment continues. Washington didn't have to learn anything else, they never forgot it.
Dimon should have declined to be interviewed by David Gregory. Gregory does not have enough insight into banking or finance in order to ask one relevant question.
Gregory, as with the former MSM, are financially ignorant.
Someone needs to train these CEO to restate a terribly question and answer that, because journalist and media types are not up to the task. They have not been trained in research and knowledge and how to phrase a thoughtful question.
Alena Hromádková,Prague May 16, 2012 at 6:40 AM
Very discouraging text because it´s so terribly true. But the law-makers and bankers are men/women so one can not ignore the subjective aspects of the current procedures and calamity decision-making, I am afraid.Yes, adequate rules and impartionality of the rule-designers are the priorities at the moment.Where and how to start a different policy? Divided political class and failing financial elite open door to unpredictable social and economic events... It is very sad to see that U.S. professionals have to cope with developments Europe experienced long time ago!
While the lionization of the individual is as old as the Republic, Nicole Gelinas is right to deplore the focus on personalities when we should instead be looking critically at markets, market institutions, and the rules that govern them. But at the risk of changing the topic, might not the same principle be applied to the issue of executive compensation, which is now at stratospheric levels? How often do we hear of the visionary CEO who led his organization to enormous profits and thus is completely deserving of his eye-popping and outsized salary, benefits, severance package, etc? Seldom is there any mention of the legion of Ph.D.s in chemistry and biology who actually discovered the new compounds, or of the wizards in economics and finance who actually made the financial wheels turn each day, or of the vice presidents, the directors, the salespersons, the accountants, et al., all of whom are critical to any organization’s success. It is as though the charismatic leader is the sole reason for his corporation’s success or failure. It’s nonsense. The captain’s leadership should not be underestimated, but without an experienced and talented crew, the ship doesn’t sail. So just how much is enough when boards of directors decide how much these captains of the corporate seas should be paid? How much is enough? Or is the concept of “enough” no longer operative? Washington may well be out of touch in their focus on individual personalities, but corporate boards seem not to be far behind.
'kafantaris' wrote, "One answer is that JPMorgan had figured it could bear the gambling losses."

But that's the key, isn't it? If a bank is truly "too big to fail" then it must be restrained from taking positions that could result in its failure.

Is it truly so difficult to construct "worst-case" scenarios for trading positions? It's not a question of assessing downside probabilities (which may be difficult or impossible) but just a matter of assessing the worst possible potential downside- just assume Murphy's Law happens to all the wagers you've made.

If the bank can sustain the loss- let it wager. If it might not be able to and there might be implicit "too big to fail" public guarantees then regulation must prevent the wager from being made.
James - Longdrycreek Ranch May 15, 2012 at 9:34 AM
Trust no politican to understand economics or to understand how the market works. Politicians remind me of confidence men who know where the money is but have not idea how it got there.
Levin, Dodd, Frank, and a host of others are small men with less understanding of the market than the little girl peddling pencils, or a blind man selling pencils from a tin cup.
FACT: JP MORGAN IS ONE OF BANKSTER-BOUGHT OBAMA’S BIGGEST PAYMASTERS! HE’S PROMISED THEM NO PRISON TIME AND NO REAL REGULATION.
THERE IS A REASON WHY THE BANKSTERS INVESTED HEAVILY IN OBAMA’S CORRUPT ADMINISTRATION!
Records show that four out of Obama's top five contributors are employees of financial industry giants - Goldman Sachs ($571,330), UBS AG ($364,806), JPMorgan Chase ($362,207) and Citigroup ($358,054).

Virginia Simson May 14, 2012 at 10:09 PM
Not bad, BUT surprisingly no look at suggestions that are being made routinely about proprietary trading. See, OccupytheSEC for a BRILLIANT analysis - even Reuters says it is.

Part of what got everyone into this mess of fear and panic is the media itself for refusing to state the obvious. Have a look at THIS to understand how egregiously Jamie D is covering HIS ass. A child who can be made to understand just abc's of how hedging works could understand it in SECONDS, yet the media doesn't show it:
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2012/05/20120510_IG9_0.png

The press is a PR release reader and spewer, NOT an investigative journalist community. It appears to me, neither are you.
Our financial system is a house of cards that just need the right breeze to blow over.
There is no way to write a law so as to escape the chance of its being artfully misinterpreted. Of course JPMorgan's trades were "proprietary". They weren't "hedging" because in the real world, the risks they were supposed to hedge against weren't actually hedged. Couldn't have been. A house of cards does not a seawall make.

The best one can do is to give some examples of what you mean, in an appendix to the law. Parables, if you will. The courts will from time to time find ways to misinterpret the plainest of language, but at that point, the fault lies not with the law, but with the nation that allowed such judges to be seated.
Probably a majority of credit default swaps these days are cleared through clearing houses. The purpose of clearing houses is to eliminate counterparty risk. However, they do so at the expense of creating more systemic risk since no regulator is going to let a clearing house fail.

It is highly unlikely that credit default swaps will ever be exchange traded because they are not standardized. A big part of their attraction is that they can be and are customized, frequently, which makes them quite unsuitable for exchange trading.
The derivative hedging game played by JPMorgan Chase is no different than that played by AIG in 2008.
Yet Jamie Dimon tells us that JPMorgan had merely “made a terrible, egregious mistake.” He might as well have said that the bank was wrong to keep raising in a poker game when it was apparent that it should have folded.
And why was JPMorgan busy betting in the first place -- right after our economic meltdown, and while fighting government regulation?
One answer is that JPMorgan had figured it could bear the gambling losses.
That’s right. With $2 trillion at hand, JPMorgan can yawn when $3 billion goes down the tube.
Nonetheless, Dimon tells us that he sees no problem with the government dismantling big failing banks. This is nice to know because the government might want to look into dismantling big banks before they fail -- and before they have another chance to take us down with them.
The important lesson from the JPMorgan fiasco then is not that stringent regulations are still needed to reign in on derivatives, but that banks big enough to remain standing after taking huge hits are ripe enough for us to chop down to size.