Bethany McLean

So today is the day.  After weeks of near-constant coverage of the big decision — will JPMorgan Chase shareholders keep Jamie Dimon as chairman and CEO or relegate him to just CEO? — the verdict came at JPMorgan’s annual meeting in Tampa, Florida:  Dimon gets to keep both titles. The next question is whether the result will get as much press as the original question did.

The subject has gotten so much coverage in part because Dimon is so divisive. To his supporters, he’s the personification of everything that’s best about the financial system. Those who defend Dimon, like New York Times columnist Andrew Ross Sorkin, point out that JPMorgan Chase hasn’t lost money in any quarter while Dimon has been in charge. Others, including Warren Buffett, Jack Welch, Michael Bloomberg and Rupert Murdoch, praise Dimon, who is often called “America’s most famous banker,” for his management skills. But to detractors, he’s the personification of all that’s wrong with modern banking — the arrogance, the resistance to new regulation, the astronomical pay in the face of obvious mistakes. The way he acted — threatening to resign entirely if his chairmanship was taken away — is proof that he’s no more than a spoiled child.

But I wonder if the vote has gotten so much attention for another reason, which is that it’s easier to chew over Jamie Dimon than it is to think about the right structure for our financial system. Sure, the management, and the structure of that management, at JPMorgan matters.  But if I were a conspiracy theorist ‑ and really and truly, I’m not! ‑ I might even suspect that all the fuss about Dimon is supposed to make us “watch the birdie.”  It’s a distraction, meant to deflect attention from the real point, which is how we structure a financial system that best serves the needs of consumers and businesses in as safe a way as possible.

We’ve been getting close to having that conversation lately.  In late April, Senators Sherrod Brown (D-Ohio) and David Vitter (R-La.) rolled out the Brown-Vitter bill, which some have called the “break up the big banks” bill because the capital requirements it would impose on large banks, those with over $500 billion in assets, are so onerous as to force a breakup. At the least, the bill is a start to a much-needed conversation — or it was until Dimon began to dominate the headlines.

JPMorgan, which is the nation’s largest financial holding company with $2.4 trillion in assets, is not only one of the central targets of Brown-Vitter, it’s also a cause of the bill.  That’s not just because JPMorgan is big. Last summer, as most people know, JPMorgan lost more than $6 billion because of a trade in credit derivatives gone wrong. (The bank still made money that quarter.) Dimon, who initially and famously dismissed rumors as a “tempest in a teapot,” was forced to testify twice in Washington, and to offer a rare mea culpa, not once but repeatedly, for what he called a “terrible mistake.”

Among those who believe that Goldman is basically the devil’s spawn, there’s of course only one answer to the above question: Yes! But there’s another group that seems to be asking the same question, and that’s investors.

Consider that in the past year, Goldman’s stock has fallen some 30 percent. It trades for just 0.7 times book value, which says that investors either think that Goldman can’t earn enough to cover its cost of capital, or that its assets are overstated or liabilities understated. Consider this: Except during the financial crisis, Goldman’s market capitalization was last around $50 billion back in the fall of 2005. Back then, Goldman had $670 billion in assets, and $27 billion in shareholders’ equity. Today, Goldman has $951 billion in assets, and $72 billion in shareholders’ equity.

Goldman Sachs stock price, July 1, 2011 - July 1, 2012

Another way to think about Goldman’s valuation is that the firm effectively has $300 billion in cash and close cash equivalents on its balance sheet. You can get to that figure by adding cash, Level 1 assets, and Level 2 assets that could be easily liquidated. Goldman has total long-term and short-term debt of $220 billion, and a market value of $50 billion. In other words, the market is giving Goldman very little credit for the ongoing earnings of its business, and Goldman has a lot of dry powder relative to the opportunities it has. (A caveat: Goldman’s immense derivatives business would gobble up lots of cash were the firm to be hit with credit downgrades.)

Ever since the $25 billion settlement over foreclosure abuses between five of the nation’s biggest banks and the state attorneys-general was announced, there’s been a steady drumbeat of naysayers who’ve asserted the deal does more for the banks than it does for homeowners. And barring some happy accident in which the settlement somehow inspires banks to behave, they’re probably right: In comparison with the estimated $700 billion difference between what people owe on their mortgages and what those homes are actually worth, $25 billion is peanuts.

But the problem isn’t that the settlement is part of some grand plan by the government to help out the banks. Rather, the problem is that the government doesn’t seem to have a grand plan for the banks.

For all the current and well-deserved bank bashing, few question that a well-functioning economy is predicated on a well-functioning banking system. And few question that confidence is a critical ingredient. So then the issue becomes: What kind of banking system do you want to have, and how do you inspire confidence in it?