Dimon’s Davos offensive is premature

January 27, 2011

By Peter Thal Larsen
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

DAVOS, Switzerland — Bankers are back on the front foot. At the World Economic Forum in Davos, Jamie Dimon led a chorus of his peers warning of the dangers of excessive regulation. In front of a packed meeting, the JPMorgan chief told French President Nicolas Sarkozy, “Too much is too much”. But his complaint is misguided — and his new offensive premature.

It’s not hard to see why Dimon is frustrated. JPMorgan weathered the crisis well, and has emerged even larger and more formidable than before. Dimon and other crisis survivors like Peter Sands of Standard Chartered feel they are being blamed for the sins of less capable peers — most of whom retired to the golf course years ago.

And bankers are entitled to a big role in the debate about financial reform. New regulations will raise the cost of credit for consumers and companies. They may also shift risk to unregulated shadow banks. So far, regulators and politicians have largely set the tone. Banks need to participate in the discussion, and do a better job of explaining their vital economic function.

But most bankers’ knee-jerk response to any regulatory shift has been to resist it. The industry has opposed virtually every new rule introduced anywhere in the world since the crisis started in 2007. As a result, its objections have little credibility.

Besides, the financial system is far from fixed. Though capital ratios have been increased and liquidity buffers enlarged, officials still have no way of dealing with big banks that fail without putting taxpayers’ money at risk. As long as this moral hazard persists, banks will have an incentive to become large while enjoying an implicit government guarantee.

Dimon says he’s in favour of winding down what he calls “big dumb banks”. But getting to the point where a behemoth like JPMorgan could be safely shut down is a complex, cross-border puzzle. The bank’s boss needs to engage in the discussion to solve it. At least until that is achieved, whining about new rules, especially in public, is counterproductive.

Comments

I was looking up something in Chernow’s big book on Morgan and found on pp.354-55 this great exchange in the summer of 1932 (before the election) between Leffingwell of Morgan and FDR: “…You and I know,” (wrote Leffingwell,) “that we cannot cure the present deflation and depression by punishing the villains, real or imaginary, of the first post war decade, and that when it comes down to the day of reckoning nobody gets very far with all this prohibition and regulation stuff.” To which FDR replied: “I wish we could get from the bankers themselves an admission that in the 1927 to 1929 period there were grave abuses and that the bankers themselves now support wholeheartedly methods to prevent recurrence thereof. Can’t bankers see their own advantage in such a course?” And then Leffingwell again: “The bankers were not in fact responsible for 1927-29 and the politicians were. Why then should the bankers make a false confession?”

Posted by midasw | Report as abusive
 

wikileaks is overdue on the bank data release.

Posted by ARJTurgot2 | Report as abusive
 

“And bankers are entitled to a big role in the debate about financial reform” – Really? Like they were entitled to write the regulation that intitally repealed depression era banking and finance laws in the first place, right? Sorry, the great wealth destroyers, JP Morgan included, shouldn’t have any say in the matter.

Posted by jobon1 | Report as abusive
 

If you haven’t seen it yet, The Atlantic has some stuff that I gather Dimon would just as soon not be asked about:

http://www.theatlantic.com/business/arch ive/2011/01/e-mails-suggest-bear-stearns -cheated-clients-out-of-billions/70128/

Posted by ARJTurgot2 | Report as abusive
 

The banks are definitely entitled to be a part of the process of determining the new regulatory framework.They are the ones who will be directly affected and so their views ought to be accorded a fair hearing.

What must not be allowed however is for the banks to create a smokescreen and to pass off their naked self interest as in the public interest.

Sadly few if any of the bank CEO’s have displayed any real understanding of the “optics” from the events of 2008. When so many people worldwide have lost investments and jobs and have had to make painful adjustments in their lives ,a little less smugness and a tad more humility on the part of Messrs Dimon et al would probably help a little . Post 2008 the picture presented to the average man on the street resembles a reverse Robin Hood.

While many on Wall Street were happy with the Republican victory in the US,(which incidentally they bought and paid for), I wonder how many of them noticed the ironic nature of that outcome. The Republicans won on a wave of populist anger which included significant resentment of the TARP.

Posted by MHB | Report as abusive
 

JP Morgan is not larger and more formidable that it was before the Collapse due to Dimon’s great management skills.

They only exist and make money now because American citizens are bearing his bank’s bad debts through Fannie Mae and Freddie Mac.

He will never impress me unless he decides to make American citizens whole for the losses sustained on his behalf.

If Americans ever decide to use their personal communication technology the way the Tunisians and Egyptians did, he might wish he had remained a little more obscure and a lot more fair in his dealings with American citizens.

Posted by breezinthru | Report as abusive
 

More Dimon in the rough

This one links them to Madoff

http://online.wsj.com/article/BT-CO-2011 0203-719166.html

He’s sort of correct tho. Pointless to pass more regulation when you’re not enforcing basic fraud law.

Posted by ARJTurgot2 | Report as abusive
 

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