The NYT loves Jamie Dimon

By Felix Salmon
December 6, 2010
Roger Lowenstein's NYT Magazine piece on Jamie Dimon.

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I’m not a huge fan of Roger Lowenstein’s NYT Magazine piece on Jamie Dimon, which comes complete with a positively glowing cover photo. It seems altogether too sympathetic to the man — who is, it must be said, a good banker — while failing to make the point that we can’t regulate a banking system on the assumption that the biggest banks will always be run by good bankers.

Dimon gave Lowenstein a very impressive degree of access for this article and from a PR perspective that decision makes perfect sense. Dimon is a good bank CEO and can make a very credible case that he’s part of the solution rather than part of the problem. One can’t necessarily blame Dimon for taking the banker-bashing personally — but I think it’s fair to blame Lowenstein for failing to point out that Dimon’s “l’état, c’est moi” attitude is itself problematic. The problems with megabanks like JP Morgan are not problems that Dimon or anybody else can solve: they’re endemic to any bank with assets of $2 trillion and growing. Here’s Lowenstein, on Dimon:

He was adamant that government officials — he seemed to include President Obama — have been unfairly tarring all bankers indiscriminately. “It’s harmful, it’s unfair and it leads to bad policy,” he told me again and again. It’s a subject that makes him boil, because Dimon’s career has been all about being discriminating — about weighing this or that particular risk, sifting through the merits of this or that loan.

The point here, surely, is that government has to be indiscriminate when it comes to bank regulation. Yes, on a case-by-case basis, the government can play favorites — and indeed it did so, during the crisis, when it engineered the transfer of both Bear Stearns and Washington Mutual into Dimon’s safe pair of hands. But equally the government can’t soft-pedal its regulation of banks and bankers on the grounds that one particular banker happens to have come out of the crisis with his reputation for risk management largely intact.

Lowenstein continues:

There are, believe it or not, reasons for wanting banks to be big, including safety. A large bank with many loans is less prone to failure than, say, a bank in Texas that lends to only oil drillers. For related reasons, as a bank gets bigger, its credit will generally be stronger, its borrowing costs lower. But as Dimon points out, banking also suffers from diseconomies of scale, like the lack of attention to detail and the “hubris” that can undermine a large organization. Such sins are precisely what crippled Citigroup and A.I.G. Nonetheless, Dimon insists that for a bank that gets it right, the positives of consolidation are overwhelming. Since J. P. Morgan’s acquisition, in 2008, of Washington Mutual, each Chase branch spends $1 million less on overhead and technology than it did before.

This is too credulous. Yes, big banks are less prone to failure than small banks — but that just makes them more dangerous, from a systemic perspective. If a lender to Texan oil drillers goes bust, the systemic repercussions are de minimis. If Citigroup or AIG goes bust, the whole world feels the impact. If a lot of small banks all make very similar loans to very similar people, then they can collectively approach the systemic impact of one large bank — but even then they won’t be so interconnected and so international that taxpayers are essentially forced to bail them out.

And I really don’t know what to make of that $1 million a year figure. If it’s true, it implies that Chase was a very inefficient retail bank and that Dimon was not half as good at running it as he’d like us to think. It also means that if small banks and credit unions found it hard to compete with Chase before, they’ll find it impossible to compete with Chase now. But I do wish I knew where the number came from, because I have to admit I’m suspicious.

Lowenstein then lauds Dimon’s exceptional risk-management skills:

That he manages to be the exception to the rule is a credit to his radar for trouble. Judy, his wife, whom he met at Harvard, claims he has an instinct for danger. Jay Fishman, who worked with Dimon in the ’90s (today he is chief executive of Travelers), says: “Jamie has a healthy regard for the idea that we will go through crises and that we will be lousy at predicting them. The flip side is he will run his businesses more carefully.” In the early ’90s, when banks were racking up huge losses in commercial real estate, Dimon ordered Fishman to study what would happen to Primerica if Citibank should fail. It was the sort of far-fetched risk that no other banker would worry about. A few years later, Primerica acquired Travelers, which had been weakened by Hurricane Andrew. Dimon demanded to see the catastrophe risk in every region the firm covered. Dimon did not have day-to-day control over insurance, but he routinely trespassed over organizational charts. He told Fishman to limit his exposure so that even a once-in-a-­century storm would not cost the company more than a single quarter’s earnings. That was a highly unusual, and unusually conservative, approach.

THIS FALL, DIMON SPOKE at a conference sponsored by Barclays Capital: a thousand people crammed into the ballroom at a Manhattan Sheraton to hear him. The master of ceremonies began by noting that Dimon was also the lunchtime speaker at the conference in 2006, just before the mortgage bubble burst. It was interesting to recall, he said, who else spoke then: Kerry Killinger, the chief executive of Washington Mutual; Michael Perry, chairman of IndyMac; as well as executives from the subprime lender Countrywide Financial and Lehman Brothers. “Jamie told us that day about subprime exposure — his was the first major bank to talk about that,” the master of ceremonies said. “All of those other firms disappeared.”

What Lowenstein doesn’t do, at this point, is talk about how all this only serves to underscore how weak the U.S. banking system’s risk-management systems are: JP Morgan Chase survived in large part thanks only because it was lucky enough to have Dimon at its helm. If Stan O’Neal had been in charge, things would have turned out very differently indeed. As a result, it becomes not only sensible but necessary to hobble JP Morgan more than Dimon feels is warranted. You don’t set speed limits on the basis of how fast the very best drivers can safely travel.

Lowenstein shows just how uncritical he’s being in his section on credit cards:

Dimon laments that people — he means the Congress — don’t really understand the credit-card business. Last year, Congress enacted a law that restricted pricing flexibility — for instance, banks must give a 45-day notice before raising their rates, even when a borrower misses a payment. The legislation was meant to prevent sudden interest-rate increases that had caught cardholders unawares.

Dimon argues that all businesses charge for some things and not for others. For instance, restaurants give you the tablecloth and the silverware free and “mark up” the food. (Dimon loves to illustrate banking verities with examples from more familiar, and less threatening, industries.) Credit-card companies provide a service — convenience — “free,” but the business entails significant risks. In a typical month, Chase lends $140 billion to people, with no form of security. The bank earns interest on those loans, of course, but it has to pay expenses and eat the bills of cardholders who fail to pay them back. Before the bust, unpaid bills totaled roughly $6 billion; in 2009, when unemployment rose to double digits, credit-card losses soared to $18 billion, and the business plunged into the red. How to set rates that keep such a business both profitable and an attractive proposition for customers is what bankers do — or at least, what they try to do.

To compensate for its inability to quickly raise rates, Chase has decided to lessen its exposure by no longer offering cards to a portion of its customers that it deems the riskiest. This isn’t necessarily bad; if the mortgage mess taught us anything, it is that banks should exercise discipline.

It has been amply documented that exploding interest rates on credit cards are not a way of pricing the “significant risks” of default; instead, they’re a way of sweating the maximum amount of money out of borrowers so that when they do default, the card company has already made a tidy profit. If banks can no longer wring monster interest payments and penalties out of people who clearly can’t afford them, then sure, they’ll drop those people as customers — that’s the whole point and the intended effect of Congress’s intervention here. The discipline being exercised is in the law, not within the banks.

And then there’s this:

Dimon acknowledged to me that in Chase affidavits, individuals incorrectly said they had reviewed loan files when in fact they relied on the work of others. So far, he says, Chase has not found cases of homes foreclosed on in error; payments on its suspended foreclosures are, on average, 15 months overdue.

The implication here — that if a homeowner is in default, then they can’t be foreclosed on in error — is simply false. It doesn’t matter how overdue the mortgage payments are: if you don’t legitimately own the mortgage, then you can’t foreclose. But, of course, many banks do just that — including Chase.

Or there’s the literally parenthetical treatment of hedge funds:

Perhaps naïvely, he was disappointed that political concerns played a large role in shaping the legislation. (An example is that Dodd-Frank limited bank investment in hedge funds, even though the latter were peripheral to the crisis.)

For one thing, the crisis began with Bear Stearns’s investment in its own subprime funds going horribly wrong. But in any case, Dodd-Frank was always intended to prevent future crises, not the last one. And having banks invest in hedge funds can’t conceivably improve systemic stability. Banning investments in hedge funds is hardly a “political concern” — it’s an important way of keeping banks sticking to their knitting, rather than branching out into dangerous areas which can hole them below the water line.

Dimon’s clearly a charmer — it’s the only way to explain passages like these:

Bear Stearns modestly added to J. P. Morgan’s franchise (Dimon says he was largely motivated by a desire to ease the crisis)…

Dimon could remain at J. P. Morgan for another decade — he says he has forsaken any thought of public service.

I haven’t spent months following Jamie Dimon around private meetings and dinners, but how is it possible not to burst out laughing when Dimon says with a straight face that has forsaken any thought of public service? All powerful CEOs live in a reality-distorting bubble, of course, and I suppose it’s not Lowenstein’s job to puncture that bubble in the presence of such greatness. But really.

What I’d really like to see is some bonus online material, surrounding this episode:

The new “systemic regulator” that the Dodd-Frank act established is meant to unwind a failing institution without rewarding its creditors or investors. Dimon is a huge supporter of the concept. “No one should be too big to fail,” he tells me. And J. P. Morgan? “Right,” he says. “Morgan should have to file for bankruptcy.” Suddenly, he begins to scratch out how a putative bankruptcy of his company would look, dissecting the capital structure line by line.

Lowenstein leaves it there — with no indication whatsoever of how Dimon thinks a bank could ever successfully declare bankruptcy. It’s never happened before, and there’s a strong case to be made that, at least in the case of a big international bank like JP Morgan Chase, it can’t possibly happen in the future, either.

My biggest problem with Lowenstein’s piece is that he never really grapples with JP Morgan’s sheer enormity — the root cause of substantially all the enmity between Dimon and those who would seek to hobble his plans for global domination. Is JP Morgan too big to fail? If so — and surely the answer is yes — then how can Dimon justify its existence, or his own plans to make it even bigger? To read this profile, you’d be forgiven for thinking that if Dimon is qualified to run a big bank, he should be allowed to do so. But he shouldn’t — no one should — if the cost of failure, no matter how unlikely, is a massive taxpayer bailout and another devastating global recession.


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The only “good banker” is a banker in an orange jump suit doing the perp walk.

Posted by lambertstrether | Report as abusive

I’m not really sure what the source of Jamie Dimon’s aura is, but he is the object of unprecedented man crushes by every guy in the financial services sector, most of whom simply refuse to believe that anything he says could possibly be misleading, distorted, or flat-out wrong. My own dear husband is one such, and at a dinner with friends the other night several of them expressed grave concern over my “untoward” attacks on him. I went so far as to refuse to open an account at Chase last week, which left hubbie flummoxed. He is encouraging me to go back to hating on Lloyd Blankfein instead.

I can’t help but think there is a trace of aesthetic bias going on here, and honestly, we cannot afford to let the JP MORGUE grow into the Staypuff Marshmallow Man Monster because “Jamie” is cute and charming while his fellow bankers are ordinary to ugly.

Posted by LadyGodiva | Report as abusive

The amusing thing is Dimon wouldn’t be running JP Morgan had it not been well-managed before he arrived. It was Chase’s recklessness that generated the specious accounting profits which in turn raised their share price relative to JPMs. That was what enabled the acquisition, in a way not too different from AOL and Time-Warner. When bad bankers are allowed, bad banking drives out good. Dimon is the exception that proved the rule; Chase could never have anticipated that in swallowing Bank One for bon bouche, they had ingested an executive with the personal magnetism and political skill to seize control of the combined organization.

Posted by Greycap | Report as abusive

Great post! But depressing. It feels like we are basically doomed.

But my larger fear is about the bank that is our treasury. That is one bank that is bigger still and we know for a fact that it is run by incompetent managers and that its balance sheet is a mess.

Posted by DanHess | Report as abusive

So where is Jamie Dimon? I can find these accounts on Google in NY Courts. Here is a recent article from a Banking Industry Website after it was published in a NY Times article the link is at the bottom. The comments from the industry were interesting.
By: Jerry Ashton
In the military, if you disobey a direct order during wartime they will place you in front of a firing squad.
We are more fortunate as soldiers and officers in the War on Debt – if we raise objections or concerns, we are simply fired – not fired on. But the effect can be just as life-(as we know it)-threatening.
This is what has happened to one of our own, Linda Almonte, a banking professional and former employee of JP Morgan Chase. When she questioned the intelligence (and legitimacy) of selling off a flawed portfolio of credit card write-offs to a debt purchaser in September and October of 2009, she discovered that some 5,000 accounts out of 23,000 did not meet the bank’s own criteria for resale (“Former Chase Exec Makes Debt Sales Allegations in Lawsuit,” March 10).
However, this portfolio (which was comprised of judgment accounts that had been obtained by internal Chase attorneys or attorneys-of-record) had a face value of $200,000,000 and Chase would realize a cool $23MM on the purchase (while also reducing its bad debt load for reporting purposes for the quarter). Her superior chose, instead, to fire Linda and make the sale. In return, she chose to file suit. Chase did not make the better choice.
This week, the New York Times published a major article by David Segal called “Debt Collectors Face A Hazard: Writer’s Cramp” and ran it front-page in their Business Day section. Linda’s story, along with others of a similar nature, outlined the shoddy – if not illegal – practices that some debt sellers and debt purchasers regularly engage in.
The article does not explain that Linda is no ordinary credit and collections professional. She is a Six Sigma Black Belt graduate of the respected GE Capital Group and a veteran of millions of dollars in their commercial and small business leasing and loans.
After four years of training and likely a quarter-million-dollars invested by GE in her development in all aspects of IT, legal, and compliance, you might say that she is qualified to pass judgment on the quality of a debt portfolio…and of that industry in general. She was responsible for “vetting” billion-dollar-deals for GE.
Her banking career (now effectively ended) followed with her being hired away from GE by WAMU to move to Florida in 2004. Her work at Chase ran from May of 2009 until her firing.
What she saw was horrifying – giant data dumps running through scores of disparate accounting systems connecting hundreds of lawyers, collection agencies, and debt purchasing firms.
For a person trained in Six Sigma, where only 3.4 defects per million opportunity is allowable, she saw that the only guaranteed outcome given the state of this industry is pain – for all involved.
Debt buyers, often unkindly referred to as the “bottom feeders” of the ARM industry, expect to buy clean paper: no judgments errors, prior garnishments, liens, post judgment remedies, incorrect balances, incorrect names, addresses and account numbers, etc., so that their collection process might proceed without the distraction of these errors.
It was Linda’s job to meet those expectations. In trying to do so, she was fired on November 30, 2009, without severance. The reason given for the dismissal? Her boss did not agree with her “operating principles.” The reason for no severance pay? Because she was being terminated, although she was told by the VP of HR on the way out the door that they would not contest her unemployment claims and that they would respond to any employment inquiries that she was “laid off,” not terminated.
Well, I have expressed enough outrage for the moment. I call on my fellow travelers in this industry to give this woman’s plight some thought. Some day, if it has not already happened, you may be faced with the decision to either “go with the program” or lose your job. Did she do the right thing? Would your choice have been different?
I encourage people to connect with me on Twitter as @WrittenOffUSA to follow this issue further.
This is when integrity meets reality. How would that challenge be faced in your world?
Permalink: ection-news/accounts-receivables-managem ent/follow-directions-or-be-fired-a-debt -professionals-dilemma/

Posted by nellin | Report as abusive

“You don’t set speed limits on the basis of how fast the very best drivers can safely travel.” – pure poetry Felix… Perhaps the best sentence you’ve ever written in my opnion. Lets use FDIC insurance rates and capital ratios to constrain the size of our largest banks. The bigger you are the more you must pay and the more capital you must hold.

“if a homeowner is in default, then they can’t be foreclosed on in error — is simply false. It doesn’t matter how overdue the mortgage payments are: if you don’t legitimately own the mortgage, then you can’t foreclose.”

…but you can forclose on behalf of the rightful owners of that note. If the law says you can’t than the law will be changed retroactively just like that laws that were run over when GM pensioners were moved senior to senior secure bondholders, or when WaMu was taken. Or when the Fed bailed out AIG. There is no other way forward and you know it.

If you don’t pay your car loan it gets repoed. If you don’t pay your light bill the lights eventually go out. In what world can you not pay your mortgage and stay in your house? The math there just dosen’t work irreguardless of how the law reads. Whenever the math and the law are at odds do yourself a favor and bet on math winning.

Posted by y2kurtus | Report as abusive

Greycap, I vaguely remember that part of the deal with BankOne was that Dimon would take over. Anyway Dimon was lucky, JPM was a subpar bank and he arrived just a little too late to the party. That also has to be balanced against him being a great risk manager. I think his behaviour at Citigroup just before the Russian crisis was his finest hour rather than 2008.

I always felt Phil Purcell was a bit unlucky. If he had managed to hold on for another couple of years he similarly would be being lauded…

Posted by Danny_Black | Report as abusive

y2kurtus, you end up like Italy where it is impossible to kick the person out and impossible to get a mortgage. We’ll see how people like it when only the rich with the cash in a bag can own their own homes….

Posted by Danny_Black | Report as abusive

If Italy was the worst case scenerio I could totally live with that.

I think the growth of the emerging economies continues and Americans/Europeans who have always counted on being able to import the energy and materials they need to support mass affluence will steadily be less and less able to pay the bill.

Posted by y2kurtus | Report as abusive