Opinion

Felix Salmon

Counterparties

Felix Salmon
Dec 7, 2010 06:11 UTC

Chart of the Day: Who Votes, Who Counts — MoJo

“She offers no apologies for not paying her mortgage for 25 years, saying that when a foreclosure is in dispute, borrowers are entitled to stop making payments until the courts resolve the matter” — WSJ

Legal woes mount for LPS — Reuters

Poland furious over toothless Patriot defence system. ” We want missiles, not potted plants” — Guardian

Feds arrest DecorMyEyes guy — BNet

Filkins to the New Yorker — Observer

Correction of the day: “He is Lloyd Blankfein, not Lloyd Blankenship” — NYT

Tax fail: Carried interest debate is over — Fortune

COMMENT

If there are 100,000 + foreclosure suits filed nationally each month, and they are being done with improper legal procedures and without proper documentation, or forged documentation, then they are illegal mortgages and you can bet it is in the millions.

However few have the resources to hire a lawyer, few judges are willing to hear individual cases and the Government has also turned a blind eye hoping it will all go away. It is swept under the table, but that does not mean that because they haven’t made headlines that they do not exist.

Sadly, no one is willing to take the torch on this one, The DoJ which were willing to, but had to capitulate or see years of court cases. Once you admit there is a problem you have to deal with it and just like the major bank crooks who were to big to jail, it seems this is too big to touch as well. That doesn’t mean it doesn’t exist. Quite the opposite. It is rampant.

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Tax cuts, Oprah-style

Felix Salmon
Dec 6, 2010 23:35 UTC

The outlines of the tax-cut negotiations have finally come into focus: basically, it’s a kitchen-sink approach where Republicans and Democrats all get the tax cuts they want. The Bush tax cuts get extended for people earning more than $250,000 a year — and unemployment insurance gets extended, along with various tax credits. On top of that, there’s a 2% cut in payroll taxes, and the reintroduction of the estate tax at the Republicans’ preferred level: 35% of estates over $5 million. There’s even a nice new tax deduction for businesses making new investments. This is tax cutting, Oprah-style: you get a tax cut! And you get a tax cut! And you! And you! You all get a tax cut!

This is clearly a win for the Republicans, who get everything they want for the rich. The tax cuts on incomes over $250,000 a year will last for two years, versus just 13 months for the extension of federal unemployment benefits, and just one year of lower payroll taxes. Meanwhile, all the Congressional opposition to this deal is going to come from Democrats, who are basically being asked to sign off on exactly the same bill that George W Bush would have asked for, with a spoonful of unemployment-benefit sugar to help the medicine go down. A lot of them will be wistfully eyeing David Leonhardt’s list of what could be achieved with the $60 billion going on those tax cuts for the rich, and wondering how a Democratic president could find himself doing this.

This is expansionary fiscal policy, alright, but a large chunk of it is concentrated in exactly in those areas — like tax cuts for the rich — which have the lowest multipliers when it comes to kick-starting economic recovery. What the country needs is spending, and this bill instead looks very likely to give us hundreds of billions of dollars of saving.

The unemployment-insurance and payroll-tax aspects of the deal will be welcomed as exactly the kind of stimulus this economy needs: substantially all of them will be spent rather than saved. But the middle- and upper-class tax cuts, paid for by extra borrowing by Treasury, will be used in large part to pay down personal debt. Essentially, we’re replacing private debt with public debt. Just like Ireland!

And the political dynamics of taxes — easy to cut, impossible to raise — will remain: this decision essentially kicks the can two years down the road, when we’re going to have exactly the same fight all over again. On the one hand, the scheduled expiry of the tax cuts did concentrate minds impressively, and result in Real Bipartisan Agreement. But on the other hand, no one thinks that good legislation is made while sitting under a Damoclean sword.

So while this is a much better deal than many feared, I’m not convinced that it augurs well for the next two years of legislative wrangling. But hey, nearly all of us will end up with extra cash for the next couple of years. Which will make us a bit happier, even if it does little good from a fiscal perspective.

COMMENT

I’ve read your blog on the tax act extension(oops forgot you call it a taxcut)and found it very misleading. first of all these tax brackets have been in place since 2001 and 2003. For almost 10 years and the unemployment extension is only the 6 th one since 2008. You make it sound like the unemployment checks are going to go for buying new products. On the contrary they are going to first pay the rent,second food for the table,third gas for the car,fourth cable tv and fifth other bare essentials. Now that just keeps the economy where it is and makes it no better.

On the other hand giving business the information they need to decide what direction they are going to next year is what this bill will do too. If I’m a business ownerI want to know how much my taxes are going to increase or decrease this year. Despite what the democrats think businesses include the cost of paying taxes into the cost of doing everyday business.(Psst..that’s passed on to the customer in what they pay for a product)

Finally this is not a tax cut but maintaining the same tax brackets the way they have been for 10 years. If it expires then it will be a tax increase. By the way since millionaires all sit back and save there money must mean the bum down the street must be hiring to write graffeeti on rail road box cars. Where is your logic????

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Can Rolling Stone claim Blankenship’s scalp?

Felix Salmon
Dec 6, 2010 20:09 UTC

Can Rolling Stone claim another scalp? Six months after ending the career of Stanley McChrystal, Rolling Stone published Jeff Goodell’s blistering, 7,600-word profile of Don Blankenship, the CEO of Massey Energy. Entitled “The Dark Lord of Coal Country,” it’s powerful stuff:

Unless you live in West Virginia, you’ve probably never heard of Don Blankenship. You might not know that he grew up in the coal fields of West Virginia, received an accounting degree from a local college, and, through a combination of luck, hard work and coldblooded ruthlessness, transformed himself into the embodiment of everything that’s wrong with the business and politics of energy in America today — a man who pursues naked self-interest and calls it patriotism, who buys judges like cheap hookers, treats workers like dogs, blasts mountains to get at a few inches of coal and uses his money and influence to ensure that America remains enslaved to the 19th-century idea that burning coal equals progress…

29 men died violent deaths in large part because Don Blankenship ran what amounted to an outlaw coal mine, racking up more than 500 safety violations and nearly $1 million in fines last year alone.

And while the lethal explosion at Big Branch got the headlines, that’s not all the human misery that Blankenship has caused: Goodell goes into detail about the way in which his decision to divert 1.4 billion gallons of toxic coal slurry into old coal mines poisoned the drinking water of hundreds of people with heavy metals such as arsenic and lead.

According to the lawsuit, Massey knew that the ground around the injection sites was cracked, which would allow the toxic waste to leach into nearby drinking water. But injecting the slurry underground saved Massey millions of dollars a year. “The BP oil spill was an accident,” says Thompson. “This was an intentional environmental catastrophe.” Massey denies any wrongdoing in the case. But after Blankenship started pumping the slurry underground, he took steps to make sure that he and his family did not suffer. Around the time that his neighbors were starting to get sick, Massey paid to build a waterline to bring clean, treated water directly to Blankenship’s house from Matewan, a few miles away. Yet he never offered to provide the water to his neighbors, some of whom can see his house from their windows.

Goodell’s story was prescient, perhaps even self-fulfillingly so:

Blankenship still holds an iron grip on Massey’s board of directors. “He’s the embodiment of an imperial CEO,” says one expert on corporate governance. But the board may soon find itself forced to choose between Blankenship and the company’s survival… big shareholders are beginning to turn against the company. “The mine disaster was an eye-opening event for us,” says Brian Bartow, general counsel for the California State Teachers’ Retirement System, a large pension fund that is a major holder in Massey stock. “We re-examined the risks that the company was running in the way it does business. In our view, it has a lot in common with the subprime mortgage crisis — there are a lot of risks here that Massey is not acknowledging.”

I ask Bartow if he believes Blankenship should resign. “He should,” he says. “He clearly doesn’t get it.”

Blankenship announced that he was retiring—to unanimous astonishment—on Friday, a week after Goodell’s story appeared. Massey Energy itself will probably not last long in its present form: although it’s reportedly looking for companies to buy, more likely is that it will end up being swallowed by a larger player. And Blankenship himself is still the target of various lawsuits. But Goodell’s conclusion still, sadly, stands.

“I don’t care what people think,” he once said during a talk to a gathering of Republican Party leaders in West Virginia. “At the end of the day, Don Blankenship is going to die with more money than he needs.”

COMMENT

586 mountains gone, Blair Mountain slated for Mountain Top Removal to wipe out the history they won’t teach in schools: that those red-neckerchief wearing coal miners won us the 40 hour work week and ended child labor in the US. That union was broken by Mountain Top Removal coal mining practice-blastin 1000ft of a mountain and burying over 2000 miles of head water streams. 116,000 miners lost their jobs since it takes about 12 men to dynamite a mountain. Votes on the floor of the house could pass the Clean Water Protection Act but the bill is held hostage by West Virginia Legislator Nick Rahall, Committee on Transportation and Infrastructure: the House Transportation Subcommittee on Water Resources and Environment apply pressure here and boycott PNC Bank, the only remaining funder of a practice so costly to the environment that the Rain Forest Action Network convinced Bank of America not to fund it. Thanks for spreading the shock waves of Appalachia Rising. Visit iLoveMountains.org

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BNY Mellon’s massaged earnings reports

Felix Salmon
Dec 6, 2010 16:48 UTC

With Peter Eavis having left the WSJ, who will take on the job of poring over banks’ balance sheets to expose their crazy accounting? Aaron Elstein, that’s who! He pulls no punches today:

BNY Mellon spins the numbers to make its results look better.

Consider the way the company reports earnings. In quarterly releases, BNY Mellon prefers to highlight income from continuing operations, because it feels that’s the best way to show underlying performance. But its definition of “continuing operations” is always changing, according to a review by Crain’s New York Business of all the bank’s releases for the past three years.

BNY Mellon sometimes excluded investment write-downs from operating results or assessment fees imposed by the Federal Deposit Insurance Corp. At other times, it didn’t include certain taxes or the costs of settling a dispute with the IRS over leases. In one quarter, BNY Mellon excluded litigation reserves; in two others, it called them “special” litigation reserves.

Additionally, the 48,000-employee company routinely excludes costs associated with relocating staffers and merger-related items, even though it often moves people and does M&A deals—26 over the past three years…

“They’re definitely playing games, cherry-picking to inflate their numbers,” says Douglas Carmichael, an accounting professor at Baruch College and a former chief auditor of the Public Company Accounting Oversight Board…

Longtime banking analyst Nancy Bush of NAB Research says BNY Mellon’s frequent changes in defining earnings make it difficult for investors to figure out how well the bank is doing. “You never get the same figures twice,” she says. “It’s very frustrating.”

Yes, BNY reports GAAP figures—but at banks, GAAP figures tell you very little, and it’s crucial that the reported numbers allow analysts to make apples-to-apples comparisons. Bank earnings are extremely opaque at the best of times, which is one of the reasons that banks tend to trade at lower multiples than other industries: no one really knows what might be buried within them. And as a rule, the more that senior management is spinning its earnings rather than reporting them as transparently as it can, the less trust that markets will have in the bank.

I do wonder, though. Is this a tactical decision by BNY’s Bob Kelly? Has he calculated that the boost in share price he gets from reporting artificially-rosy earnings is greater than the decline in share price he gets from leading analysts on a wild goose chase every quarter to try to work out what he’s doing? Does he reckon that analysts’ opinions don’t actually matter that much, and that his shareholders—including Warren Buffett—would rather just see something pretty and massaged?

Or is it simply that once he started down this road he couldn’t stop? It might make sense to switch to a more transparent and consistent set of reporting standards, but that would mean reporting lower earnings, and it’s hard for any CEO to admit that prior earnings figures were massaged in any way. So we might have to wait for a new BNY CEO before we see any changes on this front. After all, the chairman of the board—one Robert Kelly—is not about to rock the boat at all.

Chart of the day: U.S. taxes

Felix Salmon
Dec 6, 2010 15:44 UTC

Stephen Culp has another striking chart today:

US_TAXGDP1210.gif

This chart should be ingrained in the mind of anybody who cares about fiscal policy. The main things to note:

  • Federal taxes are the lowest in 60 years, which gives you a pretty good idea of why America’s long-term debt ratios are a big problem. If the taxes reverted to somewhere near their historical mean, the problem would be solved at a stroke.
  • Income taxes, in particular, both personal and corporate, are low and falling. That trend is not sustainable.
  • Employment taxes, by contrast—the regressive bit of the fiscal structure—are bearing a large and increasing share of the brunt. Any time that somebody starts complaining about how the poor don’t pay income tax, point them to this chart. Income taxes are just one part of the pie, and everybody with a job pays employment taxes.
  • There aren’t any wealth taxes, but the closest thing we’ve got—estate and gift taxes—have shrunk to zero, after contributing a non-negligible amount to the public fisc in earlier decades.

If you were structuring a tax code from scratch, it would look nothing like this. But the problem is that tax hikes seem to be politically impossible no matter which party is in power. And since any revamp of the tax code would involve tax hikes somewhere, I fear we’re fiscally doomed.

COMMENT

Two things I would like to point out about the chart. First half of employment taxes are paid by a corporation and all unemployment taxes are paid by corporations. If you changed this chart to reflect this fact you would see a different chart. Second if corporations paid all the taxes who would really be paying the taxes?

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Bernanke turns obfuscatory

Felix Salmon
Dec 6, 2010 15:24 UTC

When Ben Bernanke appeared on “60 Minutes” in March 2009, he was immediately embraced by middle America and overnight became considered the foremost explainer of economic concepts to the nation. This time around, Bernanke’s much more embattled. And his answers are much less clear, much more political, and much more contentious. This is not how impartial technocrats should speak:

One myth that’s out there is that what we’re doing is printing money. We’re not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way.

Yes, Ben, you are printing money. It’s how you pay for those Treasury bonds you’re buying. Greg Ip says so, and so does Scott Grannis, who helpfully provides this chart from the first round of QE:

Base weekly 97.jpg

Look at the y-axis, and you’ll see that $600 billion is a lot of money, even if it’s less than we saw in QE1. Clearly the monetary base is changing in a significant way.

Bernanke continued with this:

Pelley: Can you act quickly enough to prevent inflation from getting out of control?

Bernanke: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.

Pelley: You have what degree of confidence in your ability to control this?

Bernanke: One hundred percent.

Bernanke’s first response doesn’t actually answer Pelley’s question: Pelley didn’t ask how long it would take to raise interest rates, he asked how long it would take to get inflation under control. Obviously, it would take longer than 15 minutes. How much longer, Bernanke doesn’t say. (And, sadly, Pelley doesn’t push him.)

And Bernanke’s second response is a lie. Or if it isn’t, he should be fired immediately. No central bank governor can or should ever have 100% confidence in anything: only a psychopath who will never change his mind can say that. The Fed’s ability to control inflation is a dark and mysterious thing; it’s not some kind of iron-clad law of physics.

Bernanke knows that he has friends at “60 Minutes”, and indeed they let him run down his talking points, giving no pushback along the way. He wouldn’t get away with this kind of performance if he started giving Trichet-style press conferences. Which is one reason I suspect that’s not going to happen.

COMMENT

In Bernanke’s previous 60 Minutes interview he readily acknowledged that he was printing money. Some observations on why he changed tactics (and why he continues to be nervous when on tv):

http://www.polycapitalist.com/2010/12/vi deo-ben-bernanke-interview-on-60.html

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Counterparties

Felix Salmon
Dec 6, 2010 07:36 UTC

“The annual subsidy to the largest commercial banks is $4.71 billion per bank in 2005 dollars” — NBER

QE2 means mortgages are $20/month cheaper — WSJ

A hopeless Europe, unable to cope — FT

Maker’s schedule vs manager’s schedule — Farnam Street

Bonkers — NYT, HuffPo

A Comparison of Fiscal Solutions Plans — Peterson

The NYT loves Jamie Dimon

Felix Salmon
Dec 6, 2010 07:31 UTC

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.

COMMENT

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.

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Counterparties

Felix Salmon
Dec 4, 2010 05:05 UTC

Groupon/Google Talks End — AllThingsD

Craig Gurian vs the NYT’s coverage of the US political economy — Remapping Debate

4 Million Americans Set To Lose Unemployment Benefits Even If Congress Passes Extension — HuffPo

Anybody who says they’re not scared when they get a subpoena from the FBI is lying. Why is John Kinnucan lying? — TBI

Rebecca Dana set to run the new Newsweek’s front of the book section — Observer

COMMENT

*Kinnucan has already alerted the client who they are after so the money is safely off shore, the paper trail has been shredded, the tip off gave them lots of time to hide everything else that points to them and kinnucan? Just a thought.

He is going to represent himself. There is nothing a judge loves more then a man who thinks he can jump right into the legal system…

*Losing unemployment benefits at Christmas will not bode well. The new year will mean more homeless (you can’t get food stamps or other assistance if you are a homeowner with savings of any kind)

If you can sit at your table at Christmas and not think about such things you are not a very good human, or Christian (dang, so many Republicans say they are Christian, but it’s hard to believe)

The disenfranc­hised will find their voices when it’s all they have left, but how can people support 2 fake wars and not vote to help people at home?

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