Dimon or Geithner?

June 10, 2011
Jamie Dimon's little speech to Ben Bernanke last Tuesday recapitulated many of the points that Tim Geithner made in his own speech the previous day. Let's play Dimon or Geithner:

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I’ve just noticed that Jamie Dimon’s little speech to Ben Bernanke last Tuesday recapitulated many of the points that Tim Geithner made in his own speech the previous day. Let’s play Dimon or Geithner:

  1. “We have a very complicated regulatory structure with multiple agencies, with closely related and sometimes overlapping missions and roles.”
  2. “It has been more than three years since the start of the financial crisis that led to those reforms.  And we are now in the midst of a fundamental reshaping of the financial system.”
  3. “Most of the bad actors are gone. They were thrifts, all the mortgage brokers, and some banks.”
  4. “The firms that took the most risk – no longer exist or have been significantly restructured.  That list includes Lehman Brothers, Bear Stearns, Merrill Lynch, Washington Mutual, Wachovia, GMAC, Countrywide, and AIG.”
  5. “We had a crisis, and it entailed need to do a lot of things to fix it and reduce risk.”
  6. “Higher capital and liquidity are already in the marketplace, we estimate more than double what it was before.”
  7. “19 firms have together increased common equity by more than $300 billion since 2008. The average level of common equity to risk weighted assets across these institutions is now 10 percent, much higher than before the crisis.”
  8. “Debt maturing in one year or less, as a share of total liabilities, has declined dramatically to roughly 40 percent of the pre-crisis level.”
  9. “Regulators are tougher in every way possible.”
  10. “It’s a good thing that there’s no more subprime.”
  11. “There’s far more transparent accounting.”
  12. “The US banking system today is less concentrated than that of any other major economy.”
  13. “Central banks and supervisors need a balance between setting capital requirements high enough to provide strong cushions against loss but not so high to drive the re-emergence of a risky shadow banking system.”
  14. “Capital requirements cannot bear the full burden of protecting the system against risk, and they should be considered in the context of the reinforcement provided by these other reforms.”
  15. “We need to improve the chances of promoting a uniform global approach that does not damage US firms.”

Simon Johnson has responded to these arguments with a post entitled “The Banking Emperor Has No Clothes”:

Big banks in almost all other major countries have run into serious trouble, including the UK and Switzerland – where policymakers are now open about the scope for further potential disaster…

Mr. Geithner’s thinking is completely flawed on bank size. The right lesson should be: big banks have gotten themselves into trouble almost everywhere; U.S. banks are very big; these banks have an incentive to become even bigger; one or more of these banks will reach the brink of failure soon.

But the fact is that Geithner won’t think that way, not least because of the fact that he arrived at Treasury from the New York Fed, an institution which is literally owned by the big banks such as JP Morgan.

Dimon will always push as hard as he can to have as little regulation as possible and to have no restraints at all on the size of his bank. That’s his job — you can’t really blame him for it. What’s more worrying is that Geithner seems to be very close to Dimon’s way of thinking.

(The answers, by the way: 1, 2, 4, 7, 8, 12, 13, 14, 15 are Geithner; 3, 5, 6, 9, 10, 11 are Dimon.)


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