Jamie Dimon testifies before the Senate Banking Committee tomorrow, and this Bloomberg report should be a nice template for the Senators questioning him. It alleges that he was personally responsible for keeping regulators at bay from the chief investment office, the one responsible for all the Fail Whale losses, which could reach past $5 billion at this point.
Dimon treated the CIO differently from other JPMorgan departments, exempting it from the rigorous scrutiny he applied to risk management in the investment bank, according to two people who have worked at the highest executive levels of the firm and have direct knowledge of the matter. When some of his most senior advisers, including the heads of the investment bank, raised concerns about the lack of transparency and quality of internal controls in the CIO, Dimon brushed them off, said one of the people, who asked not to be identified because the discussions were private.
Dimon’s actions contrast with his reputation as a risk- averse manager who demands regular and exhaustive reviews of every corner of the bank. While Dimon has said he didn’t know how dangerous bets inside the CIO had become, the loss on those trades calls into question whether anyone can manage a financial empire as vast as JPMorgan, which became the biggest U.S. lender last year and now has more than $2.3 trillion in assets, larger than the economies of Brazil or the U.K.
It’s painfully clear that banks the size of JPMorgan Chase are too big to manage. But clearly it’s more than that. It’s that their CEOs are too arrogant to monitor, and they have the power to keep regulators out of their business. This creates a real power advantage for these giant banks. They have the power, influence and market share to crush the competition.
At Netroots Nation, I spoke to several lawmakers about this dynamic. “I was talking to a community banker in Ohio,” said Senator Sherrod Brown (D-OH), author of the Safe Banking Act, a proposal to shrink the size of the largest banks to reduce risk and stimulate competition. “He said that he thought the Safe Banking Act was the right way to go, and he didn’t think that a year ago. He’s just getting pummeled by the Too Big to Fail banks because of their guarantee.”
Brown estimates that, after getting 33 votes in the Senate in 2010 for his bill, which reduces the size and leverage of the largest banks and bank holding companies, he could get 40 votes today, and maybe “50 a year from now.” There has certainly been a groundswell on the intellectual right in support of breaking up the big banks. Thomas Hoenig of the FDIC, a conservative former Federal Reserve Bank of Kansas City President, has his own proposal. The Weekly Standard ran a piece in support last week. Richard Fisher of the Dallas Fed has endorsed as well. “These are not Trotskyites or Marxists, these are conventional conservatives,” Brown said, who have seen the danger of ever larger banks taking on ever larger risks.
Yet some of the discussion must look at what happens after the regulations go into place. The Safe Banking Act certainly falls on the order of a big, dumb rule, to simply cap size. Other rules, like the Volcker rule, are more intricate and nuanced. And even capital requirements or “size” rules have a substantial amount of interpretation to them (What counts as an asset? What counts as “Tier One” capital? Should intangible assets be included? etc). What’s more, the delays on the Volcker rule, which is supposed to be finalized in July, and other rules, show a lack of serious and aggressive regulatory action.
As you can see in Jeff Merkley’s grilling last week of Thomas Curry, the new head of the Office of the Comptroller of the Currency, the regulators simply don’t have the temperament or the will to go after the banks, in many cases. Merkley repeatedly gives Curry a chance to take a shot at the banks, and he hems and haws and looks flustered and wants desperately to answer anything but the questions posed to him. And all Merkley asked were basic questions, whether it hurt the overall economy to divert deposits into hedge fund activity rather than making loans, for example. “If (Curry) is not willing to take on these issues,” Merkley told me in an interview, “we’ll have the same OCC captured by Wall Street.”
Let’s just look at two examples. The Washington Post noticed last week that overdraft fees on bank deposits are rising, despite specific efforts by regulators to rein them in. The Consumer Federation of America and the Pew Charitable Trusts lay out in their report that the regulators simply haven’t done their job. Example two would be the foreclosure fraud settlement, which according to people on the ground, has done nothing to change lender behavior:
Out in the field, housing counselors and troubled borrowers say they’re seeing little evidence that servicers are more willing to modify loans rather than foreclose.
Since the settlement, “I have seen virtually no improvement whatsoever,” said Melissa Huelsman, a Seattle attorney who specializes in aiding homeowners with mortgage problems.
Huelsman said she filed an emergency injunction in King County Court to stop HomeStreet Bank, a servicer for Fannie Mae, from seizing a client’s home using what she alleges are the same kind of faulty documents at issue in the national investigation.
We can, and should, create as many rules as possible to mitigate risk and stop the excesses of the financial sector. None of it matters unless the regulators are willing to take that on.




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If the regulators are afraid of doing their jobs, that’s because they’re afraid the people at the top don’t have their backs.
The people at the top have their backs, alright /s. With a shiv in one hand and a fistful of dollars from the banks in the other.
The SEC is incompetent, in part, because it is underfunded and poorly staffed, has no criminal jurisdiction and a history of don’t ask don’tell settlements with the banks This is fine with New York US democratic senators and bank cheerleaders schumer and gillebrand. The SEC could have been hiring experienced retired litigators but instead serves as a farm system for law firms who defend the banks. And the central problem lies with the national democratic party which, while progressive on some social issues, is basically emblematice of the clintons advocating deregulation of the banks, no regulation of derivatives trading as the Clintons raked in speaking fees from Goldman Sachs.
Jamie’s classmates at Harvard Business School included Jeffrey Immelt, Steve Burke and Seth Klarman.
Who said “it’s what you know”?
David: Outstanding piece again!!!!
@Omali…that was great. Bunch of greedy bastards the whole lot of ‘em.
The way I heard it was “It’s not what you know, it’s who you blow.”
Apparently, you don’t necessarily have to be a CEO either.
Naughty boy or girl. (I laughed.)
Can I just say that Merkley is doing us Oregonians so proud? We had old Gordon Smith with all the seniority in the world and many Dems were willing to have this dud continue because godknowswherewewouldbe without that seniority. We pushed Merkley anyway even though it was pretty small majority. Now all the teapartiers are going to try to take him out but I think he has inspired all of us progressives to FIGHT for him as opposed to engage in the whole what person sucks less. I have not completely lost faith in the system because of a few people like him.
You pups can now continue your play.
“We can, and should, create as many rules as possible to mitigate risk and stop the excesses of the financial sector.”; Cass Sunstein disagrees with you; he sees such regulations as nothing but targets to aim at by those such regulations are intended to regulate.
And someone has been shouting from the mountaintops for years that Sunstein was bad news. And no one listened.
“Low Regulator Assertiveness”. Isn’t that Geithner’s screen name? It could be defined in one word: “complicity”.