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Friday, July 20, 2012

Transcript: 510 Impeach Jamie Dimon

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Today on the podcast Impeach Jamie Dimon. No, not remove him from his post as chairman and CEO of JP Morgan Chase. He is doing quite well for his company, ah, as in himself and his fellow executives. Impeach Jamie Dimon from his post as, if you can believe it, vice chair of the New York Federal Reserve.

There were calls from the usual suspects in May:

Simon Johnson, former IMF chief economist
Elizabeth Warren, Senate candidate and person with integrity
Elliot Spitzer
Peter Goodman
and in kind of a very backhand way, actually Tim Geithner, former head of the NY Fed and now Treasury Secretary, and person with ... ah, a job in the Obama administration.

Warren said, for example,

"We need to stop the cycle of bankers taking on risky activities, getting bailed out by the taxpayers, then using their army of lobbyists to water down regulations," Warren said in a statement following the disclosure. "We need a tough cop on the beat so that no one steals your purse on Main Street or your pension on Wall Street."

She added that Dimon's resignation will "send a signal to the American people that Wall Street bankers get it and to show that they understand the need for responsibility and accountability.",

While Dimon has defended his position, arguing that he serves primarily in an advisory capacity, critics argue that there is an obvious conflict of interest in his continuing to be on the board, even as his bank is under investigation for the losses.

Yes, the so-called hedge that turned out to be a speculative bet, which morphed from a tempest in a teapot to $2 billion when Dimon first addressed analysts on the subject, then four or seven billion in the face-to-face last week.

But first let's listen to Professor Anat Admati of Stanford University excerpted, edited, but never distorted, from Bloomberg on the economy, talking about Fortress Dimon and the risks to banking.


Of course, Prof. Admati underappreciates the whiz-kiddedness of Jamie Dimon, his fiduciary integrity, and the risk management superstar that by all accounts he is.

Mr. Dimon can ask for and be granted a waiver of the swearing in at a Congressional hearing before his testimony because, of course, he would never lie, and besides he saw what kind of trouble Lloyd Blankfein of Goldman Sachs got into after he testified under oath. Congressman Spencer Bachus of Alabama's 6th District, a Republican , was only too happy to grant the waiver, as a courtesy between gentlemen. Never mind that Congressman’s Bachus' district has suffered mightily from the financial engineering of JP Morgan. But you must understand, Jamie Dimon is the guy who writes the checks.

Now you might think we have a captured regulator problem in banking. After all, the regulators under former Chairman Alan Greenspan actively deregulated. Greenspan was the deregulator in chief, being fully qualified as an Ayn Rand Libertarian. He was appointed by “government is the problem” president Ronald Reagan. Then came the bankers' best friend, neo-Monetarist Ben Bernanke. But if you think we have a captured regulator at the Fed, you would be wrong.

Because Mr. Dimon is the regulator. Vice chair of the New York Fed, Yes, that would be the facility that financed Dimon's acquisition of Bear Stearns to the tune of $29 billion and which funneled billions to Dimon's bank and others in 17 different programs. And this is not an advisory board, this is the board of directors.

A couple of months ago, when JP Morgan came under investigation for the trading activity of the whale in London, as we said, Tim Geithner NY Fed President during much of the bank bailout, actually suggested in a roundabout decoratively mild way that Mr. Dimon might want to step down, under investigation and all.

Nope. Not happening. Such suggestions have retreated into the … well at least away from the campaign coffers.

A GAO, Government Accountability Office report last year identified problems.

The affiliations of the Federal Reserve's board of directors with financial firms continue to pose reputational risks to the Fed.
The policy of the Fed to give members of the banking industry the power to both elect and serve on the Fed's boards creates “an appearance of conflict of interest.”
The GAO identified 18 former and current members of the Fed's board affiliated with banks and companies that received emergency loans from the Federal Reserve during the financial crisis, including General Electric, JP Morgan Chase, and Lehman Brothers.
There are no restrictions on directors of the Fed from communicating concerns about their respective banks to the staff of the Federal Reserve..

In particular, as Bernie Sanders pointed out in his introduction of the GAO report


Jamie Dimon, the CEO of JP Morgan Chase served on the board of the Federal Reeves Bank of New York at the same time that his bank received emergency loans from the Fed and while his bank was used by the Fed as a clearinghouse for the Fed's emergency lending programs.

And if you get into the weeds, there are some pretty odd transactions, including the famous bridge loans that were routed through JP Morgan because of some legalities that were found out to be non-issues, but which went ahead anyway for convenience sake and netted JP Morgan millions in interest for a weekend's activity.

Fed directors should be prohibited from working for or having a material financial interest in private financial companies located in the country. Conflicts of interest ought to be taken seriously. Now there is not even a public acknowledgment of a problem, in fact, when conflict waivers are granted, there is no public disclosure. Not only does Dimon have a perceived conflict of interest, he has a real conflict of interest. He holds a position on the NY Fed's board of directors not for any advisory reason, but so he can be in the middle of the action.

He needs to go before the next scandal.

Impeach Jamie Dimon

Moody's downgraded the big banks last month, primarily those with investment banking operations. On one hand, these are the high margin activities that are making them profitable. On the other, they are the route to destruction if some of the derivatives they write go south.

We saw, amid rumors that Jamie Dimon himself liked the LTROS of last year, predicting it would float the banks and the sovereigns in Europe off the reefs.

Didn't happen. The hedge that went sour on the London office was apparently in one of these credit derivatives, maybe, rumor has it.

Whatever that case, Moody's is patently averse to the trading and derivative operations. Maybe we should have them tell those who are confused what speculation is, since that seems to be a sticking point.

Hit the headlines

We're getting tired of the bond vigilantes and their apologists piling on the politicians.

When they say, the politicians have a problem and we ought to …. fill in the blank.

The problem they have is that austerity has not worked. They followed the bankers' advice, and it is still the bankers' advice, and the sovereigns have worse debt woes now than before they began. Which means the banks are still in trouble.

So you do have a problem. You have those still willing to carry water for the corporations and big banks and bond vigilantes, demanding countries live up to their austerity commitments, and even add austerity in the form of so-called labor market reforms. And you have the evidence that austerity is not going to work, no matter what agreements are made, in the real economy.

Big problem.

Angela Merkel of Germany has a problem because the debt is going bad. Germany built an export machine selling to the Southern periphery. Based on debt. Not incomes. Had Germany bought the same or a similar amount of goods from the South, there would obviously be the incomes to pay back that debt.

So is the answer a fiscal union? Unless there are going to be huge transfers from the Germanies to the Spains, further unification is not an answer, it is just a change of venue for the problem.

More about that another time.

At the peak of financial booms there is corruption, as the means for profit are extended through chicanery. It is part of the reaching for risk. It always happens. But that does not mean it is something different than fraud and corruption and ought not to be prosecuted.

Impeach Jamie Dimon.

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