The Boss Attacks
By Heike Buchter
Dimon made JPMorgan Chase the leading bank of the United States — and now he believes the whole country ought to benefit from his managerial qualities.
Translated By Tania Struetzel
9 December 2012
Edited by Natalie Clager
Germany - Zeit - Original Article (German)
An emergency has arrived in Washington politics. If the Democrats and the Republicans cannot agree on a new budget within a few weeks’ time, they could steer their country toward a new recession. “Fiscal cliff” is the name of the threat, and it is a self-made problem. Congress decided some time ago that cutbacks of hundreds of million dollars and tax increases will have to be made in the following year if an agreement on the budget and additional level of debt fails. A sure recipe for a damaging economic shock; an emergency is created.
Jamie Dimon is a vocal participant in the debate. He claims the U.S. is the greatest economic engine ever built. He speaks out about his convictions: “It's waiting to be ignited.” And Dimon, unlike the Democrats and the Republicans, already has a complete plan to prevent the fiscal cliff.
It is as simple as this: Washington ought to implement slight tax increases and at the same time considerable and long-lasting cutbacks of social benefits. Then the budget would be balanced again with an austerity plan at the expense of the poor and people with normal incomes.
There are a number of problems with Dimon’s plan, but the main problem is that Dimon does not have a political mandate. He is neither secretary nor leader of the opposition, not a senator, not even a backbencher in Congress. Officially, he is not even in politics. Jamie Dimon is a banker. He is the chief executive of the influential Wall Street business JPMorgan Chase, the leading bank in the States.
But that does not keep Dimon, who likes to wear cuff links with the U.S. presidential seal, from pursuing his plans. In cooperation with executives from other companies, he forcefully pushes on with his austerity plan these days. The initiative “Fix the Debt,” which supports his plan, appears to be some kind of a civil movement of multibillionaires, according to critics. It was originally initiated by the American financier Peter Peterson and has by now attracted about 80 American business leaders. They talk to delegates and appear in the media.
None of them acts as visibly as Dimon does. The head of the $2 trillion American financial enterprise is known to play hard. He’s famous for his almost brutal openness as well as for the profanity he uses to emphasize his stance. America, the finance manager once explained, was a “free fucking country,” and any objections to his opinion are brushed aside as “bullshit.”* Not long ago, Dimon organized a lunch for his fellow campaigners in the CEO initiative, which attracted more media attention than a state dinner at the White House. Beforehand, the group had gone to the New York Stock Exchange to symbolically ring the opening bell.
Dimon thinks that the politicians are too hesitant and that he has to prompt them. Dimon made JPMorgan Chase the leading bank of the United States — and now he believes the whole country ought to benefit from his managerial qualities.
Of course, not everyone agrees. Dean Baker, an economist working at the liberal Center for Economic and Policy Research, has much harsher words for Dimon’s activities. He speaks of a coup by CEOs. "These ideas just failed with the electorate," says Baker, “but that does not keep people like Dimon from enforcing their political visions in Washington based on the motto: You had your election show, but we still do what we want.”*
If one takes a closer look at the plan, some suspicious details attract attention. Parts of the “Fix the Debt” plan allow for a change in tax laws, which would allow companies to take home their foreign profits without making use of the American tax authorities. Dimon’s JPMorgan could thus save about $4.9 billion, according to the calculation of the Institute for Policy Studies. Moreover, the plan to reduce state-run pension provisions to Social Security could have pleasant consequences for Wall Street. Employees would be forced into more private provisions and would thus be chased into the arms of the financial sector.
The financial crisis of 2008 made Dimon believe that he knew better than elected delegates and public officials as to what needed to be done. It upset him that President Obama and several politicians took the opposite stance, that they blame the banks and want a tighter control of them in the future. Dimon even feels personally insulted by that. He thinks it is time to stop blaming the bankers. He is tired of them being scapegoats.
For about two years, the JPMorgan CEO has crusaded for the big banks. Or in other words: dealt a sweeping blow. Dimon publicly stated that well-respected former Chairman of the Federal Reserve Paul Volcker, who successfully campaigned for a restriction of bank speculations with their own capital, “doesn’t understand capital markets.” Dimon also took on current Chairman of the Federal Reserve Ben Bernanke, which is something bankers would normally avoid under all circumstances. Bernanke dared among other things to demand higher capital for the banks. During an event, Dimon publicly took Bernanke to task, asking whether “anyone [had] looked at the cumulative effect of all these regulations.” In other words, he was asking whether the Fed chairman had done his job. Basel III, the set of international financial regulations, is condemned by the JPMorgan executive as anti-American and as giving foreign rivals a competitive advantage.
Yet, Dimon was not able to prevent the reforms. But he and the rest of the bank lobby succeeded in delaying and weakening the reforms. Still, Dimon wants more. He truly wants the American public to admire and appreciate their big banks again. He argues that only a financial giant such as JPMorgan can satisfy the needs of major companies. If Washington were to weaken and downsize American big banks, foreign financial institutions would soon take up their place. A superpower like the United States needs superbanks.
In a widely recognized letter to all JPMorgan stockholders, Dimon argues that the restrictions and stricter capital constraints came at the wrong time. “When economists 20 years from now write the book on the recovery, it may well be entitled ‘It Could Have Been Much Better.’” That is to say, when the financial world can do as it pleases again, as it did before the crisis.
Dimon, the son of Greek immigrants and raised in Queens, does not know any different. He has been a banker his whole life. His grandfather was a stockbroker and his father was a broker for American Express. After graduating from Harvard, Dimon received offers from the top Wall Street businesses. But his father’s boss, Sandy Weill, promised a faster career to the ambitious newcomer.
Weill was an outsider among the established Wall Street businesses. With the aid of loans he bought financial enterprises across the sector: brokerage houses, credit card issuers, housing loan providers and insurance companies. Later, Weill built up a financial supermarket, larger than had ever existed before: Citigroup. To realize Citi, Weill had to use all his influence in Washington because the Glass-Steagall Act, a law dating back to the 1930s to separate banking from other financial actions, prohibited such a hybrid. Weill witnessed when the Glass-Steagall Act was officially abandoned in 1999. An impressive lesson for Dimon who had stayed with Weill all that time.
However, Weill soon came to see Dimon as a rival and fired him. Dimon left for Chicago and rehabilitated the stricken Bank One, a regional institution. Then he had the chance of his life. In 2004, he merged Bank One with JPMorgan Chase. A year later he had become the CEO of the new financial megaenterprise. Thus, he was now playing in the same league as his former patron Weill.
Dimon felt reassured in his ambition when JPMorgan mostly evaded the financial crisis in 2008, especially with regard to the mortgage debacle. The CEO had sounded the retreat from the overheated business in good time. JPMorgan was even situated so well that the government asked for help twice. When the U.S. investment bank Bear Stearns went into a tailspin in the spring, Dimon was contacted by the U.S. Fed chairman who asked him whether he could help out. Dimon set out hard conditions: JPMorgan only paid a fraction of the share value, and the Fed had to guarantee for $30 billion of possible losses from the toxic mortgages and bond portfolios of Bear Stearns. A bit later, the Federal Deposit Insurance Corporation knocked at Dimon’s door: Washington Mutual, the largest U.S. savings bank, was in danger of collapsing, and the Insurance Corporation itself was at risk. Dimon also took over Washington Mutual — according to estimates in the sector — at a give-away price. Even Wall Street insiders were impressed. “Next JPMorgan buys the Fed,” insiders said after the deal.
The financial crisis made JPMorgan even bigger and more powerful, whereas rivals such as Citigroup had to divest in part or disappeared altogether like Lehman Brothers or Merrill Lynch. The crisis also strengthened Dimon’s already distinct self-confidence. He was called “King Jamie” by his employees.
Today, JPMorgan is at the joint of the fiscal system. “The government fears that its collapse would cause a global financial crisis,” says William Black, a former bank regulator and today a professor at the University of Missouri-Kansas City and a financial fraud specialist. JPMorgan is number one in the derivatives market. Some say that this poses an incalculable risk to the United States and the world.
Derivatives are also at the center of what critics see to be the most severe warning shot yet. This spring, disconcerting rumors spread on Wall Street. A broker in London had supposedly made enormous bets on certain mortgage derivatives; such enormous bets that he would be able to regulate the whole market for these financial instruments with his orders. He was called the “London Whale” because like a whale in a bathtub he pushed everyone aside.
It soon turned out that this person was Bruno Iksil, a broker working for JPMorgan. Iksil lost his bets. According to current estimates, the whale cost JPMorgan more than $6 billion.
There would have been no less spectacular way to show that risks are never fully controllable, not even in a tightly led financial megaenterprise. Dimon admitted to making mistakes and fired the responsible staff. Thereby, this case seems to be checked off the agenda for King Jamie. “The whale is harpooned, dissected, burned and I will bury his ashes,”* he said during a discussion with students.
The bold verdicts seem to have been sufficient for the time being. In Congress, discussions about JPMorgan occurred, and the risks of large financial companies remain without consequences. In contrast, Dimon’s own activities in Washington are progressing. A few days after the election, his phone rang. It was President Obama asking for the bank executive’s advice.
* Editor’s note: Quote unable to be verified.
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