« previous | MUCK HOME | next »
What Obama Can Learn From JP Morgan CEO Jamie Dimon
Whatever the 25 bank CEOs descending upon the White House this morning told the president and his economic team, we hope JP Morgan CEO Jamie Dimon repeated one line from the speech he gave at the Chamber of Commerce earlier this month. (It's about 11:30 in.)
One of the main root causes [of the crisis], and this has been going on for a long time, was the huge trade and global financing imbalances which fueled very low rates and excess consumption, and over a long period of time I do not believe you can run those kind of trade deficits...
Dimon was getting at one of the root structural causes of the current crisis -- America takes, the world (China especially) makes, an unsustainable situation sustained above all by an increasingly usurous financial services industry. As the CEO of PNC Financial Services just pointed out, banking is the biggest sector of the American economy -- and it's been to the detriment of everything else.
And while that might seem obvious, intuitive even, Dimon's speech came just three days after Larry Summers told the Financial Times that the global trade imbalance wasn't the problem anymore, that it had been eclipsed by more pressing emergencies, etc. etc.
Naturally Dimon went on to condemn the demonization of Wall Street and corporate America.
But it was precisely Wall Street and corporate America that relentlessly lobbied the government over that very long period of time to enable those gaping imbalances to gape ever wider. What both Barack Obama and Jamie Dimon implicitly understand is that publicly traded corporations are not engineered to look out for their long-term interests. By allowing the financial sector to bloat "too big to fail", the country lost the kind of industries that are too vital to fail -- which is to say, manufacturing.
So if over the short term Obama pisses off Jamie Dimon, Lloyd Blankfein and Vikram Pandit, it's only in the long term interest of everyone. If only one of them would circulate another inter-office memorandum explaining that.
Josh
Zachary
"By allowing the financial sector to bloat "too big to fail", the country lost the kind of industries that are too vital to fail -- which is to say, manufacturing."
So the implication here is that the financial sector isn't a "vital" industry? I know the populist rage thing is very hot right now, but claiming the financial sector is not vital is a bit much.
One specific area where the industry is crucial is post-petition financing to debtors who enter chapter 11 (reorganization). Without these "DIP loans" from financial institutions, debtors who have greater values as going concerns than they do in straight liquidations are being forced to close up shop b/c they cannot get the necessary capital to keep operating (see, e.g. Circuit City). This puts many more employees out of work than a reorganization would, as well as leading to lower recoveries for creditors (not just banks, but suppliers as well).
GM filing a chapter 11, getting DIP financing, shedding onerous contracts, and remerging in a more competitive position in its industry is not a failure; GE liquidating its assets at pennies on the dollar b/c it can't get DIP financing, putting not only all of its employees out of work but likely many at its suppliers, is one.
March 27, 2009 3:20 PM | Reply | Permalink
Great - What was it that prevented the government from putting AIG into Chapter 11? And what makes anyone think that the division they sold off for $1 Billion wasn't worth $20 or $30 Billion?
Pennies on the dollar.
March 27, 2009 5:10 PM | Reply | Permalink
Bring back the trust busters. We really need to start enforcing our antitrust laws again.
Also, Moe, please do not leave out the drive for foreign cheap and compliant labor as a root cause of our global trade problem.
March 27, 2009 3:26 PM | Reply | Permalink
I'm sorry but this is silly.
Josh Marshall seems to think that the financial services industry is either not a real industry (see TPM front page) or it should be scaled back so that manufacturing sector obtains an appropriate share of the overall US economy.
Then Moe suddenly produces a piece of writing that quotes Mr. Dimon, who conveniently back it all up.
But isn't Mr. Dimon part of the clique of greedy Wall Streeters who ruined our economy? And if he is, shouldn't everything he says be taken with a grain of salt?
Financial Times today prints an op-ed from Alan Greenspan, who offers another perspective - mandated "risk cushion" or lack of it. That sounds very supportive of what Geithner is asking for. But Greenspan was presiding over the bubble, wasn't he? I think the same critical parsing should apply.
And here is a sampling of what some of the best economic minds are saying about root causes of the housing crisis that started everything:
http://online.wsj.com/article/SB123811225716453243.html
They all seem to be pointing to Fed interest rate policy as one contributor among many, but even they don't agree overall.
Why the hell should we trust Dimon? Because Josh Marshall wants to downsize the financial services industry?
d
March 27, 2009 4:04 PM | Reply | Permalink
I think you're not engaging the real question. Whether something is an 'industry' is a fairly irrelevant semantic question. The relative size of the financial sector relative to the rest of the economy is not. Everyone agrees that the function of the financial sector is efficient distribution of capital within the economy. But there is ample historical precedent for sclerotic economies and / or countries in phases of imperial retrenchment for the financial sector to bulge beyond its healthy proportions. And for this in turn to generate political power which makes that financial sector difficult or even impossible to unseat or constrain. We may or may not be at that point. It's a complicated question. But your tack seems to be to distort any criticism of the financial services industry, or more specifically its present size and role in our economy, into a scarecrow version of an argument in which whoever is making the point is simply saying that we shouldn't have banks or that all the bankers and traders should just be hustled off to jail. You're not making an argument. You're just ducking one. And you'd do much better to actually engage.
March 28, 2009 12:17 AM | Reply | Permalink
I have for a long-time have been concerned about our trade deficit, and not so worried about the government's national debt. I am a businessman that has a small business that "makes" something physical (IP is included in this) then "sells" it. I have always viewed and understood that the financial industry, as Josh wrote in an above-comment, "...financial sector is efficient distribution of capital within the economy." That is to me meaning, the financial industry SERVES the manufacturing of good or delivery of services (including all aspects of such from development to manufacture to marketing to sells) and DOES NOT EXIST for its own sake-as it seams to be the case today. A while back, I left a comment here describing one of my experiences with a Merryll-Lynch executive with respect to financing a project. First-off, they wanted me to give them $150k for "due-diligence", yeah right! (They were going to buy for a Moody's, etc. AAA-rating so they could dope investors) and hire him personally for another $150k per year to be my virtual ceo, since as he said, "The hedge-funds would never trust me with their money." and it would take about 6 months to get the money, "guaranteed" Remeber, this is Merryll-Lynch saying this!-I hope that every single hedge fund that his ass did business with is broke and on Skid-Row. Oh, I didn't tell you, after I gave this shit-head the New Jersey Bird, I found a individual investor and we have make several million dollars-profit.
All I am saying is, we need to make and sell things ourselves, have a respectable financial industry whose goal is to finance industries and ventures, put Standards & Poor, Fitch and Moody's out of business and burying them under litigation for the next century for selling their ratings. These guys are the ultimate criminals here. Had they done their jobs honestly, we would not be in this situation.
Last thing we need to do, and it will take a lot of though and discussion (I certainly do not know the answer for every American economic stratum) a new and different way to fund our Pensions. Wall Street is not the answer-ask anyone with a IRA or 401(k) or company pension plans where all the eggs are in one basket (ie Enron).
Capitalism works great if the company sizes remain reasonable and definitely never to big to fail.
March 30, 2009 11:07 AM | Reply | Permalink
Jamie Dimon is a shrewd, charming, and out for the industry CEO...Saw him in Aspen and he is all for the Financial industry and has not an iota of concern for the people---unless it effects his bottomline!
Hope someone in the New Admin watches his every move! Definately a FOX in THE HENHOUSE!
March 27, 2009 4:16 PM | Reply | Permalink
What? Where?!
March 28, 2009 12:23 AM | Reply | Permalink
I think this discussion misses the issue here.
The fundamental cause of this whole problem is the glut of world savings, most of which are dollar denominated because of the oil trade and the huge trade deficit with China. Anytime there is more money to be invested than there are good projects to invest in, trouble is coming. It happened with the surplus of petro-dollars in the late 1970's leading to the Latin American Debt crisis and the savings and loan crisis. And it happening now because the surplus of petro-dollars and mostly Chinese reserve flowing into US housing and lots of exotic financial instruments.
The finance industry had to grow to absorb these dollars, but once again they pretended to have some magic formula that turned bad investments into good ones (e.g AAA rated subprime mortgage backed securities). US housing was clearly not the right place to invest these surpluses.
We can blame the chicanery of the finance folks, we can blame the world for it's dependence on oil, or the US for its great appetite for consumption and spending beyond it means, or the Chinese for not allowing their domestic consumption to absorb more of the glut.
March 27, 2009 5:13 PM | Reply | Permalink
Economides:
No, the financial industry really didn't have to grow to absorb those dollars. They had to grow to make sure that those dollars were diverted into purely financial instruments rather than real-world investments. And they had to grow so that they could divert an increasing percentage of those dollars into their own pockets. But the financial industry could have remained pretty much the same size and still handled the flow if they hadn't been so intent on their own version of "the buck stops here."
Of course their clients bear some of the blame -- one of the basic rules of economics is that when you have oodles of extra money looking for places to invest, the return on investment goes down. And when the masters of the universe promised to break that rule and make all the investors do better than average, the investors should have gotten out the tar and feathers right then rather than nodding happily.
March 27, 2009 8:43 PM | Reply | Permalink
The Economist has world-wide financial stats on the last two or three pages of each issue and I give them a five-minute or so glance over every week. The U.S. has been running huge trade and current account deficits for years and years. I've been shaking my head and marvelling "They can't keep going on like that. Something bad is going to happen someday." It scares me when I (not quite an economic illiterate but close) seem to have a better grasp of the big picture than Larry Summers. (BTW, in one of its recent issues, The Economist has an article about how maybe these global imbalances might be playing a role in the current mess.)
March 28, 2009 2:16 PM | Reply | Permalink
Uh
"One of the main root causes [of the crisis], and this has been going on for a long time, was the huge trade and global financing imbalances which fueled very low rates and excess consumption"
How exactly does cash flowing out of the country [trade deficits] fuel low [interest] rates? What "global financing imbalances exactly?
Sure there's lots of cash looking to be spent or invested. But that applies to domestic cash as well as non-domestic cash. So what is the role of the Fed in this, is it the key player in the "imbalances"?
And isn't excess domestic consumption a cause not an effect (fueled) here??
March 30, 2009 3:59 AM | Reply | Permalink