JPM Chase and Jamie Dimon (Baseline Scenario - Simon Johnson)

What Jamie Dimon Won’t Tell You: His Big Bank Would Be Dangerously Leveraged

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By Anat Admati, Professor of Finance and Economics at Stanford Graduate School of Business.  To see her explain these issues in person, watch this Bloomberg interview.  This is a long post, about 3,500 words.

The debate is raging about banks and their size, financial regulation, and the international capital standards known as “Basel”.  Jamie Dimon of JP Morgan Chase, in his New York Times magazine profile, expresses admiration for the Basel committee and says,

“… they are asking the questions that, in theory, bankers ask of themselves: how much capital do banks need to withstand the inevitable downturn, and what is an acceptable level of risk?”

There is one problem, however. Basel may have asked the right question, but it did not come up with the right answers, mainly because it allows banks to remain dangerously leveraged, setting equity requirements way too low. This fact is not understood because the debate on capital regulation has been mired with a cloud of confusion, and filled with un-substantiated assertions by bankers and others. As a result, the issues appear much more mysterious and complicated than they actually are.

After a massive and incredibly costly financial crisis, we seem to have financial system that is a more consolidated, more powerful, more profitable and, yes, as fragile and dangerous as we had before the crisis. How did this happen and what can we do?

Here are some questions on which the confusion is staggering. Read the rest of this entry »

Written by Simon Johnson

December 4, 2010 at 10:09 pm

Posted in Commentary

Tagged with Jamie Dimon, JP Morgan Chase

Jamie Dimon: Becoming Too Big To Save – Creating Fiscal Disaster

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By Simon Johnson

In Sunday’s New York Times magazine, Roger Lowenstein profiles Jamie Dimon, head of JP Morgan Chase.  The piece, titled “Jamie Dimon: America’s Least-Hated Banker,” is generally sympathetic, but in every significant detail it confirms that Mr. Dimon is now – without question – our most dangerous banker.

Mr. Dimon is not dangerous because he is in any narrow sense incompetent.  On the contrary, Mr. Dimon is very good at getting what he wants.  And now he wants to run a bigger, more interconnected, and more global bank that – if it were to fail – would cause great chaos around the world.  Lowenstein writes,

“Dimon has always been unusually blunt, and he told me that not only are big banks like JP Morgan (it has $2 trillion in assets) not too big, but that they should be allowed to grow bigger.” Read the rest of this entry »

Written by Simon Johnson

December 3, 2010 at 9:47 am

Posted in Commentary

Tagged with Jamie Dimon, Roger Lowenstein