Sunday, July 19, 2009

Jamie Dimon and me

Interesting article in the NYTimes about JPMorgan president Jamie Dimon Especially this part:
A centerpiece of that effort involves regulating the market for derivatives, which Mr. Dimon’s firm dominates. While JPMorgan favors new reporting requirements for the complex financial instruments, it opposes the administration proposal to force trades onto public exchanges; doing so would likely cut into the firm’s lucrative business of selling clients custom-made instruments. Like other banks, it also opposes a new consumer agency for financial products.
Because I certainly did my part to try to convince Dimon to cooperate with financial regulations of derivatives.

I first contacted Jamie Dimon in late 2006 - I worked for JPMorgan (contractor, not permanent employee) and had his company email address - to congratulate him for his inviting Al Gore to speak about global warming to JPMorgan employees. It was a pretty effusive email, I admit - I said he was helping to literally save the world. A couple of days later he emailed me back, thanking me for my thoughts. I think I have a print-out of that email around somewhere.

In early 2008 the shit was starting to hit the fan over the various derivatives shenanigans, and it was very clear that a huge reason for the problem was that there was almost NO oversight into the world of derivatives. This is partly because they are so complex it is impossible, in some cases to track them through the global financial system - I know because I used to watch the compliance department developers struggle to do just that, and they mostly threw up their hands. And the manager in the London office did not seem bothered by the impossibility of derivatives compliance tracking in the least, which also irritated them. And it was especially those "custom-made instruments" that were the problem. They could be custom-made out of ANYTHING. You could have these crazy chimerical instruments made up of various percentages of equities, bonds, options, options on options, etc, etc. These custom-made instruments are called "baskets." That's how JPMorgan makes its ethically-challenged customers happy: what's in the basket? ANYTHING YOU WANT. To allow these Frankenstein monsters to run free without oversight through the global financial system again would be INSANE. Insane unless you don't care if you completely destroy our current financial system - which is what will happen next time a melt-down of this type happens again.

If Jamie Dimon wants to save the world from catastrophe, he needs to realize that global warming is only ONE threat.

My hero Paul Krugman of course was on the case, and so I emailed Krugman's column of March 21, 2008, entitled "Partying Like It's 1929" to Dimon and urged him, in his new leadership role due to the Bear Stearns buy-out to listen to what Krugman had to say, especially this bit, which I quoted in the body of the email:
Wall Street chafed at regulations that limited risk, but also limited potential profits. And little by little it wriggled free — partly by persuading politicians to relax the rules, but mainly by creating a “shadow banking system” that relied on complex financial arrangements to bypass regulations designed to ensure that banking was safe.

For example, in the old system, savers had federally insured deposits in tightly regulated savings banks, and banks used that money to make home loans. Over time, however, this was partly replaced by a system in which savers put their money in funds that bought asset-backed commercial paper from special investment vehicles that bought collateralized debt obligations created from securitized mortgages — with nary a regulator in sight.

As the years went by, the shadow banking system took over more and more of the banking business, because the unregulated players in this system seemed to offer better deals than conventional banks. Meanwhile, those who worried about the fact that this brave new world of finance lacked a safety net were dismissed as hopelessly old-fashioned.

In fact, however, we were partying like it was 1929 — and now it’s 1930.

I never received a response. He was pretty busy at the time. And of course I don't expect Jamie Dimon to care what some technical writer contractor employee of JPMorgan thinks about the financial system. But the Times article notes:
Mr. Obama has singled out Mr. Dimon for praise more than once. Yet some Democrats say Mr. Dimon can be too outspoken, and deaf to the anti-bank sentiment of the country. When he complained in a March speech about Washington’s vilification of Wall Street, more than 40 House Democrats shot off a protest letter.
I wouldn't say I'm exactly anti-bank - I'm pro-regulation, which only the completely insane, or Republicans, but I repeat myself, would oppose given all the disastrous results of non-regulation that we've seen.