I recoiled on the first reading of Noam Schrieber’s “The Breakup,” an account of the recently-cooled relationship between JP Morgan and the White House at The New Republic this week. And I don’t like it much better upon a second perusal. So much of the piece is devoted to uncritical recitation of pure JP Morgan flattering bunk that it outweighs, by a considerable margin, the tidbits in the story. This is particularly unfortunate in the case of The New Republic, which is read primarily by political junkies and will thus serves to reinforce JP Morgan’s widely accepted hype.
Sadly, this style of article is becoming increasingly common among writers who don’t even seem to recognize that they’ve been captured via access journalism. Many have fallen so completely in the orbit of those in power that they’ve come to think that poking them with a toothpick is tantamount to Serious Reporting.
The arc of this discursive piece (it runs seven pages) is:
1. Jamie Dimon and the Administration were best buddies once upon a time
2. JP Morgan was particularly aggressive in undermining reform efforts
3. Jamie Dimon and the Administration are not such good friends right now
When you strip the article down to what it is all about, you can see there isn’t much to it. Yes, because this is an inside the beltway story with Big Names, the detail might seem titillating (particularly to those who see politics as an elite sport). And it does discuss two that appear to be new: first, that it was JP Morgan that was the moving force behind the clearly orchestrated push to have corporations say that they liked the derivatives market just the way it was. An amusing bit is how low the yield was on the efforts to get companies to shill for Wall Street:
“What they wanted was, ‘Hey, let’s get the dopey end users to go out and be the face of reform,’” recalls another person who participated in the strategizing.“‘We don’t have the credibility.’”…
The hope, according to a source privy to the calls and to internal planning documents, was that pressure from end users would help preserve the status quo on the derivatives the dealers sold to firms like hedge funds—which is to say, many of their most lucrative bets. “What you really had was fear,” says this person, fear that the profits from derivatives would evaporate…..
A handful of end users were on the initial calls and grumbled about their role in the plan. But, as a group, the end users did eventually become the public face of a well-financed campaign
Yves here. This is every rapist’s fantasy: to get the victim to say in public she really did want it.
Needless to say, this salvo, and JP Morgan’s generally aggressive anti-regulatory posture (“Congressional aides I spoke with proclaimed JP Morgan’s Capitol Hill contingent the most relentless in fighting reform”) didn’t put them in very good standing with Team Obama.
The article also reports a very peculiar volte face: the Administration announcing the Volcker Rule in the wake of Scott Brown’s election in Massachusetts (widely regarded as a “populist” move to garner public support and loathed on Wall Street) with a sudden need to pull out all stops on the Bernanke reappointment:
The next day, though, it was as if all had been forgotten. The nomination of Ben Bernanke for a second term as Federal Reserve chairman was suddenly losing altitude in the Senate. For a brief moment, it looked like it might crash, something the administration feared could damage the financial markets. Treasury officials asked Scher if senior JP Morgan executives could call a few senators to help put the nomination back on track, which they agreed to do without hesitation. By the time the White House called the following Monday to invite Dimon to lunch, Bernanke’s nomination looked assured.
Yves here. Notice two things: the desperation to secure the Bernanke reappointment, not because he’s the best choice, or because failure would represent a blow to the Administration’s credibility, but because Mr. Market might get in a snit. And JP Morgan rolled into action, knowing the importance of collecting favors when the Administration was ratcheting up the anti-bankster rhetoric (horrors, they might start to believe their own PR!).
The problem with the story is that the good bits are larded down with fever chart reporting of how in or out of grace Dimon was at various points in time, and even worse, overlong doses of complete rubbish about JP Morgan’s condition. For instance:
If Dimon took these shots personally, it wasn’t hard to see why. On one level, the crisis brought him vindication. For years, he’d preached the virtues of conservative risk-management and a “fortress balance sheet” that would arm JP Morgan to withstand any turmoil it faced. He’d largely abstained as other banks gorged on subprime securities. When Weill’s chosen successor, Chuck Prince, resigned in disgrace from Citigroup in late 2007, Dimon was increasingly regarded as the industry’s best manager. “[His view is] the other guys screwed up—Citi and those idiots. We did well. Had I been there, they would have been fine,” says an administration official.
And yet, for all the adulation Dimon received on Wall Street, these distinctions largely eluded the public consciousness, to Dimon’s everlasting frustration. Indeed, if there was a common strand to Dimon’s comments after the crisis, it was his resentment over being viewed as a bailed-out CEO, when in fact he took the government money as an act of good faith—so that rivals who really needed it wouldn’t be stigmatized. (Of course, even JP Morgan’s unassailable balance sheet would have been assailed had the crisis spread further.) But, instead of being heralded for this public-mindedness, Dimon found himself the target of populist attacks and an escalating reform offensive. “The incessant broad-based vilification of the banking industry isn’t fair and it is damaging,” Dimon told The Wall Street Journal.
Yves here, It appears that Dimon is possessed of a reality-distortion sphere as powerful as Steve Jobs’. And like Jobs, he has come to believe what he is selling. The difference between Jobs and Dimon, however, is that Jobs’ distortion are far less significant and consequential than Dimon’s.
Start with the myth that because JP Morgan was less involved in subprime, it was sound and didn’t need a bailout. Utter tripe. In case you missed it, the efforts to save the CDS market were to prevent JP Morgan from going under. Financial services analysts Josh Rosner has repeatedly said that JP Morgan would have collapsed had the authorities not intervened to salvage the CDS market. As Chris Whalen noted, JP Morgan is a $1.3 trillion bank attached to a $76 trillion derivatives clearing operation. The risks in the clearing operation vastly exceed what goes on at the bank. During the crisis, JP Morgan scored poorly on Whalen’s credit risk metrics in comparison to other large banks.
And even in banking terms, JP Morgan is a “fortress” with a lot of holes in the battlements.
JP Morgan is also the beneficiary of dubious accounting. Year end 2009 total equity was $165 billion. Per Mike Konczal’s conservative analysis, JPM’s losses on second mortgages are between $58 and $87 billion, if not higher.
But with front page magazine stories that talk your book for you, who needs to worry about messy realities?