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The New Republic Lays on Hot and Heavy JP Morgan PR

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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?

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13 comments

  1. Crocodile Chuck

    Chris Whalen also wrote that JPMorgan would howl the loudest at attempts to reform the CDS racket-as it was the biggest player……….

    BING!

  2. attempter

    …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.

    That’s a fact, is it? That’s some journalism.

    I wonder – if you spent a thousand years writing a list of people to whom you could give even a tiny fraction of the taxpayer money which was conveyed (and is still being conveyed) in a sack with a dollar sign on it to JPMorgan, people of good faith, if you spent a thousand years writing that list, would you exhaust the number of recipients where the constructive multiplier would vastly exceed any return on looting this wealth for JPM or any other bank racket? I doubt it.

    Ten thousand years wouldn’t suffice.

    But that’s not the point for corporatist hacks like Schrieber. Since to corporatists, by definition the only worthy recipients of all of civilization’s wealth are big corporations, it follows that Dimon is as worthy a recipient as it gets. “Good faith”, not according to the English language or any moral tradition, but according to corporatist ideology.

    …so that rivals who really needed it wouldn’t be stigmatized.

    BTW, will the self-appointed propagandists of CEO “responsibility” step up here to point out that Dimon should be fired since according to Schrieber he acted out of altruism toward rivals and not 100% for the sake of the shareholders?

      1. craazyman

        Holy Shitfeathers Man, I thought you were kidding until I clicked the link.

        A dream team, yeah,
        like two zombies out of Michael Jackson’s Thriller dream
        like a night sweat dream
        like a what you need Ambien for dream
        like a 3 a.m. and staring at the ceiling can’t even dream
        like spinning from 15 beers and puke on the bathroom floor dream
        like a suffocating weird hag black shadow breathless attack dream
        like you’re wobbling on a bridge over a chasm dream
        like when a strange person tells you you’re dying dream
        like a you know you’re naked but it’s too late dream
        like a running, running, running away dream
        yeah, like a team from those kinds of dreams

  3. Francois T

    “Journalism” like that is one of the prime reasons the elites have been able to plunder the country.

    The “Versailles sleaze” as Glenn Greenwald puts it is now expanding into the financial sector.

    The upper crust can sleep in peace. They’ve got their backs covered by the very media that is supposed to hold them accountable.

    To give you an idea of how bad it has become, let’s read the transcript of an exchange between David Axelrod and David Gregory, anchor of Meet The Press. (Please make sure you are not drinking any liquid hot or cold,in front of your computer while doing so.)

    From Glenn Greenwald (a.k.a. Glennzilla)
    http://www.salon.com/news/opinion/glenn_greenwald/2010/06/15/henry

    Along those same lines, White House adviser David Axelrod was on Meet the Press this weekend and tried — with total futility — to explain to David Gregory the concept of holding someone accountable, which is ostensibly the crux of Gregory’s job. Leave aside the obvious question of whether the White House is actually doing any of the things Axelrod claims they’re doing concerning BP; observe Gregory’s complete inability even to understand the concept of arms-length, verification-based accountability (h/t Stuart Zechman):

    MR. GREGORY: You were quoted this week saying this isn’t a very sympathetic figure, Tony Hayward.

    MR. AXELROD: Yes.

    MR. GREGORY: Does the president trust this guy?

    MR. AXELROD: Well, look, it’s not a matter of who — we, we — it’s not a matter of trust. We have to verify what they’re doing, we have to stay on them, and we have from the beginning. That’s why we want this escrow account. I’m not here to, to make judgments about any individual’s character, but we do know that they have pecuniary interests that may be in conflict with, with the interests of, of our interests, and we…

    MR. GREGORY: But, but let –but…

    MR. AXELROD: …need to make sure that the interests of people in the Gulf are protected. That is what our job is.

    MR. GREGORY: But this is a straightforward question. If you are in partnership with somebody — and make no mistake, the government is in partnership with BP to get this problem solved — does the, does the president of the United States trust the man on the other end who is leading this operation?

    MR. AXELROD: Our, our mission here is to hold them accountable in, in every appropriate way, and that is what we’re going to do. I, I’m not — I don’t consider them a, a, a partner, I don’t consider them — they’re not social friends, they’re not — I’m not looking to make judgments about their soul. I just want to make sure that they do what they’re required to do.

    MR. GREGORY: Do you trust them to get the job done? Yes, no or maybe?

    MR. AXELROD: We’re going to make sure they get the job done.

    MR. GREGORY: But it doesn’t sound like there’s a lot of faith there at the moment.

    MR. AXELROD: Well, our job is to hold them accountable, David, and that’s what we’re going to do.

    Axelrod is explaining exactly what the media is supposed to do concerning political officials if they are going to fulfill the function they like to pretend they have, and Gregory is simply incapable even of understanding what’s being explained. It’s as though it’s a completely foreign concept that he’s never encountered or thought about before. As Zechman put it in an email to me:

    Inadvertently, Axelrod makes the case . . . for an independent press corps — in front of Gregory’s nose that, in order to hold an elite institution (British Petroleum) with whom another elite institution (the government) has obviously conflicting interests, the party tasked with enforcing accountability cannot allow itself to be influenced by whatever social contact exists. Recognizing this, he states rather categorically that fulfilling the state’s mission requires not merely taking British Petroleum’s word for how things are going, and that the government must “verify what they’re doing.” The character of Tony Hayward, what can be known about him from social contact, “judgments about their soul” — all of these are irrelevant to the function of holding interested parties accountable for what they say and do.

    Of course, this is precisely the opposite of the role that virtually the entire establishment political press corps — and Gregory himself — plays with respect to the accountability of government officials.

    Axelrod’s description of a functional vs. a non-functional institutional mechanism of accountability could not have been better made, save if he had said “I don’t consider them — they’re not social friends, they don’t come to my home when I hold fun-filled family water parties, laughing and splashing about with my Administration, playing with super-soakers, and enjoying superb meals and drinks with me in a casual, outdoor atmosphere, they’re not — I’m not looking to make judgments about their soul. I just want to make sure that they do what they’re required to do.”

    Again, leave aside whether that’s an accurate description of the relationship between the Government and BP (also put to the side Gregory’s bizarre though ideologically revealing conception that “the government is in partnership with BP” on the oil leak). The point is that Gregory, like Henry, cannot even begin to comprehend the issue. It’s not that these media figures fail to perform their assigned function or consciously decide that they won’t. They don’t even conceive of their purpose in this way, because holding government officials accountable is not actually their purpose. With some accidental exceptions, the corporations which own these media outlets don’t choose people for these positions who want to or who will perform these accountability functions. They choose the ones who have no interest in doing so, no ability to do so, and who simply won’t — and thus don’t. Gregory and Henry don’t succeed in their corporations despite their failure to do their jobs of holding government officials accountable; they succeed because they do their job, which doesn’t include that function.

    No further questions Your Honor; Res ispa Loquitur

  4. Angelo

    Dimon gets a free pass on so much. It is not even worth mentioning in the media that after converting from Defined Benefit to Cash Balance Pension Plans years ago, with promises to employees that it was a good deal for them, portability and all, JPM substantially cut Pension Plan contributions for long term (hence, closer to retirement) employees in 2010. Some cuts were from 9% of base pay to 5% and some employees were also “capped” based on salary over $100K. Meanwhile the company continues to expand it’s energy trading business through acquisitions costing billions.

  5. Angelo

    Further, I don’t think Konzal even mentions that a substantial part of JPM’s equity is not “tangible”, that is, it is based on intangible assets (goodwill), which comes from paying up for acquired businesses. JPM has to pull out all stops on regulatory reform because a crack in its veneer could blow up.

  6. readerOfTeaLeaves

    I think that we in the public need a whole lot more of the bracing reality underscored by the comment about JP Morgan being a $1.3 trillion bank attached to a $76 trillion derivatives clearing operation.

    With those ratios, whether Dimon is ‘in’ or ‘out’ is immaterial.
    What matters is that we have an unstable system that we don’t seem to have the guts to recognize.

    We’re legislating as if we still have banks a la 1950s.
    Meanwhile, the drug lords of Afghanistan and the oil speculators are using the gambling tools of our banking kit, while the nation walks around in an economic daze.

  7. anon48

    “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.”

    WhyTF would they want to do that? Who were these “end users”? If they weren’t in significant numbers why were they able to make a difference(unless they were nothing more than the fig leaf needed by Congress to justify their lack of action against derivatives)?

    1. Yves Smith Post author

      Note the language in the article suggested very few went along. And why? For the same reason JP Morgan swung into action to assist the Administration when it asked for help on the Bernanke nomination. They wanted a favor in the bank.

  8. otto

    “Yves here. This is every rapist’s fantasy: to get the victim to say in public she really did want it.”

    Best. Derivs. Line. Ever.

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