Jamie Dimon, the Lance Armstrong of Finance

I’m sure some readers will protest that comparing Jamie Dimon to Lance Armstrong is unfair. After all, Dimon is better looking than Armstrong. But this post will demonstrate that the big reason that Armstong’s reputation has crashed while Dimon’s remains largely intact is first, that bank CEOs have a powerful and largely compliant messaging apparatus in the financial media and second, that we hold sports stars to much higher standards than titans of finance and commerce.

Denial of Performance Enhancement and Exaggeration

Let’s look at the main claims Dimon and his fans make for Dimon’s performance:

Myth 1: JP Morgan Didn’t Need a Bailout. This clip is from the horse’s mouth:

You can see here how Dimon’s response does not address Merkley’s points, of the benefit that JP Morgan received from the Fed dropping rates to the floor and from the AIG rescue. Dimon gives a misleading reply by redefining bailout and assistance to mean TARP only and to claim that the value that JP Morgan derived from the rescue of AIG was limited to its direct exposure.

The real picture is actually much worse that Merkley presents. Most people, and that includes most financial writers and reporter, are ignorant of the risks that JP Morgan runs being one of the two clearing banks for US repo transactions (the other is Bank of New York Mellon). Repo is the major way that securities dealers (which included the trading operations of commercial banks like Citigroup) fund themselves. Net repo borrowing accounted for 30% to 40% of broker/dealer funding in the years before the crisis, and even with banks and dealers being urged to rely more on more stable sources of funding (and super-low interest rates allowing them to sell bonds cheaply), net repo continues to be a significant source of their financing. JP Morgan also acts as a clearing bank for derivatives transactions.

This 2010 paper by Bruce Tuckman of NYU’s Center for Financial Stability describes the critical role of the repo system and the risks that clearing banks like JP Morgan incur (emphasis original):

• While broker-dealers want to hold securities, both to facilitate their market-making activities and as investments, they do not want to commit scarce capital by purchasing these securities outright. The repo market allows them to use borrowed money to pay for the purchases by posting the securities they buy as collateral. (When the repo expires, the borrower of cash must either sell the security to pay back the loan or, quite commonly, “roll” or renew the repo for another day or term.) Repo trades for this purpose are also called “funding trades.”
• Leveraged investors, like many hedge funds, buy securities and finance the purchases through the repo market as well.
• Non-leveraged investors, including state and local governments, money market funds, other mutual funds, and foreign sovereign entities, prefer the relative safety of lending money on a secured basis to bearing the direct credit risk inherent in other money market investments….

In every morning’s “unwind,” without any cash coming from the borrowers, the clearing banks make cash available to the lenders and return securities to the borrowers’ clearing bank accounts…this process implies that during the day the clearing banks are effectively the secured lenders of the repo transactions. Hence, a very significant, unintended consequence of an operational solution to settlement problems is that an enormous amount of intra-day risk is shifted from secured lenders to the clearing banks.

The clearing banks are at great risk. The daily unwind leaves the clearing banks holding all the intra-day risk arising from the secured financing of broker-dealers. This seems reckless given that these two banks are themselves large and systemically important financial institutions. Furthermore, these substantial intra-day risks are not included in the calculation of risk- adjusted assets and, therefore, are not even on the radar of the regulatory structure governing bank capital requirements or risk charges.

Now let’s understand what that means. The emergency facilities that the Fed put in place during the Bear Stearns rescue, as well as the heavily subsidized purchase of JP Morgan of Bear, was actually a bailout of the two major clearing banks, and thus JP Morgan itself:

While most commentary throughout 2008 focused on the “run” of secured funders and prime brokerage balances away from Bear Stearns and on the extensive and leveraged holdings of impaired assets at Lehman Brothers, there are indications that actual or potential exposures faced by the clearing banks were relevant to the course of events. Chairman Bernanke explained the initiation of the Term Securities Lending Facility (TSLF)6 and the Primary Dealer Credit Facility (PDCF)7 during the week Bear Stearns collapsed by stressing the systemic danger of secured lenders abandoning the repo markets. But, amidst those remarks, he added the following:

For some time we have been working with market participants to develop a contingency plan should there ever occur a loss of confidence in either of the two clearing banks that facilitate the settlement of tri-party repos… [A] stronger financial system may require changes … in the settlement infrastructure operated by the clearing banks./blockquote>

And, in describing the Fed’s decision the day before the Lehman bankruptcy to expand the collateral accepted against PDCF loans, a Federal Reserve Bank of New York paper reported that

Although the potential failure of a major repo market participant was the immediate impetus for the Fed’s decision to expand the collateral eligible for pledge in the PDCF, the Fed was also responding to more general concerns about the structure of the triparty repo system—specifically, the exposure incurred by the clearing banks to a possible default by borrowers in the market.

Remember, the Primary Dealer Credit Facility was established in March 2008 and expanded in September 2008 to help stabilize the two major clearing banks, JP Morgan and Bank of New York. So one of the very earliest bailouts was for JP Morgan’s benefit.

Similarly, in the wake of the Lehman collapse, a money market fund that held a significant amount of Lehman commercial paper, suffered a run as it “broke the buck” as in traded below a net asset value of $1 per share. One of the major investors in repo is money market funds, so a run on money market funds was effectively a run on the repo funding system. Indeed, there were point during the crisis when it was impossible even to repo Treasuries, which one bank staffer described as tantamount to breaking the sixth seal during the Apocalypse.

So when the Fed established a program to guarantee money market fund accounts up to $250,000 to halt the run, that too was a bailout to JP Morgan. And while Dimon tried to pretend that JP Morgan didn’t need the AIG rescue because it only got $1 billion out of it, that’s hogwash. It’s almost certain that Morgan Stanley would have failed, and as Lloyd Blankfein is reported as having said at the time, if Morgan Stanley collapsed, Goldman would be next. As derivatives expert and venture capitalist Roger Ehrenberg pointed out in 2009:

Whether anyone will admit it or not, without the AIG (read: Wall Street and European bank) bail-out and the FDIC issuance guarantees, neither Goldman nor any other bulge bracket firm lacking stable base of core deposits would be alive and breathing today.

JP Morgan and Bank of New York Mellon would have been engulfed as well through their tri-party repo exposures, although operationally, they would have been easier to rescue that the former investment banks were.

So while Dimon is likely correct in his narrow claim that he didn’t need the TARP, it’s because he’d gotten more stealth bailouts than anyone else prior to that point.

“Fortress Balance Sheet” Malarkey. Dimon’s frequent repetition of his claim that JP Morgan has a “fortress balance sheet” is a pure and simple Big Lie. The best he might be able to argue is that he’s won what the Japanese call a height competition among peanuts, that he’s better than his peers, but they are all at such a low level that these distinctions aren’t as meaningful as he’d like the great unwashed public to believe. But as the discussion above indicates, Dimon’s PR leaves out the tri-party repo risks, which none of his main competitors have. As banking industry expert Chris Whalen noted, “JP Morgan is running a $2.4 trillion bank attached to a $75 trillion derivatives clearing operation.” And the bank can get away with that precisely because regulators haven’t demanded that JP Morgan hold additional capital in order to cover the risk it runs in its clearing operations. Again from the Tuckman paper:

The previous sections argue both from first principles and from the events of 2008 that the daily unwind conducted by the clearing banks is an unacceptable source of systemic risk…One important contributor has to have been that the capital requirements and risk charges governing the clearing banks do not incorporate the intra-day risk of the daily unwind.

JP Morgan Suffered Fewer Mortgage-Related Losses Because It Was Smart and Avoided the Subprime Market. Um, no. Just like Bank of America before its wildly misguided Countrywide acquisition, JP Morgan was only a mid-tier mortgage lender, mainly in prime (Fannie and Freddie quality) mortgages. But the fact that they hadn’t bulked up and gone heavily into subprime was not for want of trying. Market participants have repeatedly told me JP Morgan’s big reason for not having become a large player that it did want to expand but was unwilling to pay up to hire the staff they needed. As a senior executive on the mortgage buy side wrote:

Chase Home Mortgage was a prime and jumbo lender thru the 90s and early 2000s. Generally speaking, prime lenders were seen as less sophisticated players and it was a low margin business. So they didn’t pay well, compared to the ABS side of the business. In 2001, Chase bought the mortgage business of Advanta, a subprime lender that was considered better than average. I believe that Chase had problems integrating Advanta into the Chase world (my firm had several dealings with Chase because we had done several Advanta deals – it was a mess ).

I think the Advanta experience made Chase gun-shy on subprime before the party really started. At the time, my sense was the failure to integrate was on Chase’s part – they were trying to use prime mortgage guys – cheaper and less sophisticated – for subprime deals. Later (2002-03?) they hired a fairly young guy from Fitch to head their subprime MBS banking business. He was fairly inexpensive and not as really as seasoned as other guys at his level at other banks. His group managed to issue a few deals, but it sounded like they were always messy fire drills, compared to the much better organized banks like Lehman, Bear, Credit Suisse and even Countrywide.

I think Chase was reluctant to pay up for their bankers, at a time when the market was increasingly competitive, and didn’t have a deep staff. Lots of lenders Countrywide started it, WaMu, Ameriquest, RFC/GMAC etc followed) were building securitization “banks” at the time so they could act as their own deal runners, rather than paying third party banks and build their own direct relationship with investors.

Similarly, from an e-mail thread among people deep in the mortgage securitization world:

Person 1: Someone in the know told me JPM was really upset that they hadn’t jumped into the residential CDO market; that they’d avoided it. It wasn’t that they thought the CDO’s would hold — they didn’t; they knew they were junk — but, rather, that they thought they’d burn down much faster than they did. After they realized they were more resilient — never mind the bailouts when the predictable losses finally arrived — they weren’t happy with the amount of money they’d left on the table. The person who relayed that to me definitely would have known, and they also told me that after the carnage.

Person 2: Very consistent with my experience. I had JPM CDO salesmen banging down my door in 2006 and early 2007. They wanted to do more, but didn’t have the staff, assets etc.

They didn’t miss out on CDO carnage because of good risk management. They just weren’t that good at it.

In other words, JP Morgan wasn’t better at steering clear of risk. It was simply worse at looting.

Myth 2: JP Morgan is Better Run Than Other Banks

The only way you can believe that JP Morgan is well run, let alone better run than other banks (admittedly a low bar) is to do the equivalent of a memory-wipe of your brain on a regular basis.

The London Whale Incident Revealed Massive Risk Control and Oversight Failures. We’ve written about the astonishingly weak controls at some length, such as this section from a Michael Crimmins, who has served in senior compliance roles at several major banks, in Why Hasn’t Jamie Dimon Been Fired by His Board Yet?:

The first stunner, that JP Morgan was restating the first quarter financials, should have caused a deafening ringing of alarm bells. For a company of JP Morgan’s stature to be compelled to restate prior period financials is a very clear signal of bigger problems with their overall financial reporting. In isolation we would normally expect to see a massive selloff with an event of that seriousness. Analysts and reporters may have missed the significance since it was dropped into a footnote and overshadowed by the other disclosures. …

But the real cause for alarm is the reason for the restatement. JPM was forced to disclose that it relied on its traders to provide honest and accurate valuations for its financial statement disclosures. That’s like putting the foxes in charge of not just the henhouse, but the entire farm. Much to its chagrin that was a costly choice. Note that was not a mistake, but a conscious choice….

It appears that JPM is attempting to make the case that rogue traders, with criminal intent, mismarked the books. That may be so and relevant criminal charges against those traders should be pursued. But that strategy does not protect management. If there was mismarking, especially to the extent that occurred here, it is the responsibility of management to know or have procedures in place to alert them to the potential for fraud. Step one in that control process: Don’t let your traders mark their own books. If you do you have no excuse. Your controls are worthless and as CEO, you are responsible for ignoring that fundamental control gap. Full stop.

Which leads to the second underreported stunner.

It is a very big deal when a firm is compelled to disclose a material weakness in internal controls. That’s the worst level of internal control failure a going conern can report. In JP Morgan’s case its more damning since Dimon, as recently as May 10, 2012, certified that all was well with internal controls as of the end of 1Q2012.

That assessment means that it is impossible for the firm’s external auditor to sign off on the financial statements until and unless the control breakdowns are remediated sufficiently for the auditor to provide assurance. The description of the control weaknesses at JP Morgan appear to be design flaws, so it’s likely the weaknesses existed in periods earlier than the first quarter of 2012, when it was ‘discovered’. The fact that the unit with the weaknesses by all accounts was under the direct control of the CEO throws doubt on the validity of his prior certifications about the quality of the internal controls.

And as we wrote in March, the Senate Whale hearing revealed that the lapses were even worse than what we had surmised by reading media accounts closely. One of the new ugly bits was the degree to which JP Morgan was lying to its regulators.

Some of the more alert reporters have wised up. For instance, from a September report, How JP Morgan Failed at Every Turn in the Globe and Mail:

Whale aficionados also now have more information on just how ineffective JPMorgan’s compliance staff were at monitoring their traders. JPMorgan’s senior management did not inform the relevant back-office department in London that it was reviewing the valuation of the Whale portfolio for over two weeks. Given recent rogue trading incidents at Société Générale and UBS, the low regard in which the control function at the bank was held is extraordinary.

One of the real shockers in the recent Whale revelations (and it’s hard to be shocked given what came before) is that the bank had all of one not-very-experienced-or-powerful person on the Chief Investment Office valuation review team. Recall that one of the things that the team on the Whale team did was systematically goose the valuations (recall that one trader kept a spreadsheet showing what the value would have been given their normal accounting practice, what numbers they were actually using, and the dollar size of the gap between the two). And remember the CIO was the single biggest risk book in the entire bank.

JP Morgan has effectively admitted the gross inadequacy of its financial and operational oversight via its plans to spend over $4 billion and add 5,000 people for better compliance and risk control.

London Whale is Merely One in a Long List of Serious Risk Lapses. JP Morgan has control problems all over the bank that were costing shareholders serious money even before the famed mortgage settlement was under discussion. As Dave Dayen wrote:

I urge you to read an astonishing new report, which I’ve embedded below, from analyst Josh Rosner of Graham-Fisher and Co. The best way to describe the report, “JPM – Out of Control,” is that it reads like a rap sheet. Notably, Rosner takes mortgage abuses almost entirely out of the equation, and yet still manages to fill a 45-page report with documented case after documented case of serious fraud and abuse, most of which JPM has already admitted to (at least in the sense of reaching a settlement; given out captured regulatory structure the end result is invariably a settlement with the “neither admit nor deny wrongdoing” boilerplate appended). Rosner writes, “we could not find another ‘systemically important’ domestic bank that has recently been subject to as many public, non-mortgage related, regulatory actions or consent orders.”…

It’s hard to summarize all of the documented instances in this report of JPM has been breaking the law, but here’s my best shot. I try to keep up on these matters, and yet some of these I’m learning about for the first time:

Bank Secrecy Act violations;
Money laundering for drug cartels;
Violations of sanction orders against Cuba, Iran, Sudan, and former Liberian strongman Charles Taylor;
Violations related to the Vatican Bank scandal (get on this, Pope Francis!);
Violations of the Commodities Exchange Act;
Failure to segregate customer funds (including one CFTC case where the bank failed to segregate $725 million of its own money from a $9.6 billion account) in the US and UK;
Knowingly executing fictitious trades where the customer, with full knowledge of the bank, was on both sides of the deal;
Various SEC enforcement actions for misrepresentations of CDOs and mortgage-backed securities;
The AG settlement on foreclosure fraud;
The OCC settlement on foreclosure fraud;
Violations of the Servicemembers Civil Relief Act;
Illegal flood insurance commissions;
Fraudulent sale of unregistered securities;
Auto-finance ripoffs;
Illegal increases of overdraft penalties;
Violations of federal ERISA laws as well as those of the state of New York;
Municipal bond market manipulations and acts of bid-rigging, including violations of the Sherman Anti-Trust Act;
Filing of unverified affidavits for credit card debt collections (“as a result of internal control failures that sound eerily similar to the industry’s mortgage servicing failures and foreclosure abuses”);
Energy market manipulation that triggered FERC lawsuits;
“Artificial market making” at Japanese affiliates;
Shifting trading losses on a currency trade to a customer account;
Fraudulent sales of derivatives to the city of Milan, Italy;
Obstruction of justice (including refusing the release of documents in the Bernie Madoff case as well as the case of Peregrine Financial).

And, exhale.

The sheer litany of illegal activities just overwhelms you. And these are only the ones where the company has entered into settlements or been sanctioned; it doesn’t even include ongoing investigations into things like Libor, illegally concealing inclusions of mortgage-backed securities in employer funds (another ERISA violation), the Fail Whale trades, and especially putback suits for mortgages, where a recent ruling by Judge Jed Rakoff has seriously increased exposure. While the risks are still very much alive and will continue to weigh on the firm, ultimately shareholders will pay, certainly not executives as long as the no-prosecutions standard holds.

Rosner determined that since 2009, JP Morgan has paid out $8.5 billion in settlements, or nearly 12% of net income over that timeframe

It’s simply routine for JP Morgan to completely ignore regulations. Here’s another example. Remember the brouhaha about how Goldman was manipulating the aluminum market via its ability to control inventory levels by virtue of owning a large number of warehouses used for clearing and storage? Financial holding companies aren’t supposed to be involved in the physical aspects of commodities dealing, but Goldman had its broader freedoms from its days as an investment bank grandfathered for five years, and had the nerve to thumb its nose at the Fed by buying the warehouses during that period. But that was better than JP Morgan’s conduct. The Fed has never permitted financial holding companies to own commodity infrastructure. But JP Morgan went ahead and bought warehouses from Henry Bath warehouses, without permission. I’m told that Fed officials have said off the record that nobody at the Fed has been able to explain under what authority JPM owns warehouses.

Myth 3: JP Morgan’s Lawlessness is No Big Deal

Other Bank CEOs Have Been Shown the Door for Far Smaller Abuses. Salomon Brothers the dominant bond firm in the 1980s and in some years earned more than all other investment banks combined. Its head Treasury trader started gaming Treasury bond auctions (the Fed runs the auctions on behalf of Treasury). The Fed told him to cut it out, then changed an informal rule into a rule. The trader went nuts and got a reprimand. He ceased trying to game auctions for only a short while, then found a way to do so again that involved falsifying records. It came to the attention of management, which failed to report the abuse to the Fed. When the Fed found out five weeks later, via the Wall Street Journal, the former “King of Wall Street” John Gutfreund and three other top executive resigned and the bank lost its independence. Similarly, Bankers Trust ceased to be a freestanding firm as a result of a derivatives sales scandal followed by escheating abuses. The Chairman of the Board, CEO and president of Barclays were all forced to resign over the more recent Libor scandal.

Dimon May Be Guilty of Criminal Violations of Sarbanes Oxley. As we’ve explained earlier, Sarbanes Oxley was designed to stop the “I’m the CEO and I know nothing” defense. And it also allows a relatively low-risk way to launch criminal cases (as in the language for criminal violations tracks the civil violations statutes, so a civil case could easily be the foundation for a related criminal case if discovery unearthed enough damning evidence). We’ve written at some length about how the London Whale trade as well as the JP Morgan role in the MF Global collapse are slam-dunk Sarbanes Oxley cases. Occupy the SEC has questioned the SEC’s failure to launch a Sarbanes Oxley investigation against JP Morgan. And that letter was written before the Feds launched an investigation into JP Morgan’s likely acting as an enabler of Bernie Madoff’s Ponzi scheme. Finally, recall that the JP Morgan settlement negotiations appear to be the direct result of the Department of Justice readying a possible criminal filing against the bank for mortgage abuses for conduct that took place on Dimon’s watch. Holder initially insisted he had to keep the possible criminal charges outside the case; I may have missed it, but I haven’t seen any updates on that issue.

With all of the foregoing, it’s simply appalling to see the media depict Dimon as some sort of victim. The bank appears to be pulling in all its media chips precisely because it is in so much hot water. But Lance Armstrong demonstrates how long the media will defend or ignore the conduct of a useful high profile figure. Dimon clearly assumes he’s even more deeply in the too big to fail category for anything other than a criminal case to put his reign at risk, and if he wins the public relations war, the Administration won’t dare to go after him. Sadly, that is likely to prove to be correct.

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  1. sd

    Dimon is a sociopath. He is in turn supported by other sociopaths as well as those he has made his victims – ie, the media and congress. And of course he presents himself as a victim. It’s never his fault. Classic behavior.


    This is what neoliberal thinking has held up as their nobel ideal – social parasites – blood sucking vampire squids on the face of humanity. See Dimon for what he is.

  2. Clive

    Even God couldn’t manage a business which requires that amount of abstraction in order to present executive level reporting that is remotely comprehensible.

    (And Dimon isn’t God; he’s not even a particularly effective Master of the Universe).

    Longer version of the above comment — even if you ignore the derivatives business (which is like saying “even if you ignore Godzilla rampaging on Tokyo”), but anyway, even if you ignore the derivatives side of things, a $2.4 trillion balance sheet cannot possibly be comprehended by a board. Any board. It will be subject to abstraction and analysis and it is this metadata which the board will in practice be trying to make decisions on. Not the real data. It can’t be. A hundred million dollar exposure here or there is simply a rounding error. Now, a hundred million dollar loss isn’t a threat — but a hundred million dollar money laundering scam or cash stream that’s missed the terrorism / source of funds checklist is a major piece of criminality. An no-one, not the JPM board, not the auditors, not the SEC and certainly not the OCC can possibly know what is going on under the hood of JPM in anything other than the most cursory fashion.

    Too big to fail is too big to manage.

    Let me illustrate with an example. I worked on a project which was to deliver a method of satisfying a regulatory requirement (from the now defunct FSA) that a financial institution had to provide a daily liquidity exposure report. This was a good “lesson learned” from the crisis, when the regulator suddenly had to be woken from it’s complacent slumber and answer a question “If an institution is perceived, rightly or wrongly — it doesn’t matter if it’s wrong, it’s the perception that matters — to be in trouble and subject to a run on depositors or other short-term redeemable cash products then how much will that institution need to tap the Bank of England for ?” It’s not an academic exercise; in a bank run customers form a disorderly queue. And they are entitled to cold hard cash. And if they don’t get it, then the mere visible manifestation that they can’t get their money causes more panic. So clearly a situation that must be avoided to preserve confidence.

    But moving that amount of cash is a logistical issue. And even electronic transfers need to have a money transmission system and counterparty arrangements capable of handling that unusual peak demand. It’s like the utility regulator making sure that there’s enough “spinning reserve” in power generation capacity to cope when it’s -20 degrees centigrade in NY. It doesn’t happen often, but the implication of not being able to cope with it when it does are dire.

    The FSA learned that the hard way in 2007. So, credit to it, it insisted on better data.

    Trying, though, to get an accurate report on daily potential liquidity outflows across a large banking business with multiple divisions and licences was fraught. Even questions such as, if you have a CD type product, where you normally can’t get your money out ahead of term so superficially doesn’t present a liquidity risk are not that simple because, for some products, you can pay a fee to get your money out early. If you think that the institution is at serious risk of collapse, deposit guarantee or not, you may seriously consider withdrawing your funds — penalty fee or not. But that product might not be manageable via an online channel. You might actually have to trudge down to a branch to withdraw your funds early. Not every product holder would / could do that. So what was the liquidity exposure ? Try modelling that eventuality.

    Eventually, some sort of reasonable estimate of liquidity risk could be provided to the regulator. But it wouldn’t be 100% accurate because of a myriad of systems, product designs, customer channels, behavioural factors and so on.

    I can guarantee that no-one in JPM — and, more importantly, no regulator — can give any sort of worse-case cash outflow liquidity risk position for this institution.

    And that’s just one element of essential oversight and contingency planning.

    How on Earth did we get to the point where someone can build a financial doomsday machine, just waiting to be turned on ?

    I think that I’ve sort-of answered my own question there in terms of “why do they put up with Dimon” ? It’s like asking did the inhabitants of Easter Island put up with the prophets / priests demanding the construction of all those statues. Because logic had gone out the window; they were simply acting on faith in a deity to ward off forces they couldn’t control and couldn’t understand.

    Dimon is few people’s idea of a deity, but that’s what he’s become in all practical sense.

    1. Yves Smith Post author

      This is an extremely important discussion. I suspect I’ll hoist parts of it later.

    1. BillC

      Au contraire, I think it’s a brilliant (and apropos) metaphor that might grow legs. Thanks, Yves! I do agree with vlade regarding who’s better looking, though.

  3. allcoppedout

    I’m in little doubt most of what we call financial services are crooked. In a way,people from clerks who sold PPI upwards to Dimon should be given prison sentences – we could suspend those lower down. The denial of responsibility Sarbox was supposed to address is now found across our systems. What we lack is sensible theory in organisational design.

    I see a lot in common between Dimon and the kind of bosses we seem to have everywhere now. In good times they link their performance with success and in bad times they sever the link. We could talk forever about the leadership MumboJumbo they use. I’d put forward the Mark Duggan inquest as an example (a UK police shooting of a minor black gangsta). I would have expected to handle the shooting scene (as a potential crime scene) as a detective sergeant with 2 or 3 legmen at the time. Instead, we have a very expensive inquest 2 year’s later, revealing a cast of thousands of highly paid and utterly unresponsible worthies.

    Duggan is dead and a cop admits shooting him twice because he saw him raise a gun. I’d guess this is confabulation,but don’t really care. The shooter had been bulled on how dangerous Duggan was for days and sent into a high adrenaline situation,responding,as most would,by seeing what was expected and shooting (probably in error). The shooter-cop is a victim along with the dead Duggan.

    Some might wonder what something like this has to do with Dimon and financial services? I’d start by beginning to list similarities. One is the presence of an elite bankrolling themselves. Two is an almost total absence of evidence of any relevant work done by this elite. Three is the presence of an expensive enquiry that tells the public very little.

    One can look well beyond this London-parochial to Iraq,Afghanistan, child abuse failures,dismal education – the Duggan thing is almost massively white/male/upper-class dominated more than 30 years after our Equal Pay Act was mobilised – and discover what we lack in all areas is proper research and investigation with teeth. We are being stiffed by a professional class that cares only for its own fees.

  4. Carolinian

    It’s probably not accurate to say the media were “protecting” Armstrong. He did pass all those tests. Once they thought they had the goods some reporters–not all–rather gleefully became all “truth to power” against someone who could do them no harm.

    Whereas attacking Dimon could seriously threaten your career. He lied about actual crimes, not a silly bicycle race that is arguably more an exercise in bioengineering than a sport (the top riders all have the same skills).

    1. Mcmike

      Armstrong is nothing like Dimon.

      He cheated in an industry that (while cheating is rampant… hello: Wall Street), devotes a significant amount of real energy to deterring cheating, detecting cheating, and stripping cheaters of thier fruits even retroactively.

      Yes, there is surely a culture of fawning sports media who dare not print what they suspect. Yet Armstrong was doggedly pursued by journalists and regulators of various stripes, until eventualy they cracked enough people who rolled on him.

      Witness the fact that the pursuit continued for years even after Armstrong had left the sport.

      Also witness the fact that once exposed, Armstrong experienced very real consquences in lost endorsements and getting kicked off his own foundation.

  5. clarence swinney

    National Journal has an article (poll) that many Military Officers want to remove Obama.
    Just like my world wide Poll in Mental Institutions with 98%
    of Muslims and 80% of Gentiles wanted to remove Gwb.

  6. clarence swinney

    plants closed in first decade of this century.
    At 100 per plant equals 5.8 million jobs lost or changed.
    We know 3,700,000 jobs were sent to “just” China in the second decade..
    That is 9.5 Million jobs gone forever.
    We need jobs. We need an increased mimum wage. We need pensions.
    Afford Care Act will, eventually, help lower the awful amount we spend on health care,.
    The president is squeezing export of military parts.
    Some firms are bring jobs back to America.
    Some new industries are being formed.
    It is slow but we will exist.
    We need to Tax Wealthy Estates and the top incomes to balance the budget and pay off that horrid Debt. Spending has been kept low during O five years but Revenue has not been raised
    by canceling Bush huge tax cut for the top. We will eventually stop spending on Bush two wars.
    Will we ever learn to stick to our knitting and mind our own business.
    Foreign Affairs cost is less than 1%.
    Our borrowed money is spent on Defense, Medicare, Medicaid and Interest. Bernanke has done a marvelous job at keeping inflation low.
    Things will improve. Kick Tea Party member out of our government.
    Restate Glass Steagall. Cancel open Trade Act with China. Do not create more Open Trade Acts.
    We lose they win. Elect Bernie Sanders as Dictator or Hillary.

  7. ftm

    Thank you, Yves. Dimon worship is not just nauseating, it keeps the financial system at high risk of implosion. Dethrone Dimon and a regulatory JPM dismantling becomes possible. Pound away at the Dimon as crime boss narrative — the story has no end in sight.

  8. susan the other

    Since I have such a poor understanding of these details, just good enough to know JPM is out of control, one thing I would like to hear about is alternative national banking. If TAFTA and TPP go thru, this current banking stuff will get even more arcane and hidden from view. To offset the risk to national interests we should have a separate system altogether. If the banks are TBTF then making them “smaller” just as they go into hyperspace globally would be pointless wouldn’t it? We should just divorce them and go with a new National US Bank. The divorce decree should explicitly state that this nation is not responsible nor liable for any losses these banks or their partners incur as a result of their lost capital due to their own failed investments and trading losses. They want to be capitalists? Let them.

    1. just_kate

      I would totally support this. And the national bank should have nominal fees, no free checking or special incentives – – just boring reliable products and services.

  9. theshizz

    Great piece Yves.

    Sure hope the investigators of the “London Whale” crimes and the Sarbox offenses by Dimon are looking into his dealings with the CIO office prior to the Whale headlines. If Dimon was very actively engaged with the CIO unit and Ina Drew prior to the fiasco, it would be hard to say he was caught off guard by the tempest. Most likely the redefining of risk models JPM undertook was a response to CIO losses so they could conceal them. Perhaps Dimon didn’t directly order the easing of risk models but his close deputy Drew would have known what steps to take to please him.

    It is difficult to escape the sense that Dimon was actively engaged with the banks internal hedge fund – profit center, the CIO. If Dimon can be seen getting involved in the minutiae of CIO affairs earlier it would demonstrate a hands on role in CIO that makes his & his deputies later false Sarbox filings even more suspect.

    Seperately, Zero Hedge was really the first to report on the London Whale affair. Days before Bloomberg made it national news. If JP Morgan, with it’s broad reach, didn’t learn of the Zero Hedge reporting and act on it then they are truly incompetent. If the Zero Hedge stories did cause JP Morgan to begin acting internally in the C-suite, that means Dimon was lying in the investor calls when he said the Bloomberg reports were the first he heard of the Whale problems. It wouldn’t be hard for the SEC to establish when activity spiked surrounding the whale news. If the JPM control frauds are too hard to prove to get rid of Dimon, then the securities law violations being prosecuted would suffice.

  10. fresno dan

    you look at all the leverage, and you look at all the fraud, and than you look at the implicit support of all this by the FED, (who I can the impression DOES NOT WANT TO KNOW)and the absolute unwillingness to investigate or prosecute by the DOJ …and really, doesn’t it appear we will be right back at fall 2007 with in a few years?
    If not, why not??? Its hard to see any real change…

    I also can’t help but think that the financial system of the US does in fact do ONLY one real thing (loans to ordinary people and businesses are a cover) – extract real resources from those without political power, which is accomplished solely by corruption.

    1. Yves Smith Post author

      If Sandy Weil were funding an anti-Dimon campaign, trust me, you’d see the footprints in better read venues.

      I’d hazard you’re the one who hasn’t been watching. We’ve been skeptical of JPM for a while, and it moved into full blown criticism after MF Global and the Whale. The Whale alone should have gotten Dimon shown the door.

      There’s a long list of lower level abuses we’ve been chronicling for some time. See these examples and notice the dates:



      1. Pearl

        Hi Yves, this isn’t a Jamie Dimon thing, but I still think it’s a “thing.”

        When these folks screw up–all they have to do is send a letter to the SEC and say, “Oops?”

        It doesn’t seem to work that way for most folks.

        I found this today while weeding through some SEC filings regarding some Deutsche Trusts, but this seems to be a Wells Fargo no-no? It has to do with Custody Attestation of 101 CMBS and RMBS transactions.


        (If SEC website link doesn’t work, this letter is attached to COMM 2012-CCRE3 Mortgage Trust · 10-K/A · For 10/28/13 · EX-99.1)

        Here’s the “money quote:

        “Wells Fargo has also determined that, due to the same administrative error, it also inadvertently omitted other CMBS transactions and RMBS transactions from the Transaction Listing. For the 2012 reporting year, including the transactions on Schedule B hereto, there were a total of 101 CMBS and RMBS transactions omitted from the Transaction Listing. The omission of these 101 transactions started in the year each transaction closed and has continued through 2012. Based on its Custody Platform description, Wells Fargo should have included these 101 transactions on the Transactions Listing…..”


        “Due to the omission of the 101 transactions from the Transaction Listing, such transactions were not part of the population of transactions subject to testing performed in connection with the 2012 Custody Attestation…….”

        I dunno. I look at a lot of this stuff, and I have never seen such a letter attached to a Trust. But I thought I should run it past you to see if you think it’s a problem.

        I’m sorry–I know you don’t have time for stuff like this, but maybe someone else will see this and weigh in on its importance.

        101 Trusts. That’s, like, 101 (fairly large) companies, right? Isn’t that sort of a big deal? And worthy of more than just an “oops?”

        Thanks, Yves and all!

  11. Peter Pan

    This blog post about JPM reads like a criminal indictment for a racketeer influenced corrupt organization.

    Mr. Dimon is not God. He’s more like an Al Capone and his henchmen are the financial media.

    1. down2long

      Oh, I would’ve so much rather had a loan with Al Capone than Slimin’ Demon. Chase foreclosed on my paid up loan to make a few bucks off a free WaMu loan FDIC gave them. I know that a) the FDIC would not have given Capone or any mobster a free loan, so I would’ve been on an even playing field, not a fascist board game, and b) If you pay your Mob bills on time, at above market interest rates, the mob leaves you alone and is happy to let you continue paying. Not so the banks in this upside down criminally captured f**kfest of a “financial ‘system'” we have in our kleptocracy.

      And Fresno Dan, I don’t see many people getting loans from the “banks” other than a few top tier credit holders, certainly not the hoi polloi. The banks always say they are making loans – or conversely, that holding them accountable will shrink their ability to make loans. In point of fact, they continue to make less and less loans to average Americans. Re the FT, most loan money is going to big and mid-size companies with ever diminishing collatoralization and covenants. It’s gonna get ugly up in here, real soon.

      Thank you Yves for keeping up on Slimin’. He must not be allowed to slime his way out of this pus-pit he created, and you are my hero holding him accountable, when it appears no one in this oligarchy will. You still give me hope. Incidentally, a friend said he saw you on Moyers (not a regular NC reader) and he said you were great and made some very good points, and educated him as well. Thanks for that, too.

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