Jamie Dimon: JPMorgan's Chief is the World's Funniest Financier
Companies / Banking Stocks May 15, 2012 - 09:25 AM GMTBy: Janet_Tavakoli
Sure the economy is still a mess, unemployment is high, civil services and pensions are being slashed, a record number of people are on food stamps, and families are losing homes. But Jamie Dimon, Chairman and CEO of JPMorgan Chase, does his best to distract the United States from these unpleasant realities.
Here's Jamie
After losing $2.2 billion (and rapidly rising) in mark-to-market losses in credit derivatives, the multi-trillion dollar global product JPMorgan created and claims it manages well, Dimon had the perfect response on yesterday's Meet the Press to straight man David Gregory's question: "How did this happen?"
"First of all, there was one warning signal -- if you look back from today, there were other red flags. That particular red flag -- you know, we made a mistake, we got very defensive and people started justifying everything we did. You know, the benefit in life is to say, 'Maybe you made a mistake, let's dig deep.' And the mistake had been brewing for a while, so it wasn't just any one thing."1
That's so funny I'll bet President Obama blew coffee out of his nose.
The Pay Joke
In 2011, Jamie Dimon got a total pay package of $23 million. Of course, those earnings came on the back of a global financial bailout, Fed enabled mergers that created an insanely big balance sheet, and ongoing cheap financing from the Fed. Meanwhile, U.S. savers get paid virtually no interest on low-risk investments to subsidize the banking system.
Dimon's pay partly depended on reported profitability of the division with the troubled credit derivatives, JPMorgan's Chief Investment Office (CIO). Dimon reportedly paid its chief investment officer, Ina Drew, $14.5 million in 2011. Dimon just allowed Drew to retire. Dimon handsomely paid Bruno Iksil, the unit's trader that other market traders dubbed "the London Whale," because among other things, he boasted he can walk on water. 3
The Model Joke
The thing about credit derivatives is that the models are very vulnerable to the assumptions one uses in the model. So you wouldn't want to say, push your people to make more money for JPMorgan and then let the people whose multi-million dollar bonuses depend on the outcome influence the assumptions. But that's only if you don't have Dimon's flair for comedy.
At JPMorgan, the CIO abandoned an old model it had used for several years. It started using a new model in 2012 and apparently grew its trading positions in size and complexity. Rather than rigorously question the reports submitted by the people whose pay depended on making themselves look good, Dimon did what every good comedian does. In response to concerns raised in April about news reports that JPMorgan's positions were too big, Dimon set up his big joke. He called it "a tempest in a teapot."
On Thursday, May 10, just five days before JPMorgan's annual sharholders' meeting, he announced the losses and said they are likely to grow. He also said the CIO went back to the old model, because the new one had been inadequate. He let listeners question in their own minds whether 2011 assumption-based earnings for the unit could be trusted any more than 2012's numbers.
The Pratfall
As for the management controls Dimon was paid so highly to put in place, he deadpanned:
"In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored."
That's really funny to U.S. taxpayers, since we bailed out the banking system and continue to subsidize JPMorgan with loans at near zero interest rates. Meanwhile, Dimon has bashed the reputation of esteemed former Treasury Secretary Paul Volcker. He's whined that criticism of bankers is unfair. Dimon refuses to acknowledge there's merit to the idea of the return of Glass-Steagall, yet he has again proved JPMorgan is Too Big to Manage:
"We'll do what we'll always do. We'll admit it [because you caught on], we'll learn from it [next time you may not catch on], we'll fix it [the fix is in], and we'll move on." [Then, as we've done in the recent past, 2 we'll do it again.]
New JPMorgan shareholders, who watched the share price plummet after Jamie Dimon's announcement, must be laughing so hard it hurts.
1 Punctuation is from Michael Hiltzik's transcription in his May 14, 2012 L.A. Times commentary, "What Jamie Dimon didn't tell you on 'Meet the Press'."
2"Jamie Dimon's SNAFU: JPMorgan's Other Derivatives' Losses." May 12, 2012.
3The original version of this post stated Dimon paid Iksil $100 million, but that was apparently the at-risk income generated by Iksil.
Endnote: Jane Wollman Rusoff interviewed me for Research Magazine's May cover story, "Finding the Culprits of the Crisis," about the deep monetary connections of Wall Street and Washington and the corrosive effect it has had on the economy and the Republic
By Janet Tavakoliweb site: www.tavakolistructuredfinance.com
Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct associate professor of derivatives at the University of Chicago's Graduate School of Business. Author of: Credit Derivatives & Synthetic Structures (1998, 2001), Collateralized Debt Obligations & Structured Finance (2003), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, September 2008). Tavakoli’s book on the causes of the global financial meltdown and how to fix it is: Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street (Wiley, 2009).
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