reputation poker: Dimon the mad banker of Wall Street

GHARIB: As you know, there is a lot of anxiety out there that the financial crisis is not over, that there is another shoe to drop. What is the next big thing you are worried about in terms of credit quality?
DIMON: We go through this every five or six years and you can just go back in history. They are always a little bit different. But there are a lot of commonalities: Fear, specter of recession, credit assets, re-price, spreads re-price, etcetera. You`ve seen sub-prime, SIV, CDOs, CLOs (ph) and now it is monolines, municipals, wraps. But at the end of the day, those things will resolve and our system has resolved a lot of them. A lot has been de-leveraged. A lot has been paid off. A lot of problems have popped up are now gone. It`s not over yet, but you know, I would be surprised if the financial part of this isn`t over by the end of the year.
- February 14, 2008

In Matthew Josephson’s amusing history, The Robber Barons, there is a nice story about the young J.P. Morgan. After having done what any man on the move would do in 1861 – paying  a substitute to fight for him in the Union army – Young Morgan looked about him for opportunities. One of the knocked on his door, in the person of Simon Stevens. Stevens had stumbled onto a deal, by which he could buy 5,000 Hall carbines and sell them to the Union Army of the West, with which he had a contract. The beauty of the deal was that the carbines had been rejected by the government in Washington on account of the fact that they were defective – when used, they tended to explode, taking the thumb of the shooting soldier with them. “The quartermaster at Washington sold them for $3.50 apiece. “The government had sold one day for $17,486 arms which it had agreed the day before to purchase for $109,912,” comments the historian Gustavus Myers. That young Morgan knew of this situation is plain from the fact that after repudiation of the consignment of guns by General Fremont’s division, he bluntly presented his claim not for the money he had advanced, but for all of $58,175, half of the shipment having been already paid for in good faith.” 

Thus began the Morgan tradition of advancing money for products that tend to blow up in the users hands. Evolution and human kindness being what it is, the products are now called credit swaps. But the object is always the same: a quick buck, made with the poker face of propriety, and the compliance of a corrupt government.

Matthew Josephson and, for that matter, Gustavus Meyers, are dead. And so is critical business journalism. In the shitstorm about Morgan’s 3 billion dollars and counting losses from the desk of its London Whale, the NYT business page has been an exemplary mix of rather shocking news (once again, a big bank decides to make the big bucks by doing socially negative betting, gets dick handed to it on plate) and asskissing – since it seems to be obligatory that every story tell us that Jamie Dimon is some financial wizard, a brilliant CEO who led Morgan unscathed through the financial collapse.

The story is, of course, a crock. According to Table 8 (Borrowing Aggregated by Parent Company and Includes Sponsored ABCP Conduits) of the GAO report on the Federal Reserve’s Emergency Loan Program (a series of programs that lent  money at 1 percent or below), JP Morgan borrowed 391 billion dollars, making it the twelfth largest borrower. Now admittedly, in today’s dazzling new world of free funds for the wealthy, 391 billion dollars is peanuts. A quick and dirty guestimate of what that means? If in that climate Morgan had borrowed that much money at 6 percent, the interest would have come to 21 600 000 000. At 1 percent, the interest came to 3 600 000 000. Granted, these were loans that had very brief time periods – which meant, essentially, the Fed was giving the bank billions to play with, but pretending that the loan was not for a year, but for a day, a week, etc. Still, I don’t think making money when the government essentially hands you 18 billion dollars is that difficult. I think even I could do it. I’d like at least to try. Please Uncle Sam?

But here’s the fix: you will never, ever read a  report in the NYT that quotes the GAO report. The 16 trillion dollar loan jamboree held for the richest by the richest is a non-event in American journalism. Whereas certain events – such as Kim Kardashian’s weight and sexual life – are known in microscopic detail, down to the last tooth on the zipper of her K-Dash skirt – other events in America are too shocking for the eyes of the public. The continual and vast state support for the richest are super secret.

Thus, Roger Loewenstein, who used to be a good journalist, wrote a sycophantic piece about Dimon in the NYT two years ago that included grafs like this:
“The popular animus has come as a shock to Dimon. Recently, while entertaining a roomful of corporate clients over a tenderloin dinner, he felt the need to assert his and his industry’s worthiness. “I am not embarrassed to be a banker,” he noted. “I am not embarrassed to be in business.” In truth, Dimon has plenty not to be embarrassed about. He fulfilled a banker’s first obligation: he made sure his bank survived. This was thanks to his strategy of maintaining a healthy cushion of capital for a rainy day. When markets melted down and the economy plunged into recession, J. P. Morgan remained not only solvent but profitable every quarter. When other banks were refusing to lend, Dimon’s continued to offer credit to customers ranging from homeowners to Pfizer to the State of California. And when the United States needed a strong institution to bail out a failing bank, it turned — twice — to JPMorgan Chase.
Dimon sees himself as a patriotic citizen who helped his country in a time of crisis. Now the most visible face of Wall Street, he thinks banks and bankers have a role not only in rebuilding the economy but in coming up with remedies for the financial system. Critics say that, as a part — even a solvent part — of a failed system, he should be grateful for the government’s assistance rather than stridently critical, as he has been, of some of its reforms. Dimon, they note, took advantage of the crisis to acquire Bear Stearns and Washington Mutual, and J. P. Morgan emerged from the crisis as a vastly larger institution. That is a cause for alarm to 33 U.S. senators, who voted this spring for an amendment that would have forced big banks to dismantle. The country is deeply divided over the proper role, and the size, of banks, and nothing epitomizes these tensions quite like the narrative of Jamie Dimon.”
I especially like describing the takeover of WashMu as a patriotic act, instead of an act of typical elite gouging, in the spirit of those Hall Carbines of the Civil War era. JP’s spirit was doubtless pleased. Love of one’s country never felt so good.
So: read the news, and remember that there is nothing more tinpot than a reputation on Wall Street – except perhaps one on Pennsylvania Avenue.