(Originally published June 27, 2012, in Capital, here.)
Bankers are funny people.
For example, who didn’t have a good laugh recently when Jamie Dimon appeared before the U.S. Senate Committee on Banking, Housing and Urban Affairs in Washington? He’s Chairman and CEO of JPMorgan Chase and you might remember that JPMorgan had an “oops, sorry” moment recently and permanently misplaced more than $2 billion.
Mr. Dimon was called to Washington to explain.
Firstly, the only reason the bank bet all this money was because of new Basel capital requirements that said it had to reduce risk. Huh? So you see, in a way, it was the regulators’ fault. Secondly, it’s really not that big of a deal. It’s only a few billion dollars and “while this incident is embarrassing,” he said, the losses “should be put into perspective.” It won’t detract from customer service. Phew. Thirdly, JPMorgan promises, really, it will try not to do this again. It means it this time. So what’s all the fuss?
Now if that’s not funny, what is?
In a way, he’s right. A handful of billions is not that important to JPMorgan. It has $190 billion in equity and $30 billion in loan loss reserves. That trading loss was not even a haircut; it was more like a trimming of eyebrows.
And there’s the problem. When institutions become so big that a few billion dollars is no longer heart-stopping, all perspective has been lost. The bank can absorb (or create) losses that would topple countries. “We have a couple trillion in assets, one-quarter of a million employees, and more equity than the US government – and you want to tell us what to do?” That’s what he should have said.
By the way, we don’t need Vickers, or Volcker, or Glass-Steagall. And speaking of government intrusion, let’s get rid of child-proof caps, too. So few children get poisoned nowadays. They’re so much smarter than children used to be.
In fact, when you read his remarks, you realize Mr. Dimon should be going to Washington to be thanked. Look at all the good the bank is doing, he said. All those loans to consumers, mid-sized companies, international corporations. The bank hired veterans. It even created a new payment card. Wow!
It reminds me of the town baker extolling the fact that thanks to him, low-income families, small businesses, widows and orphans have enough bread to eat every day. Look what a good citizen he is! Nevermind he’s a baker. He’s supposed to bake bread. And nevermind he makes millions of dollars in profit – from us. We should be grateful. (So what if his bread makes us sick sometimes? Oops. Sorry.)
In my two dozen years involved with banking, the smartest chairmen I met knew that the business was simply borrowing some people’s money, keeping it safe, and lending it to others. That’s it. That’s banking.
Then again, at Bank of America we had nearly 300,000 employees and more than $2 trillion in assets. The centrally planned company was like working for a small communist country. Run mostly by white men who formed a close-knit network of power sharing and suspicion with initiatives greased by paranoia, megalomania, and avarice – all for the good of the “stakeholders.”
And the fact is many of us were not bankers. We ran a casino, a money factory. We borrowed money, sliced it, bent it, carved it, shaped it, bet it, and eventually, lost it.
But it’s ok now. “We will learn from this incident and my conviction is that we will emerge from this moment a stronger, smarter, better company,” Mr. Dimon concluded. What? Did your bank miss that day in class in 2008 about the risk of trading things you don’t understand?
The reality is I love banking. And I did, for a moment, worry that Mr. Dimon thinks maybe we’re stupid enough to believe him. But no, that can’t be. That would not be funny.