Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
It's Five Nights at Freddy's Again! - 12th Jan 25
Squid Game Stock Market 2025 - 5th Jan 25
Stock Market Bubble Drivers, Crypto Exit Strategy During Musk Presidency - 27th Dec 24
Gold Stocks’ Remain Exceptionally Weak Even as Stocks Rise - 27th Dec 24
Gold’s Remarkable Year - 27th Dec 24
Stock Market Rip the Face Off the Bears Rally! - 22nd Dec 24
STOP LOSSES - 22nd Dec 24
Fed Tests Gold Price Upleg - 22nd Dec 24
Stock Market Sentiment Speaks: Why Do We Rely On News - 22nd Dec 24
Never Buy an IPO - 22nd Dec 24
THEY DON'T RING THE BELL AT THE CRPTO MARKET TOP! - 20th Dec 24
CEREBUS IPO NVIDIA KILLER? - 18th Dec 24
Nvidia Stock 5X to 30X - 18th Dec 24
LRCX Stock Split - 18th Dec 24
Stock Market Expected Trend Forecast - 18th Dec 24
Silver’s Evolving Market: Bright Prospects and Lingering Challenges - 18th Dec 24
Extreme Levels of Work-for-Gold Ratio - 18th Dec 24
Tesla $460, Bitcoin $107k, S&P 6080 - The Pump Continues! - 16th Dec 24
Stock Market Risk to the Upside! S&P 7000 Forecast 2025 - 15th Dec 24
Stock Market 2025 Mid Decade Year - 15th Dec 24
Sheffield Christmas Market 2024 Is a Building Site - 15th Dec 24
Got Copper or Gold Miners? Watch Out - 15th Dec 24
Republican vs Democrat Presidents and the Stock Market - 13th Dec 24
Stock Market Up 8 Out of First 9 months - 13th Dec 24
What Does a Strong Sept Mean for the Stock Market? - 13th Dec 24
Is Trump the Most Pro-Stock Market President Ever? - 13th Dec 24
Interest Rates, Unemployment and the SPX - 13th Dec 24
Fed Balance Sheet Continues To Decline - 13th Dec 24
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Jamie Dimon: JPMorgan's Chief is the World's Funniest Financier

Companies / Banking Stocks May 15, 2012 - 09:25 AM GMT

By: Janet_Tavakoli

Companies

Best Financial Markets Analysis ArticleSure 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 Tavakoli

web 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).

© 2012 Copyright Janet Tavakoli- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in