Former NY Gov. Eliot Spitzer Criticizes Jamie Dimon

by John M. Curtis
(310) 204-8700

Copyright May 15, 2012
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               Calling for JP Morgan Chase & Co’s CEO Jamie Dimon to step down from the New York Fed, former New York Gov. Eliot Spitzer, sees egregious conflicts-of-interests for the 56-year-old bank president.  Spitzer, a former U.S. Attorney, New York Attorney General and governor, resigned his office March 17, 2008 in disgrace after a prostitution scandal hounded him out of office.  Spitzer’s post-mortem commentary on a $2-3 billion trading loss at JP Morgan goes over the top, blaming Dimon for everything but the kitchen sink.  Dimon set himself up for critics like Spitzer after openly criticizing President Barack Obama’s 2010 financial reform that tried to rein in banks’ shady investment practices.  Whatever mistakes were made by Dimon’s former Chief Investment Officer Ina Drew, they don’t reflect unfavorably on Jamie’s leadership or JP Morgan’s banking practices.

             When the financial crisis hit in 2007, JP Morgan under Dimon’s leadership weathered the storm better than any other U.S. bank.  Spitzer criticizes JP Morgan’s too big to fail, or, as Eliot put it, too big to succeed status.  In reality, JP Morgan’s $2 trillion in overall assets provided shareholders and depositors the best cushion against the record economic meltdown, forcing Federal Reserve Board Chairman Ben S. Bernanke and former President George W. Bush’s Treasury Secretary Henry “Hank” Paulson to print more currency under the Toxic Assets Relief Program [TARP] to provide cash to insolvent banks.  Paulson practically forced Dimon to take $25 billion in TARP money to make it OK for other cash-strapped banks to do the same.  While much criticsm in 2007-08 centered on banks’ reckless derivative trading, JP Morgan’s recent loss threw financial markets for a loop.

             Considered above the fray and actually profiting during the 2007-08 meltdown, Dimon and his CIO executed trades that made the company billions.  Forcing Ina out was a hypocritical damage control strategy that shoots JP Morgan in the foot.  Ina has more than earned her keep at JP Morgan during Wall Street’s most tumultuous years since the Great Recession.  While it’s one thing to fire functionaries at its London trading desk, like Achilles Macris and Javier Martin-Artago, it’s another thing to ignore Bruno Iksil, the so-called “Blue Whale” that routinely traded massive credit default swaps.  Whatever JP Morgan does to clean house, firing Drew doesn’t fix the current trading scheme where banks routinely play the derivatives market.  Pointing fingers at Drew or Iksil doesn’t address the easy money and false profits made today by banks routinely playing the derivatives market.

             Spitzer hopes his vocal barbs restore his own credibility after getting ejected from the governor’s mansion.  “Jamie’s problem . . . is he’s running an institution that’s not too big to fail, it’s too big to succeed and too big to manage,” said Spitzer, calling on Dimon to step down from the NY Fed.  Facing shareholders at its annual meeting In Tampa, they rejected a move to have Dimon step-down as chairman.  Had the losses not occurred or been of less magnitude, Spitzer wouldn’t’ be asking for anyone to step down.  Given his own resignation as governor for using high-end prostitutes, it’s bizarre Spitzer would be so critical.  After all, what really happened other than JP Morgan getting burned in a high-risk trading loss?  “The size, commingling of purposes and lack of management capacity when you get to this scale tells me something went wrong,” said Spitzer calling for JP Morgan to be broken up.

                JP Morgan’ size is it biggest strength to weather the kinds of financial storms that practically brought down the economy in 2007-08.  If anything went wrong at JP Morgan’s London’s trading desk, that’s not an oversight problem, or one resulting from unwieldy chaos.  Dimon knew the kinds of wheeling-and-dealing going on by Iskil at its London trading desk, including the ill-fated CDS transactions.  Spitzer suggests that Dimon should resign from the NY Fed because he’s trying to influence Fed policies on banking regulations and oversight.  Spitzer knows that Fed or Treasury officials aren’t swayed by one person or another.  Whether or not they put teeth into financial reform, including adopting the so-called “Volcker Rule” about preventing banks from profiting from derivatives, it’s by consensus.  Recent trading losses at JP Morgan could spark stricter federal regulations.

             No one, including Dimon, wants a repeat of the 2007-08 financial meltdown.  If fast-and-loose derivative trading caused the past mess and recent losses at JP Morgan, then it’s time to revisit bad investment practices.  When former President Bill Clinton signed Gramm Leach Bliley in 1999, giving banks more investment opportunity, it wasn’t intended to destroy the stock market and U.S. economy.  Former Fed Chairman Volcker wants some of Glass-Steagall’s sanity returned to the banking industry.  Whether or not it sacrifices some of the industry’s easy money and false profits is anyone’s guess.  When Congress passed the Glass-Steagall Banking Act June 16, 1933, it was supposed to prevent another stock market crash and Great Depression.  Whether admitted to or not by banking CEOs, today’s wild-and-wooly investment practices put shareholders and depositors at too much risk.

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