May 14, 2012
Elizabeth Warren, the one-time congressional overseer of the Wall Street bailout, has a suggestion for how CEO Jamie Dimon can best respond to JPMorgan Chase’s stunning $2 billion trading blunder – resign from the New York Federal Reserve Board as a “public acknowledgment that he is in a position of trust.”
Warren, the leading Democratic candidate for a Senate seat in Massachusetts, said Monday on CBS “This Morning,” “I’d like to see some real accountability here. I’d like to see Jamie Dimon, for example, resign from his position as a Class A director of the New York Federal Reserve Bank.”
Dimon acknowledged again over the weekend that his megabank’s “egregious" high risk bet was “sloppy” and stupid.” By the time the full story of this epic Wall Street trading disaster surfaces, some may be calling for Dimon’s head. But for now, J.P. Morgan Chase has pointed its finger at others, including Ina Drew, the company’s chief investment officer, and two high-ranking traders.
The bank said that Drew, 55, who pulled down $14 million in salary and benefits last year, retired today after more than 30 years with the company, according to Reuters. She will be replaced by Matt Zames, an executive from JPMorgan’s investment bank, according to the Associated Press. Two others – Achilles Macris, a top JPMorgan official in London, and Javier Martin-Artajo, a senior London trader, are also heading for the door, according to The New York Times.
Asked today whether Dimon should suffer even a greater penalty than losing his seat on the board of the New York Fed, Sen. Robert Menendez, D-N.J., a member of the House Banking, Housing and Urban Affairs Committee, told MSNBC, “Well, that will be for J.P. Morgan Chase and its shareholders to decide. But what I really care about is not an individual, I care about a system and having the system controls to insure that no matter who is at the head of a company, this can’t happen.”
The trading losses -- which have driven JPMorgan’s stock down by nearly 12 percent since the losses were first disclosed -- are under investigation by federal regulators. The beleaguered Dimon will face shareholders at the company’s annual meeting on Tuesday. At one time, there was speculation that Dimon was on the short list to succeed Treasury Secretary Timothy Geithner when he finally steps down, but that seems out of the question now.
The $2 billion investment blunder reportedly stemmed from the bank betting on a continued economic recovery through a complicated series of trades linked to the values of corporate bonds. The strategy went amiss when prices moved the wrong way last month causing huge losses in many of J.P.Morgan Chase’s derivatives positions.
Dimon said in an interview on Sunday's “Meet the Press” that he was “dead wrong” when he pooh-poohed concerns about the bank’s trading last month. “We made a terrible, egregious mistake,” said Dimon, a powerful and brash figure who is known as the “King of Wall Street” by some. “There’s almost no excuse for it.”
Dimon has said the trading in credit derivatives was designed to hedge against financial risk, not to make a profit for the bank. A derivative instrument is a contract between two parties that specifies conditions –especially the dates and resulting values of the underlying variables -- under which payments, or payoffs, are to be made between the parties.
A section of the Obama administration financial overhaul legislation known as the “Volcker rule” would bar banks from certain kinds of trading for their own profit. Dimon has said the trading involved in the $2 billion loss would not have fallen under the rule. But Rep. Barney Frank, D-Mass., a chief architect of the overhaul legislation, told ABC’s “This Week” that he hopes the final version of the Volcker rule will prevent the type of trading that led to the massive loss at J.P. Morgan. Dimon conceded to NBC that the bank “hurt ourselves and our credibility” and expects to “pay the price for that.”
Dimon and other Wall Street executives have complained about the financial overhaul legislation enacted last year in the wake of the historic meltdown of the banking and financial industry, and have pushed to weaken the law. Asked what price J.P. Morgan should pay for its blunder, Sen. Carl Levin, D-Mich., said that banks would lose their fight to weaken the rule.
“This was not a risk-reducing activity that they engaged in. This increased their risk,” Levin told NBC. “So we’ve got to be very, very careful that the regulators here are not undermined by this huge effort to weaken the rule by putting in a huge loophole” that includes the trading involved in the JPMorgan loss.
Clearly, the administration agrees. White House Press Secretary Jay Carney told reporters today, “It is amazing, given the events that we’ve seen in these last few days, that there are still those...who are out there arguing that we should repeal Wall Street reform, that we should let Wall Street write its own rules again.”
Warren, the former chair of the Congressional Oversight Panel that monitored the federal bailout of the banking and financial industry, said today, “Jamie Dimon has been the one who has led the charge in order to say, ‘nope, no more regulation,’ fight[ing] back against regulation, call[ing] the regulation un-American, try[ing] to resist, try[ing] to put loopholes into regulation, hir[ing] an army of lobbyists. This has really got to stop.”
The problem, Warren argued, was greater than the JPMorgan loss itself, but what it showed about the attitudes on Wall Street. “What happened here is not just about JP Morgan case, it’s about the kind of attitudes, that the bank should be regulating themselves instead of having real oversight… we have to say as a country, no, the banks cannot regulate themselves,” she said. “They are financial institutions that run the risk of taking down everyone’s job, run the risk of taking down everyone’s pension, run the risk of taking down the entire economy. And that means it’s appropriate to have some government oversight.”