THE STASH JUNE 28, 2009
In yesterday's Wall Street Journal, Jamie Dimon took a crack at something that's rapidly becoming a bona fide genre: the bank CEO op-ed that appears to support tighter regulation but doesn't really, at least not where it counts.
Dimon's piece starts off with the de riguer statement of regulatory hawkishness:
The restoration of our financial system to health does not give anyone the permission to return to "business as usual." The Obama administration has laid out a plan for regulatory reform that offers a strong platform for moving forward.
But, the more you read, the more you realize what Dimon supports is regulation for other people--namely, his competitors, many of whom aren't nearly as regulated as big commercial banks like JP Morgan Chase. To wit:
A big chunk of the activity that led to the current crisis took place in the shadows at financial institutions that weren't as carefully watched as banks. One ugly example that came from these companies: certain adjustable rate mortgages with absurdly low introductory "teaser" rates that didn't even cover the monthly interest on the loan ... [H]ardly any commercial bank regulated by the Office of the Comptroller of the Currency offered these products. Rather, these loans sprang from lightly regulated mortgage brokers and thrifts. ...
Another example is hedge funds and their growing role as major counterparties. Restoring stability to the entire financial system is going to require the ability to look at all systemically important activities, regardless of the type of institution, and to better oversee all institutions that are heavily connected to the system.
So Dimon wants tougher regulations for non-bank financial institutions like mortgage brokers and hedge funds. But what about regulations that'll affect his bank? Uh, not so much. For example, JP Morgan turns out to be the industry's largest dealer of derivatives, the instrument that went a long way toward wiping out the financial system. The company made a whopping $5 billion trading derivatives in 2008 alone. So how does Dimon feel about forcing the derivatives trade onto exchanges, which would make them more transparent, more standardized, but also erode the profits of derivatives dealers? Shockingly, he opposes it:
We applaud the administration's plans to expand the use of the central clearing house for standardized "over-the-counter" derivatives traded between significant financial institutions. However, let's not forget that businesses large and small still need customized derivative products to hedge risk. These products are not easily traded on an exchange, and there are serious economic, competitive and systemic consequences for doing so.
Having said all that, I find this op-ed pretty encouraging in that it suggests the administration will be able to use a divide and conquer strategy to enact its regulatory agenda. That is, because different regulatory reforms create different winners and losers (exchanges would benefit hedge funds, for example, by lowering the cost of trading derivatives), there are real splits among different subsectors of the finance industry, which can be played against one another. If I were the White House, I'd get Dimon and his fellow big bank CEOs on board for regulating non-bank financial institutions, which Dimon seems primed for. Then, once that's done, I'd get all the pissed off hedge fund managers and mortgage brokers out there on board to help rein in the big banks.