Elizabeth Warren and Jamie Dimon
Elizabeth Warren and Jamie Dimon

How is it that some people are able to aggressively promote the virtues of truth, transparency, and integrity within our financial system while others would seem to talk a good game but do not truly walk the walk? The key, in my mind, is that the former are not beholden to a constituency focused on short term maximization of profits and revenues. Who is distinguishing herself as a leader in this category? Elizabeth Warren, the current chair of the Congressional Oversight Panel to investigate the U.S. banking bailout.

Warren writes in today’s Wall Street Journal of Wall Street’s Race to the Bottom. This race is very much a function of implementing strategies and developing products that have served to maximize the short term revenues of these firms, while eroding the very foundation of the financial system itself.

Of particular interest in Warren’s article is her comment on Congressional efforts to develop a consumer finance protection effort and the response of Wall Street’s CEOs to this effort. Warren derisively singles out JP Morgan’s Jamie Dimon, Wall Street’s top banker. She writes:

The consumer agency is a watchdog that would root out gimmicks and traps and slim down paperwork, giving families a fighting chance to hang on to some of their money. So far, Wall Street CEOs seem determined to stop any kind of watchdog. They seem to think that they can run their businesses forever without our trust. This is a bad calculation.

It’s a bad calculation because shareholders suffer enormously from the long-term cost of the boom-and- bust cycles that accompany a poorly regulated market. J.P. Morgan CEO Jamie Dimon recently explained this brave new world, saying that crises should be expected “every five to seven years.”

He is wrong.

Dimon seems to accept the fact that markets and economies will tend to excess as a normal order of business. The fact is our economy and markets have ballooned every five to seven years since the late ’80s. But, is this normal? No. What drove the ballooning was the willingness and desire on behalf of both borrowers and lenders to implement excessive leverage across a wide array of asset classes, utilizing both sides of the balance sheet, and even moving off-balance sheet as well.

Wall Street pushed the leverage because it drove short term revenues.

Who failed?

1. Wall Street management.
2. Wall Street’s boards of directors.
3. Regulators of all stripes, including the SEC, FINRA, OCC (Office of the Comptroller of the Currency), FHFA (Federal Housing Finance Agency), and OTS (Office of Thrift Supervision).
4. Congressional oversight.

Warren is right. Dimon is wrong.

Blaming the market and economy for excesses in the natural ebb and flow of capital is shirking responsibility.

The aforementioned CEOs, boards, and regulators have a responsibility to protect and promote prudent and wise use of capital. If that practice hits short term profits, so be it. This obligatory prudence is their charge and it will promote long term fiscal health and free market capitalism.

When will Jamie Dimon, his fellow CEOs, the members of the boards, and the regulators have the balls to call for real transparency and take a stand for true capitalism in the process? America is waiting.

Thank you, Elizabeth Warren.

LD

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  • I’m a Linda too

    Great post, thank you.  Guess Dimon is just following Obama’s lead.

  • Jean

    Right.
    Open your eyes.

  • Anonymous

    I’m also enclosing another link that quotes Judge Hughes from a case against the FDIC that was wrapped up on August 24, 2005; http://blog.kir.com/archives/2005/08/judge_hughes_ha.asp

    “The record shows that the swap was the only reason for this suit. It also shows that the FDIC knew that it had no factual or legal basis for its claims, and that its cases here and in Washington were shams.”

    As usual, Judge Hughes is acerbic in his opinion regarding the FDIC’s conduct, noting in particular that FDIC officials “lied about it all under oath” and they “discarded the mantle of the American Republic for the cloak of a secret society of extortionists.”

    “It’s hard to find a word that captures the essence of the FDIC’s bringing this action. Irresponsible is close. Arbitrary, dishonest, exploitative, extortionate, and abusive all fit.”

    Judge Hughes concluded that Hurwitz and Maxxam “will recover their costs because the record reveals corrupt individuals within a corrupt agency with corrupt influences on it, bringing this litigation.”

    The Biggest Banking Heist in World History: Washington Mutual
    http://www.marketoracle.co.uk/index.php?name=News&file=article&sid=13894

    Please read this descriptive complaint that was submitted to the SEC from Apex Venture Advisors
    Mike Stathis Managing Principal on October 7, 2008 in regards to the manipulation that occurred;

    http://www.avaresearch.com/files/20090930175434.pdf

    http://wamuqd.com
    http://www.wamu-shareholders-resources.com/wamued.html
    http://www.wamucoup.com
    http://wamustory.com
    http://ghostofwamu.com

  • Anonymous

    Please, take some time and read these documents. Here is a link to all documents filed through the BK Court;

    http://www.kccllc.net/wamu

    Jamie Dimon planted “moles” in Wamu??? JPMorgan committed corporate fraud???

    http://www.kccllc.net/documents/0812229/0812229090501000000000002.pdf

    Wamu’s claims against JPMorgan/Chase;

    http://wmish.com/doc/gov/0603/JPM_V_WMI_-_ANSWER.PDF

    Debtors seek the Rule 2004 examination of the following Knowledgeable Parties: ”

    “The Regulators”
    FDIC – The Federal Deposit Insurance Corporation, in its capacity as receiver for WMB and in its corporate
    capacity,
    OTS – Office of Thrift Supervision
    OCC – Office of the Comptroller of the Currency
    Federal Reserve – Board of Governors of the Federal Reserve System
    Treasury Department – U.S. Department of the Treasury
    SEC – U.S. Securities and Exchange Commission
    Paulson – former U.S. Treasury Secretary Henry M. Paulson, Jr

    “The Rating Agencies”
    Moody’s – Moody’s Investors Service
    S&P – Standard and Poor’s Corporation (“S&P”)

    “The WaMu Suitors”
    Banco Santander – Banco Santander, S.A.
    Toronto-Dominion – Toronto-Dominion Bank
    TD Bank – TD Bank, N.A.
    Wells Fargo – Wells Fargo, N.A.

    “The Banks”
    FHLB-SF – Federal Home Loan Bank-San Francisco
    FHLB- Seattle – Federal Home Loan Bank-Seattle
    Goldman Sachs – The Goldman Sachs Group, Inc.

    “The JPMC Professionals”
    PWC – PricewaterhouseCoopers
    Equale – Equale & Associates
    Holt – Richard F. Holt
    Horne – David Horne, LLC

    http://www.kccllc.net/documents/0812229/0812229091214000000000008.pdf

    Please read this article;
    http://www.portfolio.com/industry-news/banking-finance/2009/12/07/why-federal-regulators-closed-washington-mutual/index.html

    http://seattle.bizjournals.com/seattle/stories/2009/12/14/daily18.html

    KTS9 Interviews Kirsten Grind “How Washington Mutual Could Have Survived…”
    http://www.youtube.com/watch?v=7HW7JjnoqGo

    Radio Interview by David Ross;

    http://www.youtube.com/watch?v=Zx-BNk4QnTY

    http://www.youtube.com/watch?v=Lra79RZztrM

  • Anonymous

    Wamu TRUTH

    PLEASE READ THESE COURT DOCUMENTS…..

    JPMorgan admits that the FDIC took over a solvent bank in one of the latest court documents…

    I’m enclosing a few more documents filed through the BK court in regards to a declaration of Thomas M. Blake (http://www.crai.com/ProfessionalStaff/listingdetails.aspx?id=1276 ).

    The declaration can be found in 103-4.pdf at http://www.mediafire.com/?sharekey=3b830df9f3d0e6fce7c82ed4b8f0c380aff12395630f22f3ce018c8114394287
    Quoting:
    12. Based on my review to date, there is no indication that the OTS performed a solvency analysis consistent with the test for insolvency specified in the Bankruptcy Code. There is no indication that the OTS assessed the fair sale-able value of the assets of WMB (or WMI). Nor is there an indication that OTS compared the fair sale-able value of the assets of WMB (or WMI) to the total amount of either company’s respective liabilities. There is no indication that the OTS performed a comprehensive cash flow analysis
    of WMB (or WMI). Instead, the OTS found that “WMB met the well-capitalized standards through the date of receivership.”8 Thus, without a thorough analysis of the assets, liabilities and capital of WMI and WMB, it is not possible to come to a reliable conclusion concerning the financial solvency of either entity, whether on a consolidated or stand-alone basis.

    Here is another document that says as of August 14, 2008:
    “We propose to decapitalize WMBfsb by returning $20 billion of capital to its parent. The $20 billion will include the master note of approximately $7 billion, proceeds from $3.5 billion of Discount Notes and cash generated through additional wholesale deposits and advances from FHLB Seattle. We propose the payment of at least $10 billion by September 30, 2008 and the remaining $10 billion through December 2009.”

    “The net balance sheet of WMBfsb will be approximately $34 billion to $36 billion after Project Fillmore. The leverage ratio will decrease to 25% from 62%. A well-capitalized institution requires an 8% or higher leverage ratio.”

    Read reference page 45 of DOCUMENT 103-1.pdf from here:
    http://www.mediafire.com/?sharekey=3b830df9f3d0e6fce7c82ed4b8f0c380aff12395630f22f3ce018c8114394287

    Included, is the form to the OTS requesting a decapitalization of WMBfsb. Pg. 117

    http://www.kccllc.net/documents/0812229/0812229100208000000000003.pdf

    Enclosed is a link to the affidavit of Doreen Logan who is the Controller/ Assistant Treasurer of Wamu who states that there was no liquidity problems;

    http://www.google.com/search?hl=en&ie=ISO-8859-1&q=%20Ex.%20D%20to%20Affidavit%20of%20Doreen%20Logan%20%28%201%20/07-3/08%20Account%20Statements%29%20A-46%20…&btnG=Search

    Remember, WMBfsb was also taken from the holding company and sold to JMorgan/Chase with all of the other assets for only $1.88bil…..

  • Jean

    Yeah Jamie is no Hero.
    Read the WaMu Story!

  • Glennmcgahee

    Wall Street bought Obama and gave him to us. Now that he has rewarded them and lost American’s confidence, they’ll move on to the other side. Always go with the winner, get the payoff and move along. What Jamie Dimon descibes is like going to the casino, only at least playing with your own money at the casino is fun and most know when to quit.

  • kenoshamarge

    You explained why she has been ignored for years very well: she’s a woman of character, she tells the truth and she explains things in understandable language.

    That means that all us peasants have a better understanding of what’s going on. Can’t have that.

    I also love this short and succinct list:
    Who failed?
    1. Wall Street management.
    2. Wall Street’s boards of directors.
    3. Regulators of all stripes, including the SEC, FINRA, OCC (Office of the Comptroller of the Currency), FHFA (Federal Housing Finance Agency), and OTS (Office of Thrift Supervision).
    4. Congressional oversight.

  • EllenD

    Perhaps she simply finds him the most likely to push for reinstatement of regulations. That would go a long way toward his rehabilitation.

  • EllenD

    Wow. That number 5 is a doozey. I don’t think I’ll ever see that happen.

  • Peggy Sue

    Agreed, Larry.  And it’s worrisome that jbjd found a “mutual admiration” between Warren and Frank. 

    That in itself requires more digging. 

    Thanks for the tip, jbjd. 

  • Linda C

    Here is another article from the NY times.  Obviously since the wall street folks don’t think they have spent wisely on democrats this election cycle are switching to the republicans.  I guess even a critique of these fools performance and the need for some type of regulations is enough for them to get their dander up in rightreous indignation threatening to buy republicans to get their way.  The republicans always ready to oblige.   Glen Greenwald had a nice article about it.
    http://www.nytimes.com/2010/02/08/us/politics/08lobby.html?hp

  • Larry Doyle

    Barney is a prime facilitator of the disasters known as Freddie Mac and Fannie Mae. 

    He is no hero. 

  • Peggy Sue

    Really appreciate your comments, guest.  Your background in the industry carries weight.  I wish we were hearing from more of your colleagues.

    And btw, I absolutely agree with your assessment of Gramm and Cox [though I have a layman’s knowledge of the financial landscape].  In IMHO, they did the American public a great disservice. 

    Hope to read more of your comments.

  • Anonymous

    Nothing wrong with Barney Frank. He is also a hero!

  • Alessandro Machi

    jbjd. That is interesting.

  • jbjd

    A couple of weeks ago, I heard Ms. Warren praise Barney Frank for pushing new regulation on financial services providers.  As she has been my heroine and I hold him largely responsible for the historical lack of regulation (that could have averted this mess), I cringed.  But, I did not investigate further.  Just now, I did a quick search for Elizabeth Warren and Barney Frank.  The results seem to indicate the admiration is mutual.  This needs a deeper read.

  • ChooChooMagoo

    Great post LD!

    Go Elizabeth Warren!  May her star go far and rise fast.  Our country needs her.

  • Guest

    I like how Elizabeth Warren tends to state facts rather than try to suppress them for her own ideological gain. If something sort of worked, then she will say it. If something is terribly wrong, she’ll say that too – and she has.

    Elizabeth Warren is a hero. 🙂

  • AC

    “When will Jamie Dimon, his fellow CEOs, the members of the boards, and the regulators have the balls to call for real transparency and take a stand for true capitalism in the process?”
    Probably never, which makes you keeping this on the front burner so important. I’ll make a note on my hand
    :-$
    Thanks Mr. Doyle

  • AC

    Another nice Washington Post article by Elizabeth Warren titled “Sick and Broke”
    Nobody’s safe. That’s the warning from the first large-scale study of medical bankruptcy.
    I’m on a roll–thanks oowawa.

  • dab

    Every time I happen to catch Elizabeth Warren, I leave knowing more than before.  She strikes me as one of the few totally honest, objective and well-informed TV commentators in existence today.  I also agree with Diane L.C. that she is crystal clear in her presentation and that more should listen to her wisdom.

  • Anonymous

    I have almost 40 years of experience as a retail banker and financial services provider. I opened, managed and served as country head in Spain, Korea, Canada and the US. I would like to contribute comments and blogs.
    It is not so difficult to find the people who should be held accountable for the financial meltdown of 2009. It seems, however, from 2001 until the present day nobody tries to find anyone responsible for anything.
    There are 2 people in government that bear the bulk of the responsibility for our financial meltdown as well as the presidents of all banks that participated in the approval of mortgages with substandard credit criteria and the packaging and selling of such mortgages as asset backed securities. Additionally, all of these banks had, or should have had, senior risk asset management committees who were equally responsible. In each case they understood the risks and didn’t care as long they increased compensation for themselves and their company
    As for the politicians, 2 of them bear the primary responsibility of these bankrupting financial policies. We need look no further than John McCain’s financial advisor Phil Gramm. Gramm, on Dec. 15, 2000, snuck into a congressional bill an act which prevents the government from regulating investment banks’ credit swaps. Gramm is the one who called Americans whiners and told us that the crisis was in our heads. McCain considered him for the position of Secretary of the Treasury.
    Equally responsible for our economic crises was the SEC chairman (Christopher Cox), who changed a key regulation in 2004. Under pressure from those who wanted to please their campaign contributing Wall Street buddies the SEC approved a measure that let investment banks lend out 30 times the amount of capital they had backing up their loans. Before 2004 they could only lend out 12 times the amount of capital.
    A solution to the banking meltdown that would prevent it from happening again would be:
    1) Reinstate the regulation of CDSs and CDOs by the SEC (assumes increasing head count & improving the quality of staff).
    2) Reinstate the 12 to 1 leverage ratio.
    3) Require increased capital by product where the riskier assets require more capital reserves
    4) Create a regulation that requires each sale of packaged assets by a bank or investment broker to provide some percentage of recourse to the purchaser.
    5) Make the board of directors have fiduciary responsibly to stock holders and face fines and civil charges

  • Peggy Sue

    I’m a big fan of Elizabeth Warren.  People seem to be listening to her more right now, but in truth she’s been ringing these alarm bells all along.  Her real talent is being able to dissect and explain the issues in understandable language.  In addition to that, she’s impressed me as a woman of character; she tells the truth.  And that, sadly, seems to be a lost art in DC [and on Wall St.].

    Thanks for showcasing her comments, Larry.  This is a voice I can believe in!

  • Alessandro Machi
  • Diana L. C.

    Thanks, Larry!  It means much to me that you mention Elizabeth Warren as someone to listen to.  Every single time I’ve heard her speak, I go away wondering why she can be so clear and can seem so logically correct in her opinions and others seem just to ignore her.  So I listen to Larry Doyle and Elizabeth Warren. 

    I just apologize to both of you that my influence over Wall Street is zilch, nada, non-existent.

    :'(

  • arabella trefoil

    I agree. Well done, Elizabeth Warren. Looking at the short term is part of what got us in this mess in the first place.