By Michael Crimmins, who has worked on risk management and Sarbanes Oxley compliance for major banks
Two former finance and political influence gods (Jon Corzine and Jamie Dimon) have tumbled back to earth. Yet, troublingly, the mythology that’s cowed the political establishment and the financial press for so long remains very much intact.
Almost without exception, mainstream commentators are still desperately trying to frame the train wrecks at MF Global and JP Morgan as outliers, tail risk situations, if you like. They seem unable to acknowledge that that these were simple cons, while dutifully reporting them as examples of ‘regulatory arbitrage’.
The term is appropriate, but it’s fancy enough to be off-putting to the folks who can spot a con a mile off and who would normally be enraged enough to take to the streets if these scams were framed in simpler terms.
Consider the backhanded compliment the financial press and the regulators, even PBS, bestowed on Occupy the SEC and the OWS Alternative Banking group. These outlets acknowledged that the barriers to entry to protest against bankster abuse can be breached, yet missed the real point: those barriers are lower than the banks and politicians believe they are. The various specialist groups in Occupy Wall Street prove that opposing a corrupt oligarchy isn’t attractive only “dirty hippies” but also to academics (Simon Johnson and Amat Admati), former and current regulators (Sheila Bair, Andrew Haldane) and industry professionals (the members of the aforementioned OWS groups); They also fail to get on board with the concept that the banksters’ line should be challenged even though that’s supposed to be the role of a free press….
The OSEC comment letter was wonky enough to ensure it couldn’t be ignored, but the real objective was to call the too-clever-by half banking lobby and their enablers out in plain language. As a first step in alerting the powers that be that the Occupiers and the folks they represent will be heard, I like to think it was effective.
Dimon and Corzine have made the second step, translating the fancy regulatory arbitrage language into plain English, much easier.
In Corzine’s case, the entire business model for MF Global was built on a simple scam. Pretend that one part of MFG took a huge and risky position and ‘sold’ it, or as accountants call it, “de-registered” it. The fact that it sold it to itself could and would be ignored by most everybody that mattered. From a US perspective, all appeared to be well. It doesn’t matter too much that the MFG London guys were stuck with the risk, since there was a side deal with the US that’s not reported anywhere, that the US unit will (wink) cover London’s risk. This is bucket shop level scamming and its good work if you can get it, until those greedy London counterparties start making margin calls. Shit hits fan and you end up with dopes like assistant Treasurer Edith O’Brien pleading the Fifth. Every back office in every major bank is fully staffed with ambitious enablers like O’Brien who convince themselves that they have the goods on their bosses. It’s hard to find clearer signals that this is a third rate con, even if you can’t quite put your finger on exactly where the legal liablilty is.
In Dimon’s case the con was more complex, but no more elegant than Corzine’s. Dimon controlled a book that was larger than the combined trading books of his entire mega-bank’s trading operation. The fact that this book wasn’t even on the radar screen of it primary regulator, the OCC, screams for a Saturday night massacre purge of the staff incoming OCC head Thomas Curry has inherited, beginning with General Counsel Julie L. Williams.
In his testimony today, Curry signaled that he was the new sheriff in town at the OCC and that he was cognizant of its reputation as the coziest-to-bankers regulator. William’s lurking and agitated (and kind of creepy) presence over his left shoulder was great theater, but I’m not sure what it was meant to project. Retiring her tomorrow would be my highest priority if I were in his shoes.
Dimon’s scam is actually easier to debunk than Corzine’s. There was an over $300 billion ‘investment portfolio’ that needed to be hedged. Apparently it had been managed, until the Treasurer quit in 3Q 11 (quietly- although the regulators are notified of key-man gaps, so JPMs regulators were aware there were significant control gaps at YE). This wager looks a lot like AIG’s gamble that writing CDS was free money. This risk position was housed in the CIO but was additive and unrelated to the hedging of the $300 billion investment portfolio.
This portfolio is Dimon’s great crime and scam, in my mind. It was not a hedge of the tail risk of the
$300+ billion investment portfolio. Nor was it a hedge of the tail risk the rest of JPM’s banking book. It was purely a gambler’s flyer (with the backing of the US government’s full faith) that heads I win tails you lose. And the media has not focused on the fact that the risk in this portfolio eclipsed the risk taken in the rest of JP Morgan.
I think its past time to ask Jamie to retire.
For me the bottom line is simple. If I could convince the regulators that the law (Dodd-Frank- Volcker) gave me free rein to do what ever TF I wanted to, then I would be tempted to do that. If I could convince the rulemakers that what I was complying with the letter of the law and making money, I would do that. If it came to light that I was actually losing money because you dopes let me do that, I’d blame it on you.
I’m a bankster. Catch me if you can.
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Thank you Michael for a very succint article. While we’re at it how refreshing would it be if the Washington Post would stop referring to Lyin Dimon as “charismatic”, the New York Times would finally stop repeating the lie that Chase escaped the 2008 meltdown by being “better managed.” Hey, if the Fed loans you $30 Billion to pick over the bones of Bear Stearns, the FDIC sells you WaMu for $1.1 billion and then throws in for free a $39 Billion loan portfolio, and then as a bank you go to the Fed emergency lending facility for more than $100 Billion in emergency loans, YOU ARE NOT WELL MANAGED. And, on top of all that largesse you get greedy and try to corner an obscure credit derivative and get hooked into $100 Billion in liability – YOU ARE NEITHER CHARISMATIC NOR A GOOD MANAGER. You are a greedy lowlife for whom retirement is too good an outcome. Disgrace and dishonor for Mr. Lyin Dimon. Nothing less will do. And yes, I am holding back.
The Washington Kaplan objectively print faux shreds of media neutrality? Exhibit A, the pay for access health care scheme. Bombs away!
He should be swinging.
Superb comments. We are stuck in a reality warp. Reminds me of the priests telling Galileo that the earth WAS the center of the universe. “Banker Thrall” is so refined, so well-constructed, so carefully built over so many years, that it will take an awful lot of truth-telling to expose it. Let’s hope we can do it before the next ‘suicide banker’ attack. You know, the guys like Paulson who come to us and say “GIVE ME $700 BILLION RIGHT AWAY OR I’M GONNA BLOW UP THE WORLD!”
Nice posting. Thanks and lets continue to shame and laugh these retards out of control of our world.
Nationalize the FED!!!!
My President says that Messrs. Dimon and Blankfein are “very savvy business men.” He went on to add, “And I, like most of the American people, don’t begrudge people success or wealth. That’s part of the free market system.”
You just have to learn bankster slang.
“Very savvy business men”
Translation:
“F’ing crooks”
There’s one item that seems to be missing in the press accounts – another question that the media and it’s horde of reporters fail to ask.
Why is it that Jamie boy is able to personally request and receive an audience with the regulators, an audience in which he is able to present a compelling argument ?
I mean since this is a democracy will folks like Occupy the SEC and the OWS Alternative Banking group also be able to request audiences and provide arguments ? Surely these folks can provide arguments just as compelling.
Or maybe even the press can make a compelling argument that they to should have a seat at the table if only to make fawning reports.
For us students trying to follow this at home, there appear to be edits needed to bring clarity to this otherwise promising and righteous piece of writing.
In the paragraph that starts: “Dimon’s scam is actually easier to debunk than Corzine’s . . . ” there is an open parenthesis but no subsequent closed parenthesis.
And, in the same paragraph, the phrase “significant control gaps at YE wager looks a lot like . . . ” seems to be a fractured sentence. It appears as if words were dropped between “YE” and “wager”.
Third, the relationship between the $300 million investment portfolio and its hedge, housed in the CIO office, is not entirely clear due to the compressed description and possible dropped words.
I’m really trying to understand this stuff and I kind of want an appointment during the teacher’s office hours for a little help with my homework. :)
The paragraph is
forget “the paragraph is” in the last line.
That should have been deleted but I didn’t see it before I hit “Submit Comment”
Friends;
To this ‘man on the street’ it looks as if the gentleman has made the case for two prosecutions under the RICO statute. Failing that, where is the “Wall Street Committee of Vigilance” when you need it? Finally, where is the up and coming politician who has noticed the sterling opportunity for populist career advancement this situation offers? (So far, the ‘high profile’ “reformers” have sold out.)
Four years ago I predicted that would be Coumo. Shows how little I know. And, Coumo’s total inaction on banker crime seems not to have hurt him one whit. Guess he knew where his funding would come from.
“Yet, troublingly, the mythology that’s cowed the political establishment and the financial press for so long remains very much intact.
Almost without exception, mainstream commentators are still desperately trying to frame the train wrecks at MF Global and JP Morgan as outliers, tail risk situations, if you like.”
This reminds me of the News of the World/Rupert Murdoch scandal in Britain. So many British politicians cowed by Murdoch and his team; so many reporters (not to mention Murdoch himself) anxious to portray the eavesdropping incidents as “outliers”. Somehow, though, I don’t think we’ll see the same level of investigation and retribution here that occurred in England.
“I think its past time to ask Jamie to retire.”
Retire? Why? That guy needs to be arrested for money laundering, embezzlement, theft and you name it. He needs to be where Madoff is and for much, much longer too. Madoff was a low-hanging fruit compared to anyone of those CEOs. More power, more visibility, much larger salaries and incentives means more responsibility in the scams. That’s all there is to it.
Michael, this post leaves me wanting something more than wonkish recommendations from OSEC. Please don’t misunderstand me, I think it is great that savvy professionals helped the protesters create a cogent argument. That’s great – but it is not enough. I want investigations, indictments, prosecutions, and incarceration. Would it be possible, given currently accessible information and whatever may be available through FOIA to empanel a citizens grand jury and indict the bastards? And if the courts won’t hear our cases, well then it may be time to reinstate the Committee for Public Safety.
In olden days, they would put people in stocks and let passersby denegrate them. Don’t you think it’s high time we bring back this practice? Put them in stocks in front of the bull. I have been saving some rather rotten eggs just for this kind of fun.
The scams may be simple but I could use an explanation that’s as simple as the Underpants Gnomes:
For each con, what’s step two?
What’s “YE”?
Year end. Or, hear YE hear YE, the court is now in session, the People Vs Jamie Dimon…….
The directors haven’t ousted him from his seat on the NY Fed, which would be purely symbolic of course, but the people aren’t focusing on Al Qeada at the moment. Remember, Dimon and the goons ‘paid some’ in broad daylight for stormtroopers to protect and serve their interests alone. Step out a line’ bam!
Even the event of charges being laid on the banksters, judges being summoned, investigations completed and presented by prosecutors and much deliberation taking place…corruption is too widespread in all governances and institutions to thwart imprisonment. Irony is a great…a great MLB pitcher (a former Red Sox, Yankee and Blue Jay) has the cards stacked against him in court for the alleged use of a drug or whatever…and the full force of the law brought to bear without doing harm to any other person. Don’t you love the absurd contradictions in American life. Empires fall apart from within.
Great post, Michael.
“I’m a bankster – catch me if you can.” Catchy slogan — t-shirts? Bumper stickers? A nighttime projection on the JPM building?
Oooh, I really like the idea of projecting slogans on the sides of Wall Street buildings. The possibilities truly boggle the mind. I suspect they’d sue you silly, but boy, it sure would be fun.
One of NYPD’s jitteriest moments during Fall 2011 OWS events was when the OWS letters were projected at night on the side of a building downtown visible from the B Bridge and many points North, East and South. There’s a youtube somewhere on the WWW. I believe that a small army (of Bloomberg’s “soldiers”) scoured a certain area to find the projecting culprit but don’t remember if anyone was “caught.” Clearly there was no illegal conduct involved, so it would be even more interesting to find out what happened if someone/some people were nabbed. New project!
The projection was mysterious and powerful — a silent image in the night speaks louder than 10,000 slogans shouted at a march.
Brilliant idea. Pass it along to OWS.