If Jamie Dimon can achieve much higher valuations for Chase and "potentially release tens of billions of value to his shareholders" then why hasn't he done it?
Shelia Bair (bio) has been vocal since she retired from chairing the FDIC (Federal Deposit Insurance Corporation) and last month called for the breakup of of J.P. Morgan Chase saying it would be good for shareholders and taxpayers.
...banks of the size and complexity of J.P. Morgan Chase, Citi (C), and Bank of America (BAC) are just too difficult to manage, even for talented managers like Dimon. Whatever economies the megabanks achieve from their size are more than offset by the challenges in managing trillion-dollar institutions that are into trading, market making, investment banking, derivatives, and insurance, in addition to the core business of taking deposits and making loans. This is one of the reasons why, even before the crisis, their shares performed more poorly than those of the well-managed regional banks, and continue to do so.Maybe Dimon hasn't maximized returns because he's out of control of a TBTF. After all, TBTF is probably equivalent to TBTSucceed.
Given the poor shareholder returns, why are these unstable behemoths allowed to exist? There is the perception that the government will not let them fail. Also, their size and complexity protect them from market pressure, and shareholder activists with a mind to break up the big banks are stymied by the megabanks' complex web of thousands of legal entities.
In Washington no one is seriously discussing breaking up the big banks. That said, the best chance of restraining these giants is the hugely important regulatory reform, now being implemented by the FDIC and the Fed, that forces the banks to produce "living wills." These rules require that big banks map their business lines to their legal entities. So, for instance, Chase and others would have to identify the legal entities that support their investment-banking operations, their trading and brokerage activities, their commercial and retail lending, and so forth. The idea is to have a credible breakup plan in place if they get into trouble.
There's something comforting and, yes, patriotic, about people who've completed their careers returning to the forefront to fix what was left behind. Like the old time family doctor, they know the details, skeleton burial grounds, festering wounds, and seeds of sickness yet to hit.
Shelia Bair recently published a WaPo op-ed from which I took the title of this diary. and which nicely exposes her bias.
Fix income inequality with $10 million loans for everyone!The consequences of the US government's complete failure to regulate the multinational finance industry is a failure to protect and defend this nation. It's like having a $400 billion a year military with no armed fighters in the air on September 11, 2001. Unimaginable, right?
Are you concerned about growing income inequality in America? Are you resentful of all that wealth concentrated in the 1 percent? I’ve got the perfect solution, a modest proposal that involves just a small adjustment in the Federal Reserve’s easy monetary policy. Best of all, it will mean that none of us have to work for a living anymore.
For several years now, the Fed has been making money available to the financial sector at near-zero interest rates. Big banks and hedge funds, among others, have taken this cheap money and invested it in securities with high yields. This type of profit-making, called the “carry trade,” has been enormously profitable for them.
So why not let everyone participate?
Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on. The more adventuresome can buy 10-year Greek debt at 21 percent, for an annual income of $2.1 million. Or if Greece is a little too risky for you, go with Portugal, at about 12 percent, or $1.2 million dollars a year. (No sense in getting greedy.)
Of course, we will have to persuade Congress to pass a law authorizing all this Fed lending, but that shouldn’t be hard. Congress is really good at spending money, so long as lawmakers don’t have to come up with a way to pay for it. Just look at the way the Democrats agreed to extend the Bush tax cuts if the Republicans agreed to cut Social Security taxes and extend unemployment benefits. Who says bipartisanship is dead?
And while that deal blew bigger holes in the deficit, my proposal won’t cost taxpayers anything because the Fed is just going to print the money. All we need is about $1,200 trillion, or $10 million for 120 million households. We will all cross our hearts and promise to pay the money back in full after 10 years so the Fed won’t lose any dough. It can hold our Portuguese debt as collateral just to make sure.
Because we will be making money in basically the same way as hedge fund managers, we should have to pay only 15 percent in taxes, just like they do. And since we will be earning money through investments, not work, we won’t have to pay Social Security taxes or Medicare premiums. That means no more money will go into these programs, but so what?...
Look out 1 percent, here we come.
Given the government has still not regulated synthetic collateralized debt obligations or derivatives such as swaps, that Jamie Dimon not reorganized Chase to reduce the risk to his company and the nation, and that he doesn't even have a clue if Chase lost $2 billion, $5 billion or $7 billion, and none of the 100 or so "federal regulators" in his office do either, it is unreasonable to expect that the US government has done anything whatsoever in all this time to mitigate a national crisis from a Euro crash or even a repeat of the 2008 financial crisis.
The folks in Washington DC, the Boards and CEOs are not meeting their generation's call to arms. Maybe they're just distracted with the size, scale, and complexity of the integrated messes they've created. Billion dollar elections. When it all falls down guess who's going to be at the bottom of the heap?
I just wanted to take this moment to thank Shelia Bair and all of the hard working Americans who keep plugging away hopeful that someone will connect the dots and arm the jets in time.