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It takes talent to lose $2 billion

May 19, 2012|By TIM ROWLAND

“We are going to pay competitively; we need top talent, you cannot run this business on second-rate talent.”

— JPMorgan Chase CEO Jamie Dimon


It probably does take top talent. I doubt most of us could lose $2 billion if we tried. So now comes Dimon (who is by no means the worst of the Wall Street lot) blaming that supposed top talent for “errors, sloppiness and bad judgment” in a harebrained corporate-investment scheme that looks all too much like the harebrained housing-investment scheme we are still recovering from.

You remember the initial “credit default swap” travesty — it was really just a fluke and would never be repeated in a million years because, well, you know, Wall Street learned a lesson so it’s all cool — no need for any new regulations on dumb financial behavior or anything.

Except that it did happen again, when traders basically fabricated pretend banks to make pretend loans to pretend corporations. The only thing real was the money that was bet on how well these pretend corporate bonds performed. Rival traders found a flaw in the methodology, exploited it and, just like that, it was deja vu all over again.

You might also recall that after the first crisis, “talent” was the justification for paying bankers millions in salary and bonuses after taxpayers had just bailed out the very same bankers who had just brought the entire planet to the brink of financial catastrophe.

They had to use your money to pay their bonuses — one, because they had lost all of their own money, and two, because without bonuses, top-notch talent might flee the big investment banks for a job at the local bank drive-thru or something.

Certainly, that was the hardest thing to swallow about the bailouts. Sober people recognized the need, however distasteful, to prop up our major financial institutions. If they fail, everyone fails. But then the bankers turned right around and paid a goodly share of that tax money to themselves for, they said, a job well done.

Had they actually done the job well — no, not even well, just average, or even somewhat below average — there would have been no need for bailouts in the first place. But no, they went completely off the reservation, making housing loans to potted plants and then placing enormous side bets that the potted plants would be able to repay the loans on schedule. And then insured the side bets themselves against potential loss.

And when the scheme blew up in their faces, and the government stepped in with some sensible regulations that might keep this from happening again, the banks squealed like stuck pigs. They sent their legions of lobbyists to Washington to demand that Congress loosen restrictions that were designed to combat the bankers’ own incompetence.

And the government was asking precious little of the banks, which, in simplistic terms, basically boiled down to this: Don’t take your own rent and grocery money and go to the track, and keep enough in savings to cover any other foolishness that might cause you to lose large sums of money.

It was all part of the Dodd-Frank Wall Street Reform and Consumer Protection Act that became such a whipping boy of the far right because it just went too far. Now, it seems, it did not go far enough.

Dimon seemed remorseful, partly because of the losses, of course, but also because the disaster “plays right into the hands” of those who say there should be limits on the risks banks can legally take.

Facts, along with history, do have a way of playing right into the hands of people who would do what is reasonable. And that’s what’s happened here.

That fact that such a spectacular catastrophe could happen once is appalling. The fact that it could happen twice is unthinkable. The fact that it could happen so soon after it happened the first time is proof positive that Wall Street is populated by children so blinded by money that they cannot be counted upon to clean their own rooms. Whether or not greed is good, greed cannot be controlled.

There’s nothing wrong with making money. There’s nothing wrong with making obscene amounts of money. And there’s nothing wrong with taking obscene risks in order to make obscene amounts of money, so long as it’s not the taxpayer — or the world financial markets — that pay when it all goes south. Unfortunately, even after all we’ve learned, there is precious little protection on the books to save us all from Jamie Dimon’s high-priced “talent.”


Tim Rowland is a Herald-Mail columnist. His email address is timr@herald-mail.com.

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