This apologetic piece from Andy Sorkin who was blue at not having written the screenplay for the Facebook movie tries to explain how his hero of his opus “Too Big to Fail”, Dimon has sound economic sense behind his decision to confront Bernanke. To put it in perspective, frankly it has happened to Bernanke before, when he has been asked for proof and he has said Frankly my dear, there is the qualitative result and not much else can be laid behind my thinking, so you are stuck with it.
.. The Feds are just looking after the Economy
Not too put too fine a point on it, we are in favor of most of the regulation proposed till now, and we have been clear othat it has gone overboard, bu tthe heavy lobbying migh still risk all the right regulation like the Durbin Amendment and the slow foreclosure actions as the negotiation games begin. Thus many experts would lay back waiting for the game measuring Dimon and Diamond’s speculations in the same vein as interested convicts looking to design a jailbreak that works.
Jamie Dimon might well be the next successful Economic/Finance advisor to the FEd / White house as his penchant for asking for basis and following through with decisions may well stad him in steed just like Paulson(Hank) at his days at the Treasury for Bush. The biggest concern should be and is Jobs, that Bernanke has otherwise done a good jiob nd started open press conferences in real time has somehow excused him from any liability as also the fact that he is not squeezing the economy and is keeping QE3 options and rate hikes also as his main agenda.
However, with Banks being 20% of any GDP number and 5 times the growth number the squeeze in their revenues looking all too clear right now for 2011, may well lead to that stagflation we just saved ourselves from yesterday when retail sales actually came out positive ex autos and even gasoline sales were not too big.
The squeeze on derivatives is a good thing and more Capital in principle is a good thing but maybe the surcharge is a little overboard esp as the larger institutions walking away with most of the profits is well nearer to a definition of Capitalism than any Union posturing or election agenda fishing on the north pole.
As far as the impact of new capital on GDP , Basel’s study reeled in by the WSJ below finds a negative correlation as leverage goes down in the system and perhaps that is why Basel staggered its schedule for Capital raising for Banks. All in all, a good case for Jamie Dimon and a lot of supporters fror him too, unlike his friend Diamond’s diatribe which turned out to be his last sotto voce speak in the ndustry at his side of the pond. That is the Casual mid week to ne from us not to be confused with other serious Financial Analysis we lead from..
The BIS’s assessment of the impact? Hardly apocalyptic, though they admit there’s a “great deal of uncertainty surrounding our estimates:”
…the empirical estimations found that a 1 percentage point increase in the target capital ratio implemented over four years will lead to a reduction in GDP to a level 0.16% below its baseline level after four and a half years, followed by a recovery of GDP to some 0.10% below its trend level after eight years.
…while tighter capital and liquidity requirements of the magnitude which corresponds to our central scenario (ie a 1 percentage point increase in the target capital ratio) may well have an impact on bank lending during the transition period,these effects will not be large, as long as downside risks are contained by ensuring that the implementation period is sufficiently long, and conditions elsewhere in the economy and the financial system are supportive of the necessary adjustments.
Here is what his detractors aver:
To adopt Dimon’s proposed methodology, what was the cumulative effect of the previous lowercapital requirements in the U.S. and globally? This part is easy — it was the reckless risk-taking and mismanagement that led us to 2008. If you pay executives and traders on the basis of return-on-equity, unadjusted for risk, they will want to take a lot of risk, boosting payouts in the good times and handing the downside risk to someone else (ideally, from their point of view, the taxpayer).
According to Sanjai Bhagat and Brian Bolton, executives at the top 14 U.S. financial companies pocketed about $2.6 billion in cash (salary, bonus and the value of stock options sold) during 2000-2008. Much of that compensation would not have been paid if there were proper adjustment for risk.
- Bernanke + Dimon = Higher Bank Stocks? (blogs.wsj.com)
- Jamie Dimon: Here’s What I REALLY Wanted To Say To Ben Bernanke (JPM) (businessinsider.com)
- POLL: Was Jamie Dimon Right To Ambush Ben Bernanke? (businessinsider.com)
- Bernanke Should Follow Jamie Dimon’s Advice (businessinsider.com)
- Actually, Jamie Dimon, There Is a Study on the Effect of Raising Bank Capital Requirements (blogs.wsj.com)
- Jamie Dimon’s New Math (baselinescenario.com)
- Two Views on Bank Rules: Salvation and Jobkillers (dealbook.nytimes.com)
- Here’s The Amazing Video Of Jamie Dimon Ambushing Ben Bernanke After His Speech Today (businessinsider.com)