He has a temper that matches his physique. While at Citigroup years ago, Dimon once almost punched out another senior executive at a company party, a prelude to his ultimate dismissal. He’s known as a “screamer,” in part because of his legendary shouting matches with his old boss Sandy Weill while Jamie was still a young executive at Citigroup. “I did plenty of things wrong while I was at Citigroup,” he would later concede.
Since then, Dimon has learned to control his temper, though at times it can’t be contained. This was one of those times.
“This is complete bullshit!” he screamed as he received the latest report coming from Washington from a slightly frightened senior aide who had watched Dimon grow increasingly incensed over the course of 2010.
JPMorgan was the premier bank in America (some would say the world) and Dimon the premier CEO in the banking business. It was that reputation that had made him so valuable to Obama early on and paved the way for his White House visits and pull inside the administration and with key members of Congress.
Yet for all his accolades and triumphs, by the late spring of 2010, Dimon was powerless to stop financial reform’s most draconian measures, and even worse, to stop his old friends in the Democratic Party from using Wall Street as a punching bag to ram this half-assed bill through Congress.
It is, of course, hard to feel even an ounce of sorrow for Dimon; for all his skill and talent as a banker, it was also his talent for lobbying Big Government that allowed JPMorgan to survive and thrive during the financial crisis. Since then, Dimon has positioned himself as a Wall Street savior—the man who came to the rescue of Bear Stearns at the beginning of the financial meltdown and then guided his own bank successfully through the rough waters of the crisis as the rest of Wall Street teetered on the brink of destruction.
According to his PR team, it was really Dimon who was doing God’s work, though unlike Blankfein, both the bank’s flacks and Dimon himself were smart enough not to say such a thing in public—even if the PR people constantly reminded reporters that the government had asked JPMorgan to buy the financially impaired Bear Stearns, and that in doing so, the firm “took one for the good of the country,” as a spokeswoman told me.
Amid such mythmaking (from one of the savviest PR teams in corporate America, no less) are some inconvenient facts. Dimon, of course, is a great CEO and a tough manager and understands the downside of risk better than any of his peers. But through the bulk of the financial crisis and well into 2010, very few newspaper stories focused on the fact that, despite admirably navigating through the financial crisis, JPMorgan still held billions of dollars in problematic loans on its books or that Dimon had readily accepted federal bailout money during the height of the implosion because he, like the rest of the world, knew the future was uncertain.
Then there was JPMorgan’s purchase of Bear Stearns, the first firm to implode as the collapse began in March 2008. Dimon has told people he agreed to buy Bear at least in part out of patriotic duty. His advisers contend the purchase was costly, and if they had to do it again, Dimon would walk away, let the firm collapse, and buy it in bankruptcy court for next to nothing.
Maybe so, yet dig deeper into the deal and you’ll quickly notice that there wasn’t much charity involved in JPMorgan’s bailout of the troubled Wall Street trading house. The charity, if there was any, came from the American taxpayer. The feds arranged the deal, which cost JPMorgan next to nothing: a paltry $10 a share for a major firm (it was initially just $2, but Dimon was forced to up his bid amid outrage from existing shareholders), and the government or, to be more precise, the U.S. taxpayer, picked up nearly all the losses from Bear’s holdings of toxic debt.
In other words, a Bear Stearns with one of the best trading and clearing businesses on Wall Street and mostly rid of its toxic assets was virtually given to JPMorgan free of charge.
As pointed out earlier, Dimon was prohibited from officially declaring Obama his favorite candidate, but he directed others, such as the firm’s CFO, to carry out the dirty work of fund-raising for Obama. Meanwhile, on the New York Fed board Dimon met Tim Geithner, then the president of the New York office, and their relationship blossomed as Geithner became Obama’s Treasury secretary.
Combine strong ties with Geithner, a friendship with Rahm Emanuel, connections to Obama’s inner circle from Chicago, and fund-raising for the president, and Dimon became a fixture in the Obama White House for most of the president’s first year in office, and JPMorgan did very well during those months. In addition to the lax accounting rules on toxic assets, the Treasury continued to guarantee JPMorgan’s long-term debt, giving the bank access to cheap borrowing. Other programs allowed the bank, with the rest of Wall Street, to make a bundle trading bonds to more than make up for any losses on loans given to people unemployed as Obama fiddled with health care and allowed unemployment to remain at an alarming 9.7 percent for most of 2009 and into 2010.
Now, for all the apocalyptic talk about financial reform (which would cut profits on the high end by 15 percent, according to one estimate), JPMorgan and the rest of the Street knew they would survive with most of their immense wealth intact as soon as they figured out how to game the new system, as they had done in the past. “Once we figure this thing out,” said a senior JPMorgan executive, “it’s going to be a wash. Mark my words.”
So why, then, was Dimon so pissed off? Because he not only had to figure out how to adapt to the new regulatory environment, but he also had to figure out how to deal with the new political landscape.
“I don’t want to lose my home,” screeched a woman seated in the audience as JPMorgan began its 2010 annual meeting at JPMorgan’s New York headquarters. The prior year, it had been a love fest, with people thanking Dimon for a job well done and looking to shake hands with the man the New York Times described as Obama’s favorite banker.
But this time the scene was very different. Security guards roamed the room, which was packed with several hundred people, many of them angry homeowners demanding modifications to mortgages they could no longer afford.
Obamanomics, at least in Dimon’s mind, wasn’t supposed to be like this. Many of the people in the room were demanding handouts—free mortgages—as if they didn’t have any responsibility to figure out if they could afford their homes or not. Obama and the class warriors in Congress looking for cheap political points were now saying they didn’t—after all, if the banks could be bailed out, why shouldn’t average folk?
Dimon, dressed in his designer suit, was inwardly seething as a group of people representing something called the Neighborhood Assistance Corporation of America demanded what sounded like reparations from his bank because they had taken out loans they couldn’t afford.
“When it comes to homeowners, we have to do it one by one,” he responded, calmly but coolly. “Do they live there? Can they afford to pay it? Is it the right thing to do? We have experts here. They will go through your situation—what can and can’t be done—directly, openly, and honestly.”
Dimon also addressed his concerns about financial reform. The company had spent $8 million in the last few years on legal and lobbying fees, he said, to push back on parts of the bill he thought were bad for business. During the meeting it also became clear that the attacks on the banking industry had begun to tarnish Dimon’s once-gold-plated reputation. A move by one large investor, in fact one of the world’s largest, the California Public Employees’ Retirement System, which manages close to $200 billion in assets, to split his job and force the bank to retain a separate chairman was voted down, but not by a wide margin.
Then, adding insult to injury, Evelyn Y. Davis, an octogenarian shareholder activist known to ask CEOs uncomfortably goofy questions (I remember her once asking Dow Jones chairman Peter Kann about his love life) actually asked Dimon a pretty good one: “Are you still the president’s favorite banker?”
Dimon replied without missing a beat, “I heard he has a new one.”
That new one was Brian M
oynihan, the new CEO of Bank of America. Moynihan had just taken over for the ousted Ken Lewis, but he hadn’t wasted much time kissing up to his new masters in Washington. After being named CEO in December 2009, he had made it to the White House about six times in the next six months (that’s about six more times than Dimon or any other CEO of a major bank had visited during 2010). While Dimon had begun to openly question the president and other politicians about their Wall Street bashing, not to mention aspects of the financial reform legislation (he truly hated the consumer protection agency that seemed to be aimed directly at consumer banks like his), Moynihan had remained noticeably silent, though when he did speak, he actually came out in favor of the consumer agency, despite having a business that was nearly identical to JPMorgan’s.
Obama appeared so smitten with his new Wall Street friend that it was Moynihan, not Dimon, who attended the second state dinner of Obama’s presidency. Since then, Moynihan has had private dinners and meetings with various administration officials.
Regardless of Moynihan’s motives, Bank of America, Dimon reasoned, needed all the help it could get. The bank had been bailed out once, nearly nationalized during the financial crisis over losses in its loan portfolio, not to mention its purchase of Merrill Lynch, which was losing tens of billions of dollars. Its longtime CEO, Ken Lewis, had been ousted because of the ill-fated Merrill purchase, and Moynihan had been chosen as his replacement after a near civil war broke out on BofA’s board, with a contingent favoring Moynihan (who had come to B of A after its purchase of Boston-based Fleet Bank) and one favoring a Charlotte-based executive named Greg Curl.
But more than that, what contributed to Dimon’s growing anger at Obama, at the entire political atmosphere, was the realization that the whole exercise of “financial reform” was really a colossal waste of time.
Publicly, Dimon would say he agreed with the vast majority of what was being shoveled into the bill despite the haphazard fashion in which many of its components, like Blanche Lincoln’s derivatives amendment or Barney Frank’s proposed bank tax, seemingly came and went by the day.
But privately Dimon had his doubts, not just about the process but with what was looking like the end product. The consensus, not just at JPMorgan among Dimon’s senior staff but across Wall Street, was beginning to emerge that the legislation in its near-final form really accomplished little toward its primary objective—ensuring that another meltdown wouldn’t occur somewhere down the road.
To be sure, what was shaping up as “financial reform” was an unprecedented meddling in the financial markets. The risk committees, the consumer protection agency, and the checks and balances meant bureaucrats would have more say in how capital was allocated than at any time in this nation’s history. In effect, the same bureaucrats who hadn’t seen any of the most recent market collapses coming, including the big one in 2008, would be determining which businesses got loans and which didn’t.
But something more fundamental irked Dimon, I am told. As much as he loved to mine Big Government for special favors, the notion that stupidity should be rewarded with a bailout bothered him a lot more than the consumer protection agency ever could. A few months earlier Dimon had given a speech in which he called the nanny state’s approach to Wall Street, also known as “too big to fail,” “ethically bankrupt” because it allowed the risk takers to avoid consequences and rewarded those, like Citigroup, that screwed up. Even worse, these policies lumped JPMorgan into the same class as Citigroup.
“The term too big to fail must be excised from our vocabulary,” Dimon had written in a Washington Post op-ed. Dimon had later been assured it would be, by just about every top regulator who walked through JPMorgan’s door.
Far from being excised, now the nanny state protection of loser banks was growing, Dimon was told after he received a briefing about the bill. The FDIC was gaining the authority to “wind down” or take over troubled banks before they spread Lehman-like contagion. Sheila Bair, the FDIC chief, described the new oversight as a “powerful” weapon that would prevent banks from getting too big. Dimon saw it as just the opposite: the invisible hand of government once again coming to the rescue of idiots like the guys who ran Citi into the ground.
The more he thought about the bill and the name-calling that surrounded the debate over its dubious merits, the more Dimon seethed. Wall Street had been his whole life (his dad had been a stock broker for Sandy Weill, which had led to Dimon getting an internship and eventually becoming Weill’s right hand as he built the now-faltering banking empire known as Citigroup), and for all his liberal bluster and support of Big Government over the years, Dimon was also a businessman, and what he saw happening to the banks, not to mention the economy, was not good for anyone’s business.
When I mentioned to Dimon’s aides that their boss was soured on the president, they reminded me how much the two really got along. “I know Obama likes Jamie, and Jamie likes the president,” a spokesman for JPMorgan said. But friends of Dimon say the JPMorgan CEO had his doubts not about the president as a person but about his approach to the economy. Never before had so much money been printed for so little gain: a stimulus package that failed to stimulate the economy; near-zero interest rates; an unimaginable amount of spending; takeovers of the automobile industry; and GDP barely improved, while unemployment grew to enormous highs.
Dimon, like Fink, believed he was supporting moderation when he put all his bank’s resources behind Obama, and like Fink he now felt betrayed, people who know him tell me. Even worse, when it came to the business he worked in, Obama and the Democratic political elite he had supported really didn’t distinguish between the firms that “did it right,” as he would tell his staff, and those that didn’t. It was one thing for Blankfein to be branded a greedy bastard—in Dimon’s mind Goldman is nothing short of a greed machine that screwed its clients for years with deals like Abacus and many others.
When Blankfein went before Congress to defend his firm’s actions, Dimon was unconvinced by his excuse. “What they did was wrong, plain and simple,” he said.
And yet JPMorgan had become, at least in the rhetoric of the White House and the Democratic Party, a kinder, gentler version of the vampire squid.
That’s when Dimon did something that once would have seemed unthinkable: He appeared to take the advice offered to him when he had met with House minority leader John Boehner just a few months earlier to complain about the direction of financial reform, and he and his firm began to support Republicans.
News spread through JPMorgan about fund-raisers being held for Republican candidates. Old friends like New York representative Carolyn Maloney, who represents the Upper East Side of Manhattan, and senators Chuck Schumer and Kirsten Gillibrand of New York felt the chill immediately in terms of a drastic reduction in Wall Street campaign contributions. The firm that had bent over backward for the Democrats in 2008 (62 percent of all JPMorgan campaign money had gone to the Democrats) was now doing the same for the Republicans, plowing just as much money into the campaigns of Republicans running for office as they did for Democrats during the first half of 2010, according campaign records.
Dimon began adding up in his head everything he had done for the administration: The political donations from JPMorgan had helped Obama get elected. His sage advice during the past year had helped an economically inexperienced president understand the markets. Emanuel had even called Dimon and asked him to call key senators and press them to approve Fed chairman Ben Bernanke’s reappointment (and his potentially inflationary, albeit Wall Street friendly, policy of keeping interest rates near 0 percent), which he did.
Dimon had already directed his senior staff to begin spreading the wealth around—he may be a lifelong liberal Democrat, but he wasn’t going to reward bad behavior—and he wasn’t alone. Wall Street was now hedging not just its market bets but also its political bet on Obama and his agenda. By placing all their bets on Obama and his fellow travelers in Congress, they had helped elect the most libe
ral governing bodies in years, without a bipartisan check. To be sure, Big Government brought the banks enormous profits, but it had also brought them an uncertain future as banker bashing became the new politics of the Left. Now they began to hedge their bets in an unprecedented fashion. Contributions to key Democratic congressional committees fell by 65 percent. Dimon himself gave nothing to the committees, while making a $2,000 contribution to a Republican congressman. Blankfein, a longtime Democrat, went further: He called for a moratorium on all contributions from the firm until financial reform had been completed. “We don’t want to be seen influencing the decision,” a firm spokesman said. But people inside the firm say the money was cut off to make a bigger point that the firm was tired of the attacks.
Another practical reason for the hedge was the changing political environment. With unemployment remaining abnormally high, by the late spring of 2010 political analysts like the prescient Charlie Cook and pollster Doug Schoen even began to predict the possibility of a Republican takeover of the House and Senate.
Obama’s own poll numbers began to fall, meaning that the class-warfare attacks were not only not working, they were screwing both him and his party out of much-needed campaign cash. But instead of making up with their former contributors, the Democrats were only emboldened to ratchet up their Wall Street attacks. Barney Frank, for years a solid Wall Street vote in Congress despite his social liberalism, had joined the anti- Wall Street parade by introducing a bank tax to pay for the financial regulations few on Wall Street believed would ever work.
On Wall Street, the word back from the administration was that Geithner, Summers, and even Volcker were opposed to the initial amendment proposed by Arkansas Democrat Blanche Lincoln to force banks to spin out their derivatives businesses, even if she used the clause to successfully remind voters back home that she was keeping tabs on the greedy bankers in New York and won a tough primary challenge.
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