Sometimes itâs hard to explain why we need strong financial regulation â especially in an era saturated with pro-business, pro-market propaganda. So we should always be grateful when someone makes the case for regulation more compelling and easier to understand. And this week, that means offering a special shout-out to two men: Jamie Dimon and Mitt Romney.
Iâll come back shortly to the troubles at JPMorgan Chase, the bank Mr. Dimon runs. First, however, let me talk about Mr. Romney, whose remarks about those troubles were so off-point that they constitute a teachable moment.
Hereâs what the presumptive Republican presidential nominee said about JPMorganâs $2 billion loss (which may actually have been $3 billion, or $5 billion, or more, but whoâs counting?): âThis was a loss to shareholders and owners of JPMorgan and thatâs the way America works. Some people experienced a loss in this case because of a bad decision. By the way, there was someone who made a gain.â
Whatâs wrong with this statement? Well, suppose that someone â say, Jimmy Stewart in the movie âItâs a Wonderful Lifeâ â runs a bank that takes in deposits and invests the money in various ways. And suppose that one of those investments is a risky bet on some complex financial instrument, with Mr. Potter, the evil plutocrat, on the other side.
If Jimmy Stewartâs bet pays off, weâre in Romneyworld: heâs made money, Mr. Potter has lost money, and thatâs that. But suppose Jimmy Stewart loses his bet. If the bet was big enough, he no longer has enough assets to pay off his depositors. His bank collapses, probably in a chaotic bank run that takes down the whole townâs economy as collateral damage. Mr. Potter makes money on the deal, but so what?
The point is that itâs not O.K. for banks to take the kinds of risks that are acceptable for individuals, because when banks take on too much risk they put the whole economy in jeopardy â unless they can count on being bailed out. And the prospect of such bailouts, of course, only strengthens the case that banks shouldnât be allowed to run wild, since they are in effect gambling with taxpayersâ money.
Incidentally, how is it possible that Mr. Romney doesnât understand all of this? His whole candidacy is based on the claim that his experience at extracting money from troubled businesses means that heâll know how to run the economy â yet whenever he talks about economic policy, he comes across as completely clueless.
http://www.nytimes.com/2012/05/21/opinion/dimons-deja-vu-debacle.html?_r=2&partner=rssnyt&emc=rss
Iâll come back shortly to the troubles at JPMorgan Chase, the bank Mr. Dimon runs. First, however, let me talk about Mr. Romney, whose remarks about those troubles were so off-point that they constitute a teachable moment.
Hereâs what the presumptive Republican presidential nominee said about JPMorganâs $2 billion loss (which may actually have been $3 billion, or $5 billion, or more, but whoâs counting?): âThis was a loss to shareholders and owners of JPMorgan and thatâs the way America works. Some people experienced a loss in this case because of a bad decision. By the way, there was someone who made a gain.â
Whatâs wrong with this statement? Well, suppose that someone â say, Jimmy Stewart in the movie âItâs a Wonderful Lifeâ â runs a bank that takes in deposits and invests the money in various ways. And suppose that one of those investments is a risky bet on some complex financial instrument, with Mr. Potter, the evil plutocrat, on the other side.
If Jimmy Stewartâs bet pays off, weâre in Romneyworld: heâs made money, Mr. Potter has lost money, and thatâs that. But suppose Jimmy Stewart loses his bet. If the bet was big enough, he no longer has enough assets to pay off his depositors. His bank collapses, probably in a chaotic bank run that takes down the whole townâs economy as collateral damage. Mr. Potter makes money on the deal, but so what?
The point is that itâs not O.K. for banks to take the kinds of risks that are acceptable for individuals, because when banks take on too much risk they put the whole economy in jeopardy â unless they can count on being bailed out. And the prospect of such bailouts, of course, only strengthens the case that banks shouldnât be allowed to run wild, since they are in effect gambling with taxpayersâ money.
Incidentally, how is it possible that Mr. Romney doesnât understand all of this? His whole candidacy is based on the claim that his experience at extracting money from troubled businesses means that heâll know how to run the economy â yet whenever he talks about economic policy, he comes across as completely clueless.
http://www.nytimes.com/2012/05/21/opinion/dimons-deja-vu-debacle.html?_r=2&partner=rssnyt&emc=rss