I’ll have more to say shortly about that remarkable speech Sen. Elizabeth Warren gave yesterday at the Levy Institute for Economics in Washington. (Quick speech summary: “I’d like to screw the big banks every way I can think of.”) But as a preview, to get a glimpse of just how severe and skewed a view of the banking business Warren holds, read this account by her, from an afterword to a new edition her book, A Fighting Chance, of a meeting she had in 2013 with JPMorgan Chase CEO Jamie Dimon. It’s long-ish but, revealing:
When the conversation turned to financial regulation and Dimon began complaining about all the burdensome rules his bank had to follow, I finally interrupted. I was polite, but definite. No, I didn’t think the biggest banks were overregulated. In fact, I couldn’t believe he was complaining about regulatory constraints less than a year after his bank had lost billions in the infamous London Whale high-risk trading episode. I said I thought the banks were still taking on too much risk and that they seemed to believe the taxpayers would bail them out — again — if something went wrong. Our exchange heated up quickly. By the time we got to the Consumer Financial Protection Bureau, we weren’t quite shouting, but we were definitely raising our voices. At this point — early in 2013 — Rich Cordray was still serving as director of the consumer agency under a recess appointment; he hadn’t yet been confirmed by the Senate, which meant that the agency was vulnerable to legal challenges over its work. Dimon told me what he thought it would take to get Congress to confirm a director, terms that included gutting the agency’s power to regulate banks like his. By this point I was furious. Dodd-Frank had created default provisions that would automatically go into effect if there was no confirmed director, and his bank was almost certainly not in compliance with the those rules. I told him that if that happened, “I think you guys are breaking the law.”
Suddenly Dimon got quiet. He leaned back and slowly smiled. “So hit me with a fine. We can afford it.” [Emph. added]
A couple of observations.
- Elizabeth Warren certainly is excitable. I’ve known Jamie Dimon for 20 years, having spoken with him most recently last month. If there’s anyone in the banking business who has a more even temperament and who’d be less likely to provoke during the course of what’s basically a business conversation, I can’t imagine who that individual might be. And yet Sen. Warren managed to get ticked off at him. Heaven help us. If Elizabeth Warren can’t have a discussion of banking regulatory policy with the CEO of the nation’s largest bank without becoming “furious,” she really does need to think about getting some therapy.
- It’s as if Warren believes banks shouldn’t be able to take any risk, ever, at all. Jamie complains about regulatory overreach and Warren brings up . . . the London Whale? Reminder: the London Whale was a trade that Morgan lost money on. It happens. The details of the trade never would have been made public but for the “tempest-in-a-teapot” remark Jamie made that later had to be walked back after the position headed south. Even so, during the quarter that the company recognized the loss, Morgan still earned $5 billion. In the year the trade happened, 2012, Morgan posted record pre-tax earnings of nearly $29 billion. And this is the most egregious offense Warren can come up with?
- What makes Warren believe banks are still taking on too much risk? Has she reviewed their loan books? Read their underwriting standards? Checked their reserving policies? Of course not. Sen. Warren has no clue how much risk the big banks are facing. The only reason I can think of that she believes they’re still taking on too much of it is that she doesn’t like risk and she doesn’t like banks and she especially doesn’t like it when the two are combined.
- Who appointed Elizabeth Warren D.A.? Now she’s accusing Morgan of “breaking the law” via its violation of certain unspecified CFPB rules. What rules exactly, we don’t know. When the purported violations happened, ditto. The charitable explanation for this odd and open-ended charge is that it’s just an editing error (complete with typo!) that left out needed clarifying information. The less charitable explanation is that Elizabeth Warren is delusional.
It’s hard to come away from reading all this—and reading yesterday’s speech, too—without getting the impression that Elizabeth Warren’s antipathy toward the banks is deep, visceral, and unquenchable. We knew that, of course. It’s also hard not to get the impression that Elizabeth Warren doesn’t quite understand how the banking industry works, or the role the industry plays in creating credit and financing economic growth. That’s too bad. Reasoned skepticism of the banking industry, especially in the wake of what happened in 2008, is entirely healthy and appropriate. It’s less healthy, though, when that skepticism is hysterical.
What do you think? Let me know!