Dimon's Economic Argument

When Jamie Dimon confronted Federal Reserve Chairman Ben S. Bernanke at a conference earlier this week, he spoke for dozens of bank executives who privately believe regulators have gone overboard in seeking to prevent another financial crisis. “Has anyone bothered to study the cumulative effect of all these things?” he asked. “Is this holding us back at this point?”

Dimon, the chief executive officer of JPMorgan Chase & Co., was pressing Bernanke to admit that the total cost of new financial regulations had not been fully calculated, and could well be holding back job growth.

What evidence does Dimon have? He is a very smart executive with an impressive track record, but his account of regulatory changes is incomplete, to say the least. Most of what he lists are the direct effect of a credit boom that ended in a severe crisis. Some badly run firms, including thrifts and mortgage brokers, failed; structured investment vehicles, which were used to hold mortgage securities off-balance-sheet, are gone; there are no more subprime or Alt-A mortgages; markets have become more transparent; and financial institutions have reduced their leverage and increased their liquidity.

Dimon believes most of the bad actors are gone. To the contrary, none of the truly bad actors has been prosecuted. In fact, most are making more money than ever before.

Off budget businesses obliterated? Funds more transparent? Exotic derivatives gone? Dimon still doesn’t get it. The only reason there’s been any progress at all to date is because rules have been tightened and regulators are more vigilant. But at this very moment the banks — including JPMorgan Chase — are lobbying heavily to relax the rules so they can return to their old ways.

The recovery has stalled because most Americans are still in the gravitational pull of the recession — unable and unwilling to buy enough to keep the economy going. And that’s largely because the terrible consequences of what Dimon et al did to the economy are still being felt by most Americans.