JPMorgan CEO Jamie Dimon will today, once again, stand before the authors of Dodd-Frank and attempt to make the case for why a $2 billion trading loss was a stupid mistake, not a willful breach of at least the intent of the law. Our representatives who wrote the law should hold him to the standards set by JPMorgan’s own Code of Conduct: following the spirit and intent, not just the letter, of the law.
When Mr. Dimon’s predecessor J.P. Morgan Jr. was called before the Senate in 1933, he spoke humbly of a banker as a member of a long-standing profession for which there had grown a code of ethics and customs, “on the observance of which depend his reputation, his fortune, and his usefulness to the community in which he works.”
Defending his partners and his firm as constantly acting to uphold this professional code, not merely the letter of the law, Morgan famously stated that “at all times, the idea of only doing first class business, and that in a first class way, has been before our minds.” He steadfastly declared in the face of great public outcry that the firm’s mistakes were “errors of judgment not errors of principle,” acknowledging mistakes made that led to the 1929 stock market crash and ushered in the Great Depression.
During most of the eighteen years I worked for JPMorgan beginning in 1982, these ethical principles defined the powerful culture of the firm. Jamie Dimon’s JPMorgan Chase of today has a written Code of Conduct. Section 1 states that it applies to all employees and directors of JPMorgan Chase & Co. and that “compliance with the Code is a term and condition of employment with the Company.” It admonishes employees “to comply with not just the letter, but also the spirit and intent, of the law.”
No doubt seeking comfort in J.P. Morgan Jr.’s eloquent testimony, which had achieved cult-like status in the firm when I worked there and appears on the website today, Dimon has previously declared in the context of the London Whale trade, “We know there was bad judgment,” i.e., errors of judgment not principle were made.
JPMorgan Chase’s governance guidelines state: “The principal functions of the Board are to oversee processes for evaluating the adequacy of internal controls, risk management, financial reporting and compliance with law and the Firm’s code of conduct.”
While the Volcker Rule has yet to be formally implemented, Dodd-Frank makes proprietary trading against the law for banks (Page 245: “Unless otherwise provided in this section, a banking entity shall not engage in proprietary trading”). There is nothing unclear about the spirit and intent of the law, even while the details of the Volcker Rule are being negotiated.
JPMorgan’s Chief Investment Office, which represents approximately half the firm-wide risk, does not deal with customers, and pays some of the highest compensation in the bank, is engaged in proprietary trading on a large scale by any reasonable definition. Who among the Board of Directors and senior management does not understand that this is in conflict with at least the “spirit and intent of the law” recently passed by Congress? How is this therefore not a breach of the bank’s Code of Conduct, compliance with which “is a term and condition of employment?”
In addition, JPMorgan Chase appears to have lost sight of the profession of banking that J.P. Morgan Jr. so accurately explained “determines [bankers’] usefulness to the community.” The CIO “hedge that morphed into a trade” is only the latest in a long string of other mistakes ranging from robo-signing, to bankrupting Jefferson County Alabama, the Magnetar Squared CDO 2007 transaction, improperly foreclosing on military families, and on and on. This pattern does not appear to reflect merely errors of judgment. It seems inconsistent with “first class business in a first class way,” the conclusion reached long ago by citizens outside Wall Street.
Everyone I know inside JPMorgan emphasizes what a good manager Jamie Dimon is with his remarkable ability to cut to the important issues in a business. This may well be true. But, the times call for a new financial statesmanship that rises above being the smartest, most aggressive guy in the room. It calls for banks to embrace strong financial reform not fight it and to acknowledge that too-big-to-fail, manage, or govern banks are anti-capitalist, a threat to our economy, and a threat to democracy itself. Critically at this time, it calls for banks to serve the needs of the real economy and the vital transition to a more just, resilient, and sustainable economy.
The challenge before Jamie Dimon is to become a relevant financial statesman in this transition, not merely to explain a trading gaff in front of a compliant congress.