The Stanford Institute for Economic Policy Research kicked off its annual economic summit with a speech by Jamie Dimon, the chief executive officer of J.P. Morgan Chase. Dimon recapped the financial crisis and discussed regulatory changes that would help prevent such a crisis from happening again.
Dimon first outlined the key fundamental causes of the crisis.
“Bad mortgages and bad mortgage underwriting” were at the epicenter of the crisis, Dimon said. “These mortgages ended up in CDOs [Collateralized Debt Obligations], they ended up in derivatives… there was leverage everywhere.”
While Dimon acknowledged that there were regulatory lapses that contributed to the financial crisis, “no business has the right to ever blame a regulator for what they did badly.”
“Clear responsibility begins with some of the financial companies who were at the epicenter, some of the bad risk management,” Dimon said, also acknowledging that there is valid anger over banker compensation but that many leveraged individuals and institutions should take responsibility for their actions in fueling the crisis as well.
However, Dimon said, the public should not “denigrate whole groups of people without any discrimination whatsoever.”
“It is a mistake, in my opinion, to blame the reckless and irresponsible the same way you blame the responsible and the prudent. Not everybody did the same thing, not everybody was bad,” Dimon said. “That sometimes includes Congress, business and the media.”
While there has been debate for months in Washington, D.C. about regulatory reform of the financial system, Dimon said it was a misconception that banks are opposed to regulatory reform and outlined measures that he believes would strengthen the system.
“There are entire businesses that need to be regulated that were not,” Dimon said. “Everything needs to be regulated as part of the system and not let out.”
Though Dimon supported increasing oversight and regulation in the derivatives market, including the migration of the market onto exchanges and clearinghouses, he emphasized that there should be room to do specialized derivatives over-the-counter.
Addressing bank failures, Dimon said banks should pay.
“J.P. Morgan alone will probably over a five-year period put four billion to five billion [dollars] into the FDIC,” Dimon said. “The FDIC is paid for by banks, not the federal government, and that money goes to resolve small bank failures.”
“We think that it’s perfectly reasonable to say that banks should pay for bank failures in TARP,” Dimon added. “I don’t understand why we should pay for excessive costs of TARP money that went to GM and Chrysler.”
Dimon also made a case for big businesses, defending the sector from what he saw as recent vilification in the media. He argued that big and small businesses were actually symbiotic, that economies of scale are real and increase productivity and that future economic growth must come from businesses and not the government.
“The American business is the thing that creates all of the wealth that makes everything possible,” Dimon said. “It is the arsenal of democracy.”
Those in attendance included Hoover Institution Senior Fellow George Schultz, who is also the chairman of the J. P. Morgan Chase International Council; David Rubenstein of The Carlyle Group; and other corporate executives.