Two months ago, Jaime Dimon dismissed reports about problem trading in the bank's Chief Investment Office (CIO), calling them "a tempest in a teapot." Today, he characterized that comment as "dead wrong" during the Senate Banking hearing called to investigate the financial debacle that resulted in at least $5 billion in trading losses, by adding the May 10th trades to those that occurred in London during April.
Isn't this the same bank that gladly accepted $25 billion in bailout money while George W. Bush was still President of the United States in 2008? Given that JPMC contributed greatly to the financial meltdown that occurred prior to the bailout, Ham on Wry would expect much stricter internal controls had been placed on trading by now. Yet, Mr. Dimon labels the Volcker rule, which is a section of the Dodd-Frank Wall Street Reform and Protection Act, as overzealous and unnecessary. In summary, the Volcker Rule specifically prohibits a bank or institution that owns a bank from engaging in executing proprietary trades and investments in private equity and hedge funds.
Dimon ironically contradicted himself in his view of the Volcker Rule, when he said later that if it had been enacted, it might have stemmed at least $2 billion of the recent losses. Former JPMC employees have accused Dimon of encouraging his CIO to make bigger and riskier trades, while he reaped the benefits and attained a rank as one of the highest-paid CEO's in U.S. banking. Dimon earned income of more than $1.9 million a month on average in 2010 and 2011. Most readers can't imagine earning that much in a year, let alone one week!
This situation points to one of the biggest problems facing the United States currently--CEO compensation. Even if Dimon were forced to resign from JPMC, he has made a fortune without the penalty that should be associated with incurring large financial losses under his leadership. It calls to mind Enron and WorldCom from past financial disasters. If these kinds of losses don't scream for a cutback in CEO salaries and bonuses, what does? We have far too many examples of large, complex organizations not policing themselves adequately, and that problem doesn't exist solely in the financial services sector, as indicated by the two examples stated. Why does someone earn a hefty bonus after failing to deliver on promises.
Ham on Wry ends this post with a question. How much longer will the citizens of this country tolerate this kind of insanity?
0 comments:
Post a Comment