Playing with other people's money: Will JP Morgan's Jamie Dimon get his way again?

he CEO of America’s biggest bank, JP Morgan, appears to have Washington at his beck and call but is his push to repeal a key financial safeguard a step too far?

If you want to understand what’s wrong with the US financial system, start by asking this question: why does Jamie Dimon always get his way?

Dimon is the charismatic chief executive of the nation’s biggest bank, JP Morgan. JP Morgan has $2.5tn in assets and holds more than 10% of all the savings deposits in America. As a result, Dimon has a lot of financial firepower. This week, Dimon was one of the forces in an argument that nearly caused a government shutdown over how much power Wall Street should have. Barack Obama also backed the bill, but even Democrats are defying the president on this one .

By all indications, Dimon’s phone calls to lawmakers made the difference. As he has in many other showdowns with Congress, Dimon won.

This is not unusual for Dimon. Two years ago, his bank’s traders managed to lose $6bn in the notorious “London Whale” trade, during which it came out that JP Morgan had created a $350bn “chief investment office” that did nothing but speculate on its own behalf for profits with customer deposits. Dimon showed up for hearings on Capitol Hill with not a drop of fear, wearing cufflinks given to him by President George W Bush. (For a time, Dimon was also Obama’s favorite banker ). Instead of a grilling, it became “ Dimopalooza ”: he was lavished with adoration as some members of Congress asked him to help advise them on future financial legislation.

Later, when the Senate permanent subcommittee on investigations produced a report on the London Whale, Dimon emerged unscathed even though one of his deputies, Ina Drew,pointed the finger at him as knowing everything that happened in the chief investment office .

To see Dimon interacting with lawmakers is a surreal experience: they don’t just smile, they fawn and swoon and lose their senses. Whether it is Dimon’s riches, his power or his wardrobe, one can’t shake the feeling that the rumpled men of Congress, fighting it out in the swampy muck of politics, regard Dimon as the person they’d like to be reincarnated as.

This gets Dimon pretty far, and the further Dimon goes, the further Wall Street goes. It’s nothing new for a chief executive to have sharp political skills, but Dimon is not only working on his behalf. He doesn’t just win congressional battles for himself, he clears the way for all of Wall Street. While the CEO of Bank of America, Brian Moynihan, may lack charisma and the CEO of Citigroup, Michael Corbat, may be too new and unknown, Dimon has the stature and gravitas to fill the role of what other bankers and lawmakers think a banker should be: immaculately tailored, silver-haired, savvy with a dollar, handy with a common touch as well in boardrooms.

He has enough security in his position as the de facto head of the financial industry that during the financial crisis, he freely called the former CEO of Citigroup a jerk – on a conference call with the CEO in question, several other bank CEOs and the US treasury secretary. Another special skill of Dimon’s is to be openly self-interested in such a way that it plausibly appears bank profits are something every American should fervently hope for, not money that is frequently earned at the expense of homeowners or savers. Dimon is persuasive in a way that few bankers are – and in a way that few lawmakers are.

When Dimon gets his way, it’s not really about Dimon. It’s about how easy it is for Wall Street, with one good representative and a reasonable amount of political donations, to roll over any opposition, especially in Congress. Many lawmakers have always been primed to listen to Dimon. In this case, Dimon successfully lobbied members of the US House to repeal an important part of the Dodd-Frank financial reform act, which was passed in 2010 to protect Americans from losing their homes and savings in another financial crisis. The provision was buried in the $1.1tn budget bill, where bank lobbyists and their soulmates in Congress mistakenly thought no one would find it.

In a nutshell, the budget provision would allow banks to use the savings accounts of Americans to speculate in the markets on behalf of hedge funds, companies and the rich. Specifically, the banks would use customer savings to help clients make bets on derivatives, the technical financial instruments that were at the center of the financial crisis. There’s no benefit to this rule to anyone in America who has less than, say, $5m in the bank. If there were any question, merely remember that the 85-line provision was written in its entirety by bank lobbyists at Citigroup. Some, like Senators Elizabeth Warren and Representative Maxine Waters, were so outraged that they refused to pass the budget bill, even if it meant shutting down the federal government. A movement and a hashtag was born: #CitigroupShutdown. The Senate will vote on the budget bill in a few days.

There’s a reason Dimon is hard at work charming Congress. Actually there are three reasons banks like Citigroup and JP Morgan want this repeal to happen.

One reason is that, after a few years of windfalls, banks are struggling to make money again. The Federal Reserve is demanding that they keep a much fatter cushion of money to back their trades – in JP Morgan’s case, an extra $22bn . So it’s easy to see why banks would look around and want to get their hands not just on safe money, but money customers have already given them.

The other, related reason is that there’s no safer money than money that has been insured by the federal government: if it gets lost, the government replaces it. Savings accounts are federally insured, which means if they get lost for any reason – from a bank run to speculation – the government covers the losses. You can see why banks would love to get their hands on that kind of guarantee for their risky trading. Risky trading is hugely profitable when it goes well, but disastrous if it goes badly. Why lose your own money when you can lose other people’s?

The final rationale is that last year, as the regulation really hit the $630tn swaps and derivatives market , a crop of rival exchanges popped up to trade the swaps since the banks were constrained. These exchanges allow the customers of the banks to trade directly with each other, bypassing the middleman. Since banks exist purely as middlemen, it galls them to see customers working together directly, behind the watchful eye and the open wallet of Wall Street. Banks also make a lot of money on swaps, at times more than $40bn a year – not because the banks are brilliant sherpas to the market but because banks are federally insured if they lose customer deposits for any reason.

Here’s what’s remarkable about this time, however: even despite Dimon’s abiding charm, some members of Congress stood up and said the derivatives provision would be wrong. In fact, they were willing to shut down the government over it.

This is a dramatic change from even just a few years ago, when the London Whale happened and the American public and lawmakers were too exhausted to call out banks any more. Now, people in Washington, especially Senator Elizabeth Warren , are standing up against Wall Street. There is a recognition that something awful is happening when banks freely make a play to take customer savings deposits to back the exact same instruments that caused the financial crisis. “It really is outrageous,” a former senior Obama Treasury official told the Washington Post. “This was the epicenter of the crisis. This is what brought AIG down, what brought Lehman Brothers down.”

The lawmakers interviewed by Roll Call made remarkable statements . Nancy Pelosi rebelled: “What I am saying is: the taxpayer should not assume the risk … You succeed, it’s in your pocket. You fail, the taxpayer pays the bill. It’s just not right.” Warren objected that “a vote for this bill is a vote for future taxpayer bailouts of Wall Street … this Congress can’t be here to say what can we do to improve the profitability of a half-dozen large institutions and shove all the risk off to the American people again.” Senator Carl Levin said: “These are the banks that caused the problem to begin with … by risky bets, now we are saying more banks can engage in risky bets and, by the way, the risk being to the taxpayers,” Levin said.

These are remarkable statements. A few years ago, these would have been the voices of conscience outside of Congress while Congress itself was focused entirely on preserving the life and profits of big banks. Now, at least some prominent lawmakers feel empowered enough to criticize Wall Street in public, to push back and make a fuss and shame the influencers of Wall Street. In 2011, those statements might have come from the Occupy voices shouting in the streets of New York and on the Capitol steps. Now those statements are coming from inside Congress itself. It’s a sea change in how we talk about Wall Street, and money, and influence. And it’s something that Jamie Dimon should be very worried about.

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