Monday, May 28, 2012
Sunday, May 20, 2012
Jamie Dimon's Unshakable Hubris
Jamie Dimon's Unshakable Hubris:
t’s official. Just as he was voted in for a second term as Class A New York Fed director in February 2010,Jamie Dimon was reelected chairman and CEO of JPMorgan Chase yesterday afternoon. He got to keep his $23 million pay package, too. All without breaking a sweat.
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Jamie Dimon's Unshakable Hubris
By Nomi Prins, The Daily Beast
16 May 12
This means that at each of three of the top five bank-holding companies dominating U.S. derivatives exposure, loans, assets, and deposits, the same man holds the chairman and CEO positions—at Goldman Sachs, Wells Fargo, and JPM Chase. (Bank of America and Citigroup separated those roles.). If the stock buckles under another “discovery,” shareholders can take comfort in blaming themselves, not Jamie Dimon.
Included in the proxy materials in the shareholder package that went out before the vote was a letter from Dimon to “fellow shareholders”: nestled in with earnings estimates and the explanation that “the main reason for the difference between what we are earning and we should [emphasis theirs] be earning continues to be high costs and losses in mortgage and mortgage related issues” was a wealth of negativity about regulations. The letter stressed that only two regulations would actively hurt the bank’s “competitive ability, the Volker Rule and the derivatives rules.” (JPM Chase holds nearly $70 trillion of derivatives exposure on $1.8 trillion of assets.)
This regulatory swipe, compounded with claims that lobbying Washington was JPM Chase’s “responsibility” was mixed with strains of the Dimon theme song, “We Are Great Risk Managers.”
As he wrote, “We also could add another $1 billion to our profits by increasing our interest rate exposure or credit risk. But [emphasis mine] this is not the way to build a healthy and vibrant company for the future or to produce what we would call ‘quality profits.’”
He didn’t mention that increasing interest rate or credit risk also could subtract another $1 billion (or $2 billion). Which is what happened. Because the bank takes risks. With other people’s money. And there’s no such thing as a perfect “hedge” or “bet.”
JPMorgan Chase CEO Jamie Dimon attends a session at the World Economic Forum in Davos, Switzerland, Jan. 27, 2011. (Vincent Kessler / Landov)
At the shareholders meeting there was no mention of the details behind the “mistake” that cost the bank $2 billion, just that it “should never have happened.” (The Titanic shouldn’t have sunk either.) Most shareholders had already voted before the loss became public anyway. Ultimately, 91 percent of them approved Dimon’s pay, and 60 percent voted for him to retain both executive positions. This makes the timing of the loss announcement, if not suspicious, then, self-serving—or self-inflicted.
A self-inflicted loss conjures up images of someone shooting himself or herself during a game of Russian roulette. Sure, the shooter might have shot the gun into his or her brain, egregiously mistaken in the belief it wouldn’t be loaded. But he or she also chose to play. It’s not so much that the $2 billion loss is catastrophic, (it isn’t) but that it happened. It can continue to bleed into JPM Chase’s books, or pop up in another form elsewhere, and be equally “surprising.”
Sure, betting mistakes happen (ask former MF Global head Jon Corzine), but it’s the characterization of the loss that’s egregious. First, because by swaggering, “we will fix it—we will move on,” Dimon has claimed dominance over global markets. (No banker who truly understands risk should be so cavalier about it.)
Secondly, the fact that after a formal announcement, a friendly Meet the Press chat, and a face-to-face with the firm’s shareholders, Dimon can still call it a mistaken hedge is ludicrous. It was a directional bet on the health of North American corporate bonds that the firm got wrong, enacted via the synthetic derivatives market to worsen the blow. To the extent that it’s betting wrong, it’s a mistake, but it’s not a hedge.
Why, oh why, can’t Treasury Secretary Tim Geithner or Fed chairman Ben Bernanke have the balls to call Dimon out on this? Show some respect to the American population?
There remains debate about whether the Volcker rule (which prevents a bank from engaging in proprietary trading that is not at the behest of its clients) would have prevented this “mistake.” But on this, from his comfy reelected position, Dimon is correct. In its current form, the Volcker rule might have prohibited proprietary trading of the firm’s own funds, true. But not if you call the trade a hedge. This camouflage ability underscores a broader issue with fractional regulation of a complex industry.
Bank chairmen, like Jamie Dimon, will claim that regulation is too complex, too anti-competitive, and too un-American (putting U.S. banks at a disadvantage against other global banks). Yet, those arguments are exactly what led a cadre of bankers, an incoming and an outgoing treasury secretary (Larry Summers and Robert Rubin) and President Clinton to, in 1999, abolish the last remnants of the Glass-Steagall banking-reform act—making it fair game for banks to grow in size and complexity, plus engage in a bevy of speculative plays under the same roof as their FDIC-insured, Fed liquidity-baked deposits and loans. And that’s exactly what they did.
If you know you will be cushioned no matter how high you jump off a tightrope, and you’re getting paid to jump, you’re going to find ways to jump. Take away the tightrope, and you won’t jump. Resurrecting a true Glass-Steagall barrier is like taking away the net.
And in response to the anti-American competition issue, the only kind of Glass-Steagall that would truly work now would be a GLOBAL one. Render the separation of speculation from deposit-taking global (and, considering that few days pass when international banks aren’t getting downgraded, now is a good time to consider this) and you put the onus of jumping off a tightrope on the clowns.
It was considered anti-competitive and difficult to maneuver a bank separation back in 1933, when Glass-Steagall was passed. And yet it was the head of the second-largest bank in the U.S., Winthrop Aldrich, of Chase Bank, who loudly, strongly, and insistently advocated for it. Why? Not because he lacked a competitive streak, but because it made sense for the greater stability of the banking system and the economy.
Pretending that it’s OK to allow dormant volcanoes of risk to remain embedded in big-bank balance sheets, supported by customer money and taxpayer guarantees, is not sensible. Nor is assuming that the Volcker rule, absent the complete segregation of commercial and investment banking, will do much more than put an interim plug in the hole of a dyke behind which surging waters wait.
Why, oh why, can’t Treasury Secretary Tim Geithner or Fed chairman Ben Bernanke have the balls to call Dimon out on this?
Meanwhile, there are two potential outcomes that neither Jamie Dimon’s contrition, nor his ego, will alter. The first: there is no definitive restructuring of the banking system, and publications keep running banner headlines like “Is Wall Street Too Big to Regulate?” when some other “egregious” mistake permeates the likes of JPM Chase, Bank of America, or Citigroup (leaving aside the fact that Dimon’s mention of mortgage losses belies the fact that current mortgage accounting doesn’t capture the declining value of the underlying collateral). Then we have this discussion, again for 10 minutes, in the midst of greater, negative consequences.
Or, we can pull off the Band-Aid attaching the two sides of banking. We can require the commercial contingent deal with deposits and loans, and figure out a way to book profits by inhaling money at near zero percent and charging interest on it, which really isn’t that bad a business. We can allow the investment banking and speculative elements to create incestuous chain-derivatives transactions and securities in the “free markets,” by the participants who want to take the risk, without the federal safety net.
Unfortunately, the probable outcome is the first scenario—little to no structural change and more blow-ups of various sizes. As such, it’s not a question of if there will be another financial flameout, but when. It’s not whether taxpayers will pick up the tab, but in what manner. And it’s not whether those with the most power will do anything meaningful to avoid the fallout, but why we vote for their denial.
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Nomi Prins is author of It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals From Washington to Wall Street (Wiley, 2009). Before becoming a journalist, she worked on Wall Street as a managing director at Goldman Sachs and running the international analytics group at Bear Stearns in London.
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Monday, May 7, 2012
The Hindu : Opinion / Lead : India's god laws fail the test of reason
The Hindu : Opinion / Lead : India's god laws fail the test of reason:

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India's god laws fail the test of reason
PRAVEEN SWAMIPolice investigation of Sanal Edamaraku for debunking a “miracle” at a church is a crime against the Constitution.
Early in March, little drops of water began to drip from the feet of the statue of Jesus nailed to the cross on the church of Our Lady of Velankanni, down on to Mumbai's unlovely Irla Road. Hundreds began to flock to the church to collect the holy water in little plastic bottles, hoping the tears of the son of god would sanctify their homes and heal their beloved.
Sanal Edamaruku, the eminent rationalist thinker, arrived at the church a fortnight after the miracle began drawing crowds. It took him less than half an hour to discover the source of the divine tears: a filthy puddle formed by a blocked drain, from where water was being pushed up through a phenomenon all high-school physics students are familiar with, called capillary action.
For his discovery, Mr. Edamaruku now faces the prospect of three years in prison — and the absolute certainty that he will spend several more years hopping between lawyers' offices and courtrooms. In the wake of Mr. Edamaruku's miracle-busting Mumbai visit, three police stations in the capital received complaints against him for inciting religious hatred. First information reports were filed, and investigations initiated with exemplary — if unusual — alacrity.
Real courage
Mr. Edamaruku isn't the kind to be frightened. It takes real courage, in a piety-obsessed society, to expose the chicanery of Satya Sai Baba and packs of lesser miracle-peddlers who prey on the insecurities of the desperate and gullible. These actions have brought threats in their wake — but never from the state.
India's Constitution obliges all citizens to develop “scientific temper, humanism and the spirit of inquiry and reform”. India's laws, though, are being used to persecute a man who has devoted his life to doing precisely that.
Like dozens of other intellectuals and artists, Mr. Edamaraku is a victim of India's god laws — colonial-era legislation obliging the state to punish those who offend the faith of others. Section 295 of the Indian Penal Code criminalises the actions of “whoever destroys, damages or defiles any place of worship, or any object held sacred by any class of persons”. Its sibling, Section 295A, outlaws “deliberate and malicious acts intended to outrage religious feelings of any class”. Section 153B goes further, proscribing “any act which is prejudicial to the maintenance of harmony between different religious, racial, language or regional groups or castes or communities”. Alarmingly, given the sweeping generalities in which these laws are written, truth is not an admissible defence.
In the decades since independence, these laws have been regularly used to hound intellectuals and artists who questioned religious beliefs. In 1993, the New Delhi-based progressive cultural organisation, Sahmat, organised an exhibition demonstrating that there were multiple versions of the Ramayana in Indian culture. Panels in the exhibition recorded that in one Buddhist tradition, Sita was Ram's sister; in a Jain version, she was the daughter of Ravan. Even though the exhibits drew on historian Romila Thapar's authoritative work, criminal cases were filed against Sahmat for offending the sentiments of traditionalist Hindus.
Punjab has seen a rash of god-related cases, mainly involving Dalit-led heterodoxies challenging the high traditions of the Akal Takht. In 2007, police filed cases against Gurmeet Ram Rahim Singh, the head of the syncretic Saccha Sauda sect, for his purportedly blasphemous use of Sikh iconography. Earlier, in 2001, similar charges were brought against Piara Singh Bhaniarawala, after he released the Bhavsagar Granth, a religious text suffused with miracle stories.
Islamic chauvinists have shown the same enthusiasm for the secular state's god laws as their Sikh and Hindu counterparts. Earlier this year, FIRs were filed against four writers who read out passages from Salman Rushdie's The Satanic Verses — a book that is wholly legal in India. Fear of Islamic neo-fundamentalists is pervasive, shaping cultural discourse even when its outcomes are not as dramatic as Mr. Rushdie's case. In 1995, writer Khalid Alvi reissued Angaarey — a path-breaking collection of Urdu short works banned in 1933 for its attacks on god. The collection's most-incendiary passages were censored out. India's feisty media didn't even murmur in protest after the magazine India Today was proscribed by Jammu and Kashmir in 2006 for carrying a cartoon with an image of the Kaaba as one among a metaphorical pack of political cards.
Even religious belief, ironically enough, can invite prosecution by the pious. Last year, the Kannada movie actress, Jayamala, was summoned before a Kerala court, along with astrologer P. Unnikrishna and his assistant Reghupathy, to face police charges that she had violated a taboo against women in the menstruating age from entering the Sabrimala temple.
For the most part, judges have shied away from condoning criticism of the pious, perhaps fearful of being held responsible for public disorder. In 1958, the Supreme Court heard litigation that grew out of the radical politician, E.V. Ramaswamy Naicker's decision to break a clay idol of Ganesha. Lower courts had held, in essence, that the idol was not a sanctified object. The Supreme Court differed, urging the lower judiciary “to pay due regard to the feelings and religious emotions of different classes of persons with different beliefs, irrespective … of whether they are rational or otherwise”.
‘Insult to religion'
Earlier, in 1957, the Supreme Court placed some limits on 295A saying it “does not penalise any and every act of insult to or attempt to insult the religion”. Instead, it “only punishes the aggravated form of insult to religion perpetratedwith deliberate and malicious intention” (emphasis added). The court shied away, though, from the key question, of what an insult to religion actually was.
Hearing an appeal against the Uttar Pradesh government's decision to confiscate Naicker's contentious Ramayana, the Supreme Court again ducked this issue. In 1976, it simply said “the law fixes the mind of the Administration to the obligation to reflect on the need to restrict and to state the grounds which ignite its action”. “That is about all”, the judges concluded.
That hasn't, however, been all. In 1998, the Supreme Court upheld Karnataka's decision to ban P.V. Narayanna's Dharmakaarana, an award-winning re-reading of the Hindu saint, Basaveshwara. In 2007, the Bombay High Court similarly allowed Maharashtra to ban R.L. Bhasin's Islam, an aggressive attack on the faith. There have been several other similar cases. In some, the works involved were scurrilous, even inflammatory — but the principles established by courts have allowed State governments to stamp out critical works of scholarship and art.
Dangers ahead
Indians have grappled with these issues since at least 1924, when Arya Samaj activist Mahashe Rajpal published the pamphlet that led the state to enact several of the god laws. Rangila Rasul — in Urdu, ‘the colourful prophet' —was a frank, anti-Islam polemic. Lower courts condemned Rajpal to prison. In the Lahore High Court, though, Justice Dalip Singh argued that public outrage could not be the basis for legal proscription: “if the fact that Musalmans resent attacks on the Prophet was to be the measure [of legal sanction]”, he reasoned, “then an historical work in which the life of the prophet was considered and judgment passed on his character by a serious historian might [also] come within the definition”.
In 1927, when pre-independence India's central legislative assembly debated the Rangila Rasul affair, some endorsed Justice Singh's message. M.R. Jayakar likened religious fanaticism to a form of mental illness, and suggested that those who suffer from it be segregated “from the rest of the community”. This eminently sane suggestion wasn't, however, the consensus: the god laws were expanded to expressly punish works like Rangila Rasul.
Perhaps Indians can congratulate themselves that the god laws have not been used to persecute and kill religious dissenters, as the ever-expanding blasphemy laws which sprang up in Pakistan. Mr. Edamaruku's case ought to make clear, though, just where things are inexorably headed. If Indians wish to avoid the fate of the dystopia to the country's west, its citizens desperately need to accept the right of critics to attack, even insult, what they hold dear.
In 864 CE, the great physician, Abu Bakr Muhammad Ibn Zakaria al-Razi, wrote: “The miracles of the prophets are imposters or belong to the domain of pious legend. The teachings of religions are contrary to the one truth: the proof of this is that they contradict one another. It is tradition and lazy custom that have led men to trust their religious leaders. Religions are the sole cause of the wars which ravage humanity; they are hostile to philosophical speculation and to scientific research. The alleged holy scriptures are books without values”.
Following a rich scholarly life, and a tenure as director of the hospital in Baghdad patronised by the caliph Abu al-Qasim Abd 'Allah, al-Razi died quietly at his home in Rey, surrounded by his students. In modern India, his thoughts would have led him to a somewhat less pleasant end.
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