Financial Reform

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.”

Reactions to departing Goldman derivatives salesman Greg Smith’s “Why I am Leaving Goldman Sachs,” which appeared as an op-ed in the New York Times last week, have ranged from the hyperbolic — Robert Reich’s “If you took the greed out of Wall Street, all you’d have left is the pavement” — to the addicted — Mayor Michael Bloomberg’s “we need their taxes” (my paraphrase).

Both views are problematic, as I will address. But first, some historical context:

Last Friday, I participated in a Special Briefing on Capitol Hill in support of the Financial Transactions Tax (FTT). I came as a seasoned practitioner speaking on behalf of the real economy, not for the interests of the Wall Street trading community.  What I tried to convey was that what the US and World needs is enhanced capital market function, and that an FTT can help bring it through a feedback loop, rather than complex regulation. The $50 billion plus of annual deficit reduction is a bonus. The session was standing room only, a big change from the Washington press briefing I participated in over a year ago. Is change afoot? 

Last week was a busy week in the world of financial reform.  Congress passed “the most sweeping financial reform legislation since the Great Depression" (at least measured by its 2,300 pages).  Treasury appears to be blocking the selection of Elizabeth Warren to head the new consumer financial protection agency, despite its denials.  And the SEC declared victory and settled its fraud case with Goldman Sachs for $550 million, the largest ever on a Wall Street firm.  Some question whether 2.8% of it’s 2009 pretax profits and less than 1% of its market cap constitutes a large fine.