Who's The Man in the Arena?

Now back in the news is Jamie Dimon, CEO, JPMorgan Chase. At the fault-line of the 2008 banking catastrophe, he was a prescient high-ranking bank-industry-leader who assisted Hank Paulson, US Treasury Secretary, to save our nation and world from a disastrous economic depression. In Too Big to Fail Andrew Sorkin chronicled the ensuing crisis steered in part by Dimon:

                Of the handful of principals involved in the dialogue about the enveloping crisis—the government included—Dimon was in an especially unusual position. He had the closest thing to perfect, real-time information. That “deal flow” enabled him to identify the fraying threads in the fabric of the financial system, even in the safety nets that others assumed would save the day.

                Dimon began contemplating a worst-case scenario, and at 7:30 a.m. he went into his home library and dialed into a conference call with two dozen members of his management team.

                “You are about to experience the most unbelievable week in America ever, and we have to prepare for the absolutely worst case,” Dimon told his staff. “We have to protect the firm. This is about our survival.”

                His staff listened intently, but no one was quite certain what Dimon was trying to say.

                Like most people on Wall Street—including Richard S. Fuld Jr., Lehman’s CEO, who enjoyed one of the longest reigns of any of its leaders—many of those listening to the call assumed that the government would intervene and prevent its failure. Dimon hastened to disabuse them of the notion.

                 “That’s wishful thinking. There is no way, in my opinion, that Washington is going to bail out an investment bank. Nor should they,” he said decisively. “I want you all to know that this is a matter of life and death. I’m serious.” Then he dropped his bombshell, one that he had been contemplating for the entire morning. It was his ultimate doomsday scenario.    

                “Here’s the drill,” he continued. “We need to prepare right now for Lehman Brothers filing.” Then he paused. “And for Merrill Lynch filing.” He paused again. “And for AIG filing.” Another pause. “And for Morgan Stanley filing.” And after a final, even longer pause he added: “And potentially for Goldman Sachs filing.”

                There was a collective gasp on the phone.  

Sorkin's words in a closing passage of Too Big to Fail:  When the post-bailout debate was still at its highest pitch, Jamie Dimon sent Hank Paulson a note with a quote from a speech that President Theodore Roosevelt delivered at the Sorbonne in April 1910 entitled “Citizenship in a Republic.” It's a quote, well familiar to me, which over the past several years frequently has been used by leaders, perhaps, either seeking a deserved recognition or to inspire others. In the late 1990s Lon Greenburg, UGI Chairman, at an annual AmeriGas managers meeting, recited Roosevelt's famous quote for motivational purposes but possibly more to challenge the managers. Indeed, I took it seriously, committing the words  to memory, on occasions sharing with others. It reads:

It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.

With the latest JPMorgan financial debacle, a loss of $2-or-more-billion in credit derivative trades (credit default swaps), what can Jamie Dimon say about his  worthiness  of arena, his dust, sweat and blood  endeavor?  In his words: "We know we were sloppy. We know we were stupid,” Mr. Dimon said. Of the S.E.C.’s investigation, he said, “Regulators should look at something like this – that’s their job.” Banking by nature is risk-taking, if not a gambling institution with excessive, risky trades in derivatives, such that brought world economies to the brink of disaster in 2008.

The economist Adam Smith of the late 18th-Century wrote of the "invisible hand," a natural working that guides unfettered free-markets for the greater good of society. A current-day economist at Columbia University, Joe Stiglitz a Nobel Prize lecture in 2001, declared that the invisible hand "might not exist at all." The solution, Stiglitz says, is to move beyond ideology and to develop a balance between market-driven economies—which he favors—and government oversight.

Before a congressional committee, Alan Greenspan was questioned: “You have been a staunch advocate for letting markets regulate themselves. And my question for you is simple: Were you wrong?” Greenspan answered, “Yes.” And so have a vast number in government and some in business come to the same conclusion.

In Dylan Ratigan's Greedy Bastards, he speaks of the culture of certain businesses, at times with assist of government's policy, who do not create value for the economy:  "I’m a capitalist; I am in favor of making lots and lots of money, as long as it comes from creating value for others. Americans have a long tradition of getting rich by making a great product or service that contributes to the growth of our country. But greedy bastards have given up on creating value for others and instead get their money by rigging the game so that they can steal from the rest of us." (Ratigan's implication of greed should not be taken blanket across banking or industry otherwise.)

Bearing in mind that banking is the foundational core, the pertinent, imperative hub,  by which many times mass-world economies succeed or fail  --- and that government's guarantee of deposits are a risk in taxpayers  bailouts ---- should banks be held to higher standards of regulation, such as prescribed by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act? The answer is an unconditional YES, if as Warren Buffett says of Uncle Sam:  inevitably "when businesses and people worldwide race to get liquid, you are the only party with the resources to take the other side of the transaction. And when our citizens are losing trust by the hour in institutions they once revered, only you can restore calm." No doubt bank reforms unfairly put cost burdens on many regional and community banks which did not abuse rules of ethics/integrity or excessive risk in derivative trades. These are such as I wrote about in Frankly Speaking - Too Big to Fail.

Evidenced by the current JPMorgan failure and as Andrew Sorkin wrote as early as 2009 in his TBTF, banking follies continued even after the bailout:  "Meanwhile, Wall Street, bent but not broken, rumbles on in search of new profits. Risk is being reintroduced into the system. Vulture investing is back in vogue again, with everyone raising money in anticipation of the collapse of commercial real estate and the once-in-a-lifetime bargains that might be available as a result. Perhaps most disturbing of all, ego is still very much a central part of the Wall Street machine. While the financial crisis destroyed careers and reputations, and left many more bruised and battered, it also left the survivors with a genuine sense of invulnerability at having made it back from the brink. Still missing in the current environment is a genuine sense of humility."

In Dimon's interview with David Gregory on Meet The Press Sunday he said, "I agrees with 70% of the Dodd-Frank financial reform." Just what part is the 30% he does not agree remains unclear. Dimon says, above all he's a patriot and  a "barely  Democrat," annoyed by those he thinks who have portrayed Wall Street negatively.  As the point man for large-bank's fight against regulation, he admits his capital has been reduced with this latest miscue.

Jamie Dimon resonates a persona of generosity, a man who would do right by those he would lead in his firm.  As he says "mistakes will be made" and Ina Drew a 30-year seasoned banker, under Dimon's directorship, lost $2 billion and potentially as much as $3-4 billion or more. Unseemly, only she and a couple of subordinates take the scapegoat brunt  ---when in actuality they were simply trading in hedging schemes undeniably that Dimon and the industry approved.

Dimon makes some excellent points about mistakes the country has made, a paralyzed government, etc. and a correction pathway, better collaboration between Government and Wall Street, fair taxing, e.g.  Without question, Dimon is a gifted and qualified Chairman/CEO. But do we really know this man in the arena, who has apparently given derivative trading a high priority?

·         Does he in truth believe that "risk on risk-control trading" creates genuine value for economic growth?

·         Is he devoid of greed that would allow corporate gain through rigging the game, taking advantage of  lenient or fallible government controls?

·         Is he mindful that Adam Smith also wrote about the eagerness of business owners to make even more profits by thwarting the invisible hand; that Smith warned that unchecked self-interest, especially when aided by the government, will spoil the benefits of capitalism?

·         Does he acknowledge a growing inequality for competing in this economy: Of each dollar people earned in 2005, the top 10 % got 48.5 cents. That was the top tenth's greatest share of the income pie since 1929, just before the Roaring Twenties collapsed into the Great Depression.

Dimon, as reported at JPMorgan's annual stockholders meeting yesterday  was more subdued than in the past. Perhaps an interim failure in riches-madness reduced him to conciliation for true humility.

Will we ever understand this man in the arena? Possibly, the demand made by stockholders, individuals and, e.g., even religious organization's investments, feed to a Dimon-realism, his responsibility to the Corporation. When stockholders are invested, stock prices and dividend expectations pressurize the competitive markets; the unrelenting burden to the Dimon CEOs, not only for the long-run, over the last many years has become increasingly important for quarterly profits.

If as stockholders, with principled mores, we do not totally buy into an unfettered capitalist market, allowing "money to riches" to become the supreme objective -- our empathy  to know "the man in the arena" may mature.  Collectively, we must share the failures of an imperfect system; it is the arena we have built through shortcomings of the democratic process, government and business alike. And, just possibly, we should more fully appreciate Jamie Dimon's toils. He knows the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly.