It’s often said that one should not pass judgment on another until he has walked a mile in her shoes.However, I’m compelled to give my opinion on the ongoing saga of the JP Morgan Chase derivatives scheme that has — so far — cost over $3 billion US. This appears to be a massive failure of top management to police itself, to comply with its stated policy and objectives, and to take responsibility for its actions.
Jamie Dimon, CEO of JP Morgan Chase, has long been a proponent of loosening restrictions on the finance business, yet he makes a compelling argument for tightening those restrictions every time he speaks up before Congress. Dimon says he accepts responsibility for the failure of the derivatives fund (and he’s oh, so sorry) but he has yet to act on his stated concerns.
In a fantasy world, here’s how I believe the company would have handled their “faux pas”:
(Company spokesperson comes to lectern, begins speaking to press.)
“As I’m sure you’re aware by now, J. P. Morgan Chase was involved up until very recently with a portfolio designed to lower, or hedge against, risks the company faces when investing its and its clients’ money. Unfortunately, this hedge fund did not work as intended. The result was a loss of at least $2 billion to us and our clients.
“We understand that while the losses were stopped and, therefore, could have been much worse, this fact does nothing to assuage our clients’ fears that we are taking unnecessary risks or that this situation will get worse before it gets better.
“JP Morgan Chase has had a reputation for sound asset management. We weathered the recession of 2008-2009 better than most investment banks because of our normally cautious and conservative approach to money management.
“Our recent incident with derivatives does not reflect that time- and market-honored approach. We have been accused of betraying the trust our clients have historically placed in us.
“We recognize our responsibility to the public, as we recognize the enormous influence we have on the markets. We realize we have a lot of work to do in the coming months (and probably years) to restore everyone’s confidence in us and in the markets.
“None of our clients should suffer a financial setback due to our miscalculations, just as none of our investment advisors should profit at the expense of unsuspecting, unsophisticated investors. This was JP Morgan Chase’s error and it is up to our firm to bear the costs of this mistake.
“We have, therefore, elected to cancel all bonuses in conjunction with the derivatives fund that have yet to be paid out. Furthermore, we are asking that those who have already been paid bonuses begin to reimburse the company. If they do not do so willingly, they should be prepared to face the attendant social and legal repercussions – we will not protect them.
“Mr. Dimon, our CEO, has asked the board of directors to withhold any compensation due him for the duration of the recovery.
“Furthermore, if the Securities and Exchange Commission deems it necessary to conduct an investigation into the failed derivatives process, JP Morgan Chase will cooperate fully.
“We want to assure our investors and the public that we are doing everything possible to restore their confidence in us and we are open to suggestions from all quarters on how we can improve. We now have a web page dedicated solely to this issue and we invite all visitors to our site to post their recommendations as to how we can get through this issue with little or no damage to all involved, especially the investors and shareholders.
“Thank you. I’ll now take questions from the press.”
Mr. Dimon, with all due respect — what we have here is failure of leadership. You owe us so much more.
Now, let’s hear your opinions. Is Jamie Dimon getting off easy or has he been punished enough?