“As a group,” the economist Robert Lekachman wrote in 1976, “economists are slightly more entertaining than bankers and a trifle duller than lawyers.” Bankers, please note, were the dullest of all. And while Lekachman (with John Kenneth Galbraith, the wittiest economist of his generation) authored many books and papers well outside his profession’s mainstream, his assessment of bankers was not intended to provoke controversy and didn’t. In America before Reaganomics, banking was dull.
That’s one reason Jimmy Stewart’s George Bailey in the classic “It’s a Wonderful Life” feels so thwarted and dissatisfied. Running Bailey Building and Loan was pretty humdrum stuff, though it was a boon to Bedford Falls.
With the deregulation of finance, however, bankers’ capital — financial, social and cultural — soared. And as they accumulated a steadily larger share of the nation’s wealth, Wall Street traders and executives became market-makers for not just securities but also Fifth Avenue duplexes, townhouses in Mayfair, Caribbean islands and high-priced hookers. They were celebrated in print and television journalism. Mega-wealth transformed them: They were dull no more.
Which, I suspect, may be one reason JPMorgan Chase chief executive Jamie Dimon — a man who could give hubris classes to Oedipus — went out of his way not simply to criticize the “Volcker rule,” which would restrict banks from making risky proprietary trades and swaps, but to attack Paul Volcker personally. Volcker, 84, is an old-school banker unimpressed by the financial “innovations” that led to Wall Street’s ascent over the rest of the economy. Its sole innovation that actually helped real people, he famously remarked in 2009, was the ATM.
After the 2008 crash, Volcker proposed legislation restricting depositor banks from funneling their own funds into chancy investments. Wall Street erupted. Well, it would have erupted if it had had any credibility left, but Dimon — the one banker who came out of the panic with his bank and his credibility intact — erupted on behalf of his bank and the street. In recent months, as JPMorgan lobbyists sought to weaken the Volcker-derived provisions of the Dodd-Frank financial reform, Dimon fairly oozed contempt for Volcker, whom he depicted as an old duffer out of his depth.
“Paul Volcker by his own admission has said he doesn’t understand capital markets,” Dimon told Fox Business in February. “Honestly, he has proven that to me.” At a private dinner in Dallas last month, the New York Times’ Gretchen Morgenson recently reported, he called Volcker’s criticisms “infantile.”
Volcker didn’t merely want to reinstate prudential standards that would effectively lower the big banks’ profits. He was also a relic of banking’s boring past, having worked as an economist at a bank (Chase Manhattan) and later managed the Federal Reserve at a time when commercial banks were forbidden from investing their depositors’ money by the terms of the 1933 Glass-Steagall Act (which, until its repeal in 1999, spared the nation from the convulsions of a Wall Street collapse). Rumpled and unglamorous, Volcker personified banking before big money gave it glitz. He implicitly threatened to drag it back to the days when Wall Streeters occasionally had to hail their own cabs.
Now, Dimon has confirmed the wisdom of both the Volcker rule and Glass-Steagall. Precisely because JPMorgan may be the best run bank, and Dimon the most risk-sensitive CEO, their failure to grasp that their hedge on their hedge on their investment in corporate bond indexes exposed them to major losses and couldn’t readily be unwound makes the case that today’s financial innovations are too complicated for even the smartest bankers and too risky to be entered into with depositors’ funds.
Indeed, Dimon’s debacle calls into question several fundamentals of modern financial capitalism — globalization among them. Like AIG, JPMorgan Chase is a New York-based company whose miscreant and highly profitable investment unit was located in London. In theory, modern communications should obviate any problems that might create. In practice, it’s clear that transatlantic oversight — by the companies themselves and by regulators — was less than diligent.
Jamie Dimon remains a big deal. He still runs America’s biggest bank. But if Dimon’s bank and others like it are not to periodically blow themselves up — taking the economy down with them — they’ll have to be made smaller, safer and less dashing. They’ll have to become boring again, as they were in the days when the U.S. economy — one Bedford Falls after another — thrived.