Financial Reform Follies: By Upstaging Bernanke, JPMorgan's Dimon Shows Us Where Washington Went Wrong

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By upstaging U.S. Federal Reserve Chairman Ben S. Bernanke at the International Monetary Conference in Atlanta on Tuesday, JPMorgan Chase & Co. (NYSE: JPM) Chief Executive Officer Jamie Dimon drove home a crucial point: The U.S. version of "financial reform" just doesn't work.

The fact that Dimon is one of Wall Street's own – and that he stole the show from Bernanke, who made a speech at the conference – made for high drama. More importantly, though, I believe the incident served as a reminder of why Washington's attempts at financial reform don't work.

In his speech to international bankers, a tired-looking Bernanke conceded that the U.S. economy was functioning "below its potential," something that's become very clear following a spate of recent reports that show weak output and scary job trends.

Dimon – a longtime critic of financial reform (particularly the Dodd-Frank Wall Street Reform and Consumer Protection Act) – said he fears that the attempted fixes are actually stifling the recovery. He even asked Bernanke if people won't come back in 20 years and write a book showing that the Fed and our bailouts were too heavy- handed and have become a hindrance instead of a help.

"Has anyone bothered to study the cumulative effect of all these things?" Dimon asked Bernanke. "Is this holding us back at this point?"


The Big Government Blues

Bernanke admitted that he's not certain of the exact effects that heavy regulation and financial reform have on economic growth.

But the results seem pretty clear to me, and I don't think it'll take 20 years to show it: Bigger government equals a smaller wallet.

Protectionism and big government have never produced sustained growth, even in good times.

Never forget that the things we take for granted today – everything from cell phones to ATMs and computers – were the products of private-sector "risk capital," not a government that presumes it knows how to spend money better than the free markets.

So if governments have never been able to engender economic growth over long periods of time, why on earth would they do that now?

Productive "Financial Reform"

We are in the pickle we are today because the U.S. government has aimed to keep Wall Street happy. The Obama administration, to paraphrase U.S. Treasury Secretary Timothy Geithner, has saved Wall Street – but at the expense of Main Street.

If the Obama administration really wants to make a difference, quit wasting time with half -baked ideas about financial reform and noble concepts and get down to brass tacks. Bring in somebody who really knows how money works instead of more academics. Give them the ability to make Wall Street mad by dragging them into the harsh light of public scrutiny, the way the Pecora Commission did in the 1930s – then you'll know you're on to something.

That being said, if what "keeping Wall Street happy" means is to engender higher stock prices, that course of action is fairly clear: Smaller government equals bigger profits.

Cut taxes, eradicate rules that make hiring punitive, eliminate regulation and stabilize the U.S. dollar – giving Wall Street a reason to repatriate for investment here the trillion dollars it's parking offshore . This will help small businesses, too, because now people who would otherwise be restricted from borrowing or who are priced out of the market by inflation will use the money to do constructive things and rebuild our national wealth at all levels.

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About the Author

Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs The Geiger Index, a reliable, emotion-free guide to making big money and avoiding losses, and Strike Force, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.

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  1. Tim Williams | June 9, 2011

    I have written about the economic conditions here for some time and still our elected officials continually miss the boat. In fact they don't even make it to the right pier. Achieving the Williams theory of Economic Evolution is what any economy strifs for. Only complete reform of alll policies of the past 40 years especially our trade agreements. Using National Economic Reform as the blue print will achieve the results that are so necessary.

  2. KB | June 9, 2011

    Well said, Mr Dimon. Too bad the top dogs in DC are deaf as well as dumb about money. Talk to them about votes, and maybe they would hear better.

  3. James | June 9, 2011

    Sir,

    Main street can do little, if anything to stop Washington! Elections are only scheduled for the "convenience" of politicians, and their re-election! The financial sector, Wall Street and the banking industry must find the courage to stand together and tell the government where "The Cow ate the Cabbage" so to speak. Stand up as an industry and tell the government that this segment of American business will no longer stand for this "intended destruction" of the economy, tell them that, as an industry, you will speed-up the moving of additional Trillions of Dollars to safer offshore locations where profits and income are still appreciated. We, the investors, will "follow the money", we have no other logical decision to make. We mostly all realize that this administration is intent on destroying our "Capitalist Free Market" system, convert us to a "Socialist Top-Down" system. Our savings and investments are being destroyed so that the administration can put us all in a position of being "equally broke" and force us to accept their "new system"! I have worked all of my life for a "profit", aka, income to support my family. Your industry/business is based completely on income and profit, most smart folks understand that profit is not evil, it is the "fruit" of a successful life!

    • Jason Rines | August 12, 2011

      James, the outsourcing horse left the barn decades ago. If you are truly a die-hard capitalist, why are you mad your being forced to either invest in the East or go bankrupt? That is what leadership has decided you must do, including Obama.

      As for the United States, 260k lobbyist in Washington 45+ Czars, need I say more? And Bush started with the Czars.

      The end of the 1st American Republic is upon us. Perhaps next time we will learn of the evils of free trade, like in the book Animal House and the enduring problematic question, Qui Bono?

      As for Dimon and JPM, consider they were the kings of the U.S. monetary system prior to the Federal Reserve. Consider their strengths in the silver market. There, they also were kings and will be again. Dimon is frontrunning the inevitable return to a PM standard. He is shrewd, but begging this man to go outside his own interest is useless arm waving.

      The outcomes for a Corporatist regime with a massive military supporting global trade and unfortunately, far too many vested interests is world war.

      Perhaps afterward we'll rebuild to have a more stable society as we go through natural centralization and decentralization cycles. Promoting institutions that exacerbate losses (Central Banking) during these cycles has proven to be a very bad idea for mankind and are not capitalism where both sets of predator and prey agree to the game as 'winners and losers', they are Fascists deciding the outcomes in advance. Return money as the utility it belongs as vs. the perception that becomes reality that it is a store of value.

  4. Marty Johnson | June 9, 2011

    If Dimon has at times been a questionable factor in the banking economy, his actions in this case are to be highly praised. After so many fat-cats in large enterprises encouraged, supported, then defended the union/community organizer now in the White House, what a relief that after so much silence, they finally caught on to the thuggery of this administration. What took so long?
    Even highly rational and perceptive people such as Warren were in his camp. After the trends became clear about this group, the "big boys" said nothing, obviously afraid of the consequences. After all, if Black Panthers can intimidate voters in Philly with only iron pipes with no fear of punishment, what are the limits to the full American government in the hands of this nest?
    Slowly, the big boys are finally standing up to conditions likely to destroy this country as we have known it. The threat to theiir own enterprises, personal freedoms and fortunes, and the actual survival of our very way of life is finally clear to all who can recognize the grievous error of backing a self-described socialist. Its late to happen, but encouraging. Four more years of this and it will all be gone.
    I can understand common people being fooled by the apparent allure of the man. But intelligent, big guys too? Incomprehensible. If we don't get a whole lot more Dimons standing up and screaming, we're toast.

  5. Barbara R | June 9, 2011

    One way to repatriate those dollars is to fix the corporate tax rate. I hate tax code engineering with a passion but since it is going to happen, why not make it work to cure some ills. They will never get rid of the progressive tax and deductions because that is the fount of a politician's power. Controlling taxes = control. If we went to a flat tax of some sort without allowing ANY deductions and if we got rid of ALL SUBSIDIES, we'd probably be better off. However, it will never happen because no politician wants to cede that control and power. So since it won't, why not tie a reduction in the corporate tax rate with hiring in the USA. I read this suggestion on-line and it gels with some other posts I and others have made. The current corporate tax rate is around 35%. Put in progressions down to O% (i.e. – no tax). During a company's corporate tax year, if the company hires 100% of their hires and plant openings in the USA with LEGAL US citizens, they will pay NO CORPORATE tax that year. If they hire at 95%, then it will be 5%, 90% hires with tax of 10% – you get my drift. Some years it might behoove a company not to hire as many here as overseas for company purposes so they would pay the higher 35% rate that year but they would get a break for hiring here in the USA. Maybe this would give them the incentive to hire here and would feed upon itself. More hires here means more jobs, more taxes paid (payroll, etc.) and most importantly MORE GROWTH in the economy. I have seen several posts about this but have not heard any politician propose anything like it – i.e. a real plan made into law.

  6. Alan Bickerton | June 9, 2011

    I have said since the original plea from Paulson for 750B$ that I feel this chosen method of re-funding Wall St for it's collosal excesses and stupidity in designing all the derivatives which nobody had properly risk-calibrated, will prove to be FAR more expensive to this generation and subsequent generations than if the big banks in peril had ben allowed to sink entirely. Remember that our parents who lived thru the depression, actually learned some frugality. The bailouts have not taught anybody anything at all and Wall St ticks along as if nothing happened.

  7. Louise Cave | June 9, 2011

    The above info reads as an excellent encapsulation of our fiduciary plight, but WHO and WHERE are these non-academics with the ability to halt the recession that is down-spiraling into depression? I watch on TV the entire daily process of elected mouthy buffoons in Washington as they deliberate issues that have nothing to do with the real problems with the economy, but often serve as a palliative to their constituencies and as a vehicle for their political careers.

  8. Douglas Shackelford | June 9, 2011

    It is certainly true that government regulation, no matter what form (mandates, taxes, etc.) slows down the economy, pretty much the same way the referees slow down a basketball game. However, without clear rules about how the game is to be played and without someone calling the fouls, you get chaos. The biggest and strongest would dominate and skill would have less value and innovation (within the rules), would be lost.

    Our challeneg is to determine which rules to implement and which fouls to "call" so the the game is dominated by the best players with the best team, with the best game plan, instead of the big bully (could that bully's first name be Goldman or their initials AIG?) that ruins it for everyone.

    The rules may be OK, but it's clear that there aren't enough fouls being called. Somebody should have been tossed for at least their second flagrant foul by now.

  9. DWKilp | June 9, 2011

    Mr. Dimon's "critical point" seems to be that JPMorgan Chase & Co and other Wall street financial institutions would like to totally deregulate US banking to their advantage. It appears that they wish to throw out all regulations and oversight which does not allow them to continue their rape and pillaging of the US economy. Mr. Dimon sights that "rsik capital" brought us "cell phones and ATMs and computers". Well the key word here is "risk". What Mr. Dimon and our current financial institutions appear to be doing is trading "paper" which produces nothing but more dollars for the Wall street elite. There is plenty of money out there to invest in start up and small businesses, but financiers appear to be witholding investment until they can get the Reform and Consumer Protection Act overturned or modified (watered down) sufficently, so that they can continue their exploitation; and, when it goes wrong the american taxpayer can oblidge them by bailing them out. What Mr. Dimon seems to elude to in his comment about "risk capital", is to the days gone by when financial institutions did take "rsik" by investing in new technologies and products and their reward was the possiblity of a profit. That apparently is not the view of our current financiers.

  10. Fergus Mclean | June 9, 2011

    A bit of a non sequiter isn't it? On one hand, a strong and knowledgeable regulator to turn over rocks and make the banksters do business in the light of day. On the other, eliminate regulation. Which is it?

  11. Steve Rison | June 9, 2011

    Big government or small government doesn't matter. With either one there will always be unintended or unpreventable consequences that hurt the majority of people. I don't accept that Obama, Bernanke and Geithner purposefully set out to support Wall Street at the expense of Main Street. That is simply the unintended consequence of their actions. I suspect they collectively thought/hoped that Main Street would benefit too.

    In your assertion that less government regulation is better for everyone, you appear to ascribe a nobleness and egalitarianism to the free market which I don't believe exists. The free market does not exist separately from human nature, and it is clear from at least 10,000 years of human history that humans act mainly based on fear and greed, and not on selfless service to humanity. Whether it is the economy or government or the social sphere of human experience, fear and greed are the primary motivators. Only in times of great crisis or disaster do humans rise above their self-interest to help others, and only when robber barons acquire wealth beyond imagining do they become philanthropists.

    More regulation will not eliminate abuses of power, but neither will less regulation. The abuses will still occur, as will the unintended consequences. What will remain the same is that the majority of people will be hurt rather than helped, either by misguided government or by self-serving free-marketers.

  12. fallingman | June 9, 2011

    What a farce. Dimon publicly facing off with his lapdog at the Fed. That's just theater for the consumption for the same dopes who think that the "battles" between the Democrats and Republicans have any substance when they're within 1% of each other on the amount the government should spend.

    JP Morgan (the man) created the Fed, acting in cahoots with the others comprising the "money power" at the time. They created a competition-killing cartel that would serve as the ultimate backstop when (not if) they got into trouble. How nice for them. And, here's the kicker. They pushed it through the legislature under the guise of protecting the public from the Money power! They were publicly opposed the creation of the Fed. It was an enormous con…a total bamboozle.

    For all intents and purposes, JP Morgan (the firm) IS the Fed.

  13. John D. Craft | June 9, 2011

    Dear Mr. Dimon,
    I would like to say at 77 years old my S.S. and small savings just don't cut it anymore.
    The interest I get on a CD is less then 1%. Back in the 40's you could get 3% at any bank
    with no risk involved. It's to bad your not running the FED. Maybe then things would get
    better. I have four greatgrand children and am worried about their future. Hopefully as
    long as we have intelligent people here in the U.S. like you things will get better.
    I would like to have faith in our system but I believe that time has passed us by.
    Keep up the good work. We need intelligent people like you on our side.

    Thank you,

    John Craft

  14. jj | June 9, 2011

    The U.S. is a Democracy.As long as the majority of Americans are short term greedy and long term stupid I don't see any way we are going to move to a better govt.In any event,it took decades of govt growth to get to where we are today.Everyone wants instant solutions and there are none.

  15. Dr. Bill Lemoine | June 9, 2011

    I'd make a pithy comment, but my last 2 weren't published by financial websites/blogs–critical reasoning, but with solutions. Too bad we can't see what would've happened with no bailouts. Does 1929 come to mind with suicides, bankruptcies, depression for years, soup lines? No thanks, I'll take Bernanke, Geithner & company anytime!!!

    Where are the local taxes on excessive offshore profits, pioneered by good ole American ingenuity and hard work? What a greedy bunch. I'd give up some dividend income to see the gigantic (wealthy) people and companies pay their FAIR share like I do (not GE).

  16. Roger Wickes | June 9, 2011

    Somewhere in our past we started mixing business and politics, and now have so far mixed up the discussion to the point where we now look to legislators to fix the economy. We are so far off base in looking to Washington for leadership on improving the economy.

    It's like expecting your dentist to fix your car. Politicians do not know how to fix or bolster a true economy. Their job is to regulate (throttle) industry, tax, and distribute revenues to social needs. Their job is not to nurture the golden goose; their job is take 30% of the eggs, and at the same time, to try not to kill the goose because of their regulations.

    Well, people, we need to understand that government needs to regulate less, provide a safe environment for employers, and stick to what they know best. They are not qualified to tamper with the dietary intake and feed of a goose, much less tinker with business and the economy. Anything they do at this point is just making it worse.

  17. Bill Anderson | June 9, 2011

    There's always one turncoat. "After" they make the big money This guy realises the gig is up.

  18. Gary Semlak | June 12, 2011

    Money like sex has no conscience and apparently never worries about consequences. The mandate for both is to "be fruitful and multiply." It's the head of a fish that always rots first, destroying the rest of the fish in the process after. Wall Street's use of other people's money started this mess and they need to straighten it out. Julius Caesar said it best: "If the people cannot rule themselves, I shall have to rule for them." It's been that way with every government since he uttered those words. If Wall Streeters can't control themselves, then government has no choice but to intervene, Ayn Rand notwithstanding. It should come as no surprise when the population stands on the sidelines shouting "crucify them, crucify them." Corporate America should stop bitching , ala Jamie Dimon, and do something creative to grow our economy. All their handwringing is useless. Bring home some of that money sitting in foreign banks and invest it here–wisely, of course. Regulations exist for a reason: because the top people got greedy. Doing away with greed is impossible, so live with Government intervention the best we can.

  19. Naanu | July 14, 2011

    For the paper and pencil sake US is democratic, but actually the way the country and people behave it just "POLISHED DICTATORSHIP'.Foolish Americans.Money morning chief economist has written that Americans are dumb and deaf.

  20. Alberto Quintana. | September 17, 2011

    If the President wants to make the difference, and create jobs for americans, he should resign. And we will see the difference. He is inapt to be President.

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