It's hard to disagree about the beuracracy and litigiousness of the country.

But that doesn't mean that he's correct that the core issue are the restrictions put on banks 5 years ago. That is so self-serving. Remember the banks got bailed out after the recession; but the people lost their homes. More money has flowed to the top during this time period, making lives harder for average Americans.

It's hard to be sympathetic to Mr. Dimon.

Who used price control mechanisms to hold interest rates low while the housing boom spiraled out of control? (The Fed.) Who provided a loan buyback program incentivizing bad loans? (Fannie and Freddie, pseudo government agencies.)

The 'popular wisdom' that the banks all simultaneously started acting differently, and against everyone's best interests, including their own, is foolish at best.

This is a nice write-up of the real estate crash, which underlies the recession as a whole: https://admin.fee.org/files/doclib/houseunclesambuiltbooklet...

We had a housing crash that somehow led to hundreds of trillions of dollars missing.

Add up the value of every house in the USA. They're not hundreds of trillions of dollars.

The banks got really creative, a bunch of people made nice bonuses, then when their fancy leveraged mechanisms went bad, we all had to bail them out.

Hundreds of trillions? The entire wealth of the US is around 88 trillion (https://www.wsj.com/articles/americans-total-wealth-hits-rec...).

> The banks got really creative, a bunch of people made nice bonuses, then when their fancy leveraged mechanisms went bad, we all had to bail them out.

You will have to be a little more specific to discredit the economic mal-incentives created by the government and to spin that simple narrative.

And the amount of paper wealth lost in '07-08 was actually about 10 trillion, not "hundreds of trillions."

The point stands at 10 trillion, thanks for the correction.

I'm not sure what you want with more specificity. You're familiar with the situation, right? You want a book report on what happened?

Yes, the government exists, and no, a few extra loans for black people didn't crash the housing market. This was a problem between ratings agencies, salespeople, and financial instrument inventors.

For comparison, according to Richard Duncan the foreign exchange reserves was raised by $7 trillion for a total of $9 trillion: https://www.richardduncaneconomics.com/currency-manipulators...

There's no reason a person that does not work in finance should have a deep understanding of the US financial system, but don't try to spin a narrative without knowing what you're talking about. You should read the article I initially posted before replying to it.

The article you linked is way, way out of the mainstream on the topic.

That's fine and all but turning around and accusing the conventional wisdom of 'lacking a deep understanding' is a bit much.

Unfortunately, you are correct about that -- it isn't a mainstream view at all, which is why I share it during relevant discussions.

However, the fact that a narrative with political implications is "mainstream" does nothing for its credibility. I try to understand how these things work and while it's a pretty nebulous domain, the factors I presented are what seem to be the most significant I've seen in explaining the behavior of the real estate market, and further, the market at large, in '01-'08.

We are both rightfully upset that the crisis "somehow led to trillions of dollars missing" -- while paper wealth and market cycles are inevitable, the magnitude and 'unfairness' of this event is clearly a problem. However, when you then confidently assert the cause: "banks got really creative, a bunch of people made nice bonuses, then when their fancy leveraged mechanisms went bad, we all had to bail them out" without any details or refutation of the explanation I posted, to which you were responding...

Well, what I read was "I'm not sure what happened but I don't like it [rightfully so], and this narrative gives me an easy scapegoat -- an evil, shadowy figure, of sorts -- to blame, which seems to absolve me of needing to understand any of the mechanics involved, and which also happens to validate my pre-existing political beliefs."

Funny, I think the same thing about evil, shadowy scapegoats.

When we have a market crash caused by private actors trading and someone says "OBVIOUSLY the problem is GOVERNMENT" I think they're arguing backwards from ideology rather than working forwards from observation.

Indeed, which is why I made sure to include something different: the technical analysis and mechanics of the issue.

Bad loans were not incentivized by GSEs; it was rating agencies who were rating junk at AAA standards.

At the behest of the banks, who were looking to repackage product.

The ratings agencies, and their importance in the financial system, have been shaped in large part by government policy.

https://en.wikipedia.org/wiki/Nationally_recognized_statisti...

>the banks started acting differently, and against everyone's best interests, including their own

But that's the rub: "a bank" is just some paperwork, it doesn't have interests. The reason a banking executive might want to issue bad loans is, they raise short-term profits, which translate into incentive-based bonuses. When those loans inevitably go into default, the loss isn't on the executive, it's on the corporate account and, by extension, the shareholders. Of course, when it later becomes possible to securitize the loans and foist them off onto institutional investors (who think "mortgages, what could be safer?"), the game becomes about origination.

> "a bank" is just some paperwork

No, a bank is typically a corporation with the shareholders you mentioned, who have immense interests in the longevity of the company.

> The reason a banking executive might want to issue bad loans is, they raise short-term profits, which translate into incentive-based bonuses.

How do they raise short term profits? The bank just gave away X dollars for the loan. The profits are only projected on paper, and they assume a given interest profit on inflation and compared to the nominal interest rate. So don't you see how holding artificially low interest rates would distort this process? And don't you see how government programs to repackage and subsidize parts of this debt would incentivize more of it?

What I truly don't understand is how so many people believe that the banking sector all of a sudden got greedier than usual in concert. There is a reason that their actions follow economic incentives, and the negative ones are largely following stimuli introduced by the government in the early 2000's.

A corporation is also paperwork, which also does not have interests. Only people have interests. Shareholders have interests, but they're usually not privy to the actual inner workings of a business. I mean, even ultra-libertarian finance recognizes this, under the name "principal-agent problem."

Banks don't give away money when lending; the situation is a lot subtler than that. First, consider that, when you deposit money in your bank account, you're loaning the money to the bank. From the bank's perspective, you've given them cash, which is an asset, and they've given you the right to demand the cash back, which is a liability. This being a loan, they pay you a small amount of interest. Second, consider that you can create liabilities on yourself ex nihilo just by writing "I owe you $5" on a piece of paper and signing it, which creates an asset for the person you give the IOU to. Third, consider that, if you're incredibly trustworthy, these assets that you created are marketable---and if you've got the backing of the Federal Reserve and the FDIC, then those assets will trade at par.

With all this in mind, it should now be clear that, when a bank creates a loan, it creates the assets for the loan by creating corresponding liabilities on itself, which is, new deposit account balances. That is, the bank creates "bank money" (deposits) ex nihilo when issuing a loan. The borrower creates a corresponding asset/liability pair, in the form of the loan itself (i.e., similarly to a bond), which is an asset of the bank.

In this situation, losses only occur if the loan goes into default and gets written off the bank's balance sheet. As long as the loan is in good standing, the created deposits (liability) are in balance with the created debt instrument (asset). On the other hand, the loan being paid off reduces deposits (reduction of liabilities), of which the principal component is used to write down the loan (reduction of assets) while the interest component is profit (increase in capital). There are more layers to this (what if the deposits are cashed out, or transferred to another bank?), and answers to those questions concern the actual role of the Fed, but suffice it to say, those questions don't refute this discussion.

So this is why a bank executive would do this. As long as the loan remains in good standing, it generates profits. Once the loan defaults, those profits are wiped out by the write-down of the remaining debt (reduction in assets), and while the bank can foreclose (take over the house, which increases assets), that usually isn't to the bank's favor. But that window, where profits go up and before the losses are realized, is a gold mine for corrupt executives.

This game was played before, which was called the Savings and Loan Crisis. The thing that changed was deregulation: the S&L debacle got people sent to prison, while the latest resurgence of liar's loans came in an era of notoriously ineffective banking oversight.

No need to write an essay to explain basic banking.

> but suffice it to say, those questions don't refute this discussion.

You should address them -- you've completely avoided the point. There is no dispute about the mechanism; I'm interested in the cause / incentive that drove the results.

> The thing that changed was deregulation: the S&L debacle got people sent to prison, while the latest resurgence of liar's loans came in an era of notoriously ineffective banking oversight.

Perhaps you missed the part about unpredictable Federal Reserve price-setting... from Wikipedia: "In 1979, the Federal Reserve System of the United States raised the Discount Rate that it charged its member banks from 9.5% to 12% in an effort to reduce inflation. The building or savings and loans associations (S&Ls) had issued long-term loans at fixed interest rates that were lower than the interest rate at which they could borrow. In addition, the S&Ls had the liability of the deposits which paid higher interest rates than the rate at which they could borrow. When interest rates at which they could borrow increased, the S&Ls could not attract adequate capital, from deposits to savings accounts of members for instance, they became insolvent. Rather than admit to insolvency, lax regulatory oversight allowed some S&Ls to invest in highly speculative investment strategies."

Someone like you would probably blame everything on the last sentence, whereas I am more interested in the root cause.

An essay on banking seemed necessary, since you said that banks "give away money" when lending. It's important to understand that banks create money when they lend, but that's too esoteric to say on its own.

As for the questions that were set aside, one role of the Fed is to ensure that enough ("high-powered") money is available to ensure that transactions clear, which is part of monetary policy (including, as you sort of mentioned, the discount window). Asymmetries between banks are resolved through interbank lending. Because all these mechanisms are available to cover their reserve needs, banks will issue loans (creating deposits) based on the creditworthiness of their applicants, not on their own reserve positions. But these are secondary matters, which is why I didn't talk about them earlier.

>Someone like you would blame everything on the last sentence, whereas I am more interested in the root cause.

On the one hand, interest rate risk is precisely why we allow lenders to charge interest; otherwise it would be money for nothing. On the other, I suspect you just want to blame the federal government, because that's ideologically convenient. For my part, I'm skeptical of the Fed's belief (and general economic orthodoxy) that interest rate increases are the correct response to inflation, but that's even more secondary. More importantly, we have the issue that normal people need to be secure in their bank deposits, and since the government is us, it's perfectly reasonable to make that happen. In particular, once you start insuring deposits, you really need to be ready to regulate.

As for S&Ls, deregulation was the response to their interest rate troubles (they went for deregulation rather than closure because of free market orthodoxy), but then that turned out to be a disaster. The "control fraud" I talked about, where executives pillage the bank, was rife in the latter days of the S&L boom. Past that, y'know, it was a situation of making extremely risky loans with capital from insured deposits, because there was nothing holding them back. This is about as far from "won't somebody think of the bankers" as it gets.

The FDIC has a fair write-up of it: https://www.fdic.gov/bank/historical/history/167_188.pdf Indeed, if you keep a vaguely open mind and know anything about the global financial crisis, you ought to spot one or two similarities, that have nothing whatsoever to do with the federal government strong-arming put-upon banks to make unreasonable loans to poor people---and, if anything, a failure of the federal government to lay down the hammer on private-sector fuckery.

> if you keep a vaguely open mind

I would advise you to take your own advice and read the initial article I posted. The solution is not absolutism on either end of the spectrum, but our current system is too far on the over-regulated side with convoluted, "unintended consequence" programs, regulations, and infrastructure.

The sooner we can come to a consensus on that, the sooner we can employ smarter, simpler regulations that the average educated person can read and understand in fewer than 100 lifetimes.

Don't forget Barney Frank, who required banks to do mortgages to less-qualified borrowers "to help the poor".

> It's hard to be sympathetic to Mr. Dimon.

Do you mind rephrasing your thoughts? Maybe I'm misunderstanding something.

Yes, banks got bailouts. I didn't like them at the time and I don't like them in retrospect.

But it's not necessarily true that all the regulations are fine because banks had bailouts.

And I'm not willing to grant that regulations are fine just because banks and bankers are one-percenters and unsympathetic.

I don't think the original post claimed that "regulations are fine because the banks had bailouts." On the contrary, they were pointing out that banks complaining about regulations was clearly self-serving and we probably should keep that in mind.

I do think that if we would like to avoid bailing more banks out in the future, some changes need to be made in the way that banks conduct business. To my mind, regulation seems the most straightforward path to this goal.

> To my mind, regulation seems the most straightforward path to this goal.

It's not that complicated to break up too big to fail entities, encourage dynamism and competition in the sector, and just let them use traditional methods of failure (bankruptcy, merger, etc.) going forward.

Heavy regulations, perhaps counter-intuitively, benefit too-big-to-fail banks the most since the overhead of compliance is relatively small compared to small banks and banking startups.

> But it's not necessarily true that all the regulations are fine because banks had bailouts.

Of course all regulations aren't fine. The problem is they are a necessary evil. Individuals don't always act with integrity; it's important that we restrict them by some mechanism to attempt to have them do so. On top of that, individuals can lose perspective easily when working in large corporations, where they focus on the bottom line of the Company and not the larger impact of their actions. This is why regulations/laws are necessary.

In some cases regulations create defacto monopolies, because the regulations themselves act as a barrier to entry for new players. In these cases, regulations are horrible. They skew the market place, and have all sorts of other negative effects on competition (the healthcare industry is a good example of this). So there needs to be restraint when putting regulations in place.

There is a balance, not all regulations are good, but neither are they all bad. Our government should be acting in our best interests to find a good balance there, and I agree with the article that because of the grid-lock it's not capable of doing that. Our political system has become entrenched on both sides, with little middle ground, for this we can blame gerry-mandered districts.

To stay on topic though; The banks came out generally far ahead of where the American people did after the recession, which given the shenanigans they used doesn't seem fair (to me at least).

Dodd-Frank & other banking regulation are self-serving for large banks because it shuts out smaller competitors and new entrants [1]. Administration & compliance becomes more expensive for everyone, but bigger companies are able to absorb the cost. The impact this has had on small banks & credit unions has been catastrophic [2].

New regulation will only serve to concentrate banking power & wealth in the hands of increasingly few players.

[1] https://www.americanbanker.com/opinion/surprise-big-banks-lo... [2] https://ilsr.org/vanishing-community-banks-national-crisis/

Jamie refused bailout help, until he and his bank was threatened by the administration.

Do you have a source for that? He says he didn't think the bank needed it, but the Secretary of the Treasury asked him to take it and he agreed it was a good idea.

https://www.theguardian.com/business/blog/2012/jun/13/jp-mor...

I'm a bit confused by your link. This just confirms (albeit in Dimon's testimony) that JPM declined TARP until they were told that the Treasury et al wanted all banks to take it. Did you read something else into this?

I don't believe it's particularly contentious in the industry that JPM didn't need bailing out.

I'm just wondering about the "threatened" part. Dimon says "We were asked to because we were told, I think correctly so that if the nine banks there, and some may have needed it, take this Tarp we can get it to all these other banks and stop the system from going down." Doesn't sound like he was threatened, or even needed persuading.

Threatened may well be too strong. Not given a choice is probably closer to the mark.

I strongly suspect that what he meant here was that he accepted the reasoning for asking all the big banks to participate. Not that he agreed that JPM needed the funding.

With Lehman down and ML and MS likely to go on the Monday, I can quite well imagine that everyone there accepted that a large, collective response was the only realistic option.

He just wanted all his counterparties to be bailed out. Same for Goldman Sachs.

I'm just gonna let his 1000+ millions of dollars comfort him.

This is transparently self-serving.

1. The US remains one of the least bureaucratic, least regulated countries in the west to do business. We have at-will employment, low unionization, relatively minimal mandatory benefits, trivial incorporation, and reliable and well-understood corporate and civil law. The idea that Jamie Dimon wanders the Earth and finds every other country more congenial to to business is laughable.

2. Dimon, a Trump ally, would sorely like the US tax code tilted further in the favor of corporate ownership and financialization. He's happy to leave out the part about how his industry nearly blew up the world economy, and was supported for years during the Obama administration by bailouts.

It's possible that there's good policy behind lowering the corporate tax, which is distortive and inefficient. On the other hand: DC is "dysfunctional" for a reason. The system was designed specifically to keep public policy from whipsawing between extremes every time a new party took office. If he's embarrassed to be a citizen of a country like that, he has more than enough means to secure citizenship somewhere else. Don't hold your breath on that happening.

It's always hilarious to listen to a Harvard billionaire banker tell us what he thinks would be good for "average Americans". Let me go find some cake to eat.

But it's ok to dismiss someone's ideas without consideration because of the size of their bank account?

OK, then let's see what his brilliant new ideas are. "Competitive taxes are important for business and business growth, which is important for jobs and wage growth." Oh, what do we have here? Bog-standard trickle-down economics.

So debate that then, instead of engaging in sophomoric ad hominem. Why would a less litigious society, a more constrained regulatory regime, and corporate tax rates designed to incentivize capital repatriation not help the economy grow more rapidly? And then, why would a more rapidly growing economy not benefit ordinary Americans?

Only if you look past the hypocrisy and chutzpah.

Yes? At least while there's people that also ONLY consider their ideas because of the size of their bank account.

I wonder if he's aware that it's the government that keeps him from being hung by his ankles at the earliest opportunity by the world's poor and hungry as they reclaim their fair share of the obscene level of wealth he has accumulated.

Except that without government, the "obscenely rich" would be the ones with all the guns and guards and such; the poor and hungry would be still more poor and more hungry.

It's not like we haven't tried the whole no-government thing. Guys like Jamie don't tend to do so well.

Jamie's right. Imagine how much benefit the US could get if Apple was able to repatriate its hundreds billions in overseas profits without losing over half to taxes.

Would the repatriation mean more US jobs as a result? Doubtful. Apple, et al. would not suddenly do on a hiring binge. They would also not suddenly start paying their employees more or provide better benefits.

This is a red herring that politicians love to try and justify huge tax rate cuts for businesses that are unnecessary but provide a good sound bite. Tax rate cuts that they already enjoy because the US government allows them to stash the cash overseas already to avoid the taxes.

A US citizen is forced to pay income tax on all income worldwide. Live in France, pay French taxes and US income tax on income over $72,000. And you only get the $72k break if you are in the country less than 30 days in a calendar year.

US corporations, on the other hand, can stash all overseas earning overseas to reduce their tax liability. Most US corporations already pay a lower effective tax rate than most US citizens.

Apple would dividend most of the profits to hundreds of thousands of investors. Those investors will often reinvest those dividends to or leave them in the bank, both of which drive capital investment in the US, higher productivity and creates better jobs.

The US corporate tax rate is one of the highest in the world, making the US one of the most costly places to invest. Taxing investment instead of consumption is directly lowering our standard of living.

The fact that our taxe rates on individuals working overseas is stupid too doesn't mean we should fix the corporate tax rates. In fact corporate tax rates should be zero, as you don't want to tax reinvested capital, and if profits aren't reinvested they are paid as dividends, and you can tax dividends at ordinary income rates to restore progressively to our tax system.

One more quick point. US banks would love to have all that cash repatriated. It for every $1 that Apple et al. deposits into their bank they create $10 of new currency that they can loan out.

"Apple, et al. would not suddenly do on a hiring binge. They would also not suddenly start paying their employees more or provide better benefits."

Nor would they onshore a meaningful amount of manufacturing from the Far East.

There's no shortage of cash to invest now in the US, they are instead most likely to use the cash for stock buybacks and dividends.

Well if they invested it in R&D, raises, construction etc. then it wouldn't be profits and wouldn't be taxed. If they don't invest it directly it would just sit in a cloud of accounts, stocks, bonds etc. doing nothing but adding a fraction of a fraction to the liquidity of the market, but it's already doing that from whatever banks it's already in.

So, no actually, not really sure how much the benefit the US could get.

Holding money in a foreign account doesn't restrict Apple's spending on R&D in any important way. Apple holds stock in foreign accounts and issues bonds. They have plenty of cash to fund R&D anywhere and if they didn't they can issue bonds. This is like the argument: if I can balance my checkbook, why can't the government. Governments and modern corporations don't work like your checkbook account.

Allowing repatriation would bring at least $2 trillion in capital back into the U.S. These are profits earned overseas, and trapped there because you lose half of them to taxes if you try to bring them back to the U.S. Bringing it back means a tidal wave of dividends and increases in bank capital, which are reinvested and lent to US businesses to make them more productive and create better jobs.

If you really think that money sitting in bank accounts, stocks and bonds does nothing, you simply don't understand anything about the economy. Doing it the U.S. instead of Ireland or the EU is a big deal.

  These are profits earned overseas

These are profits earned worldwide which have largely been laundered overseas (e.g. the infamous "Double Irish").

Would the US not also benefit if Apple just paid the taxes?

Apple, and many other companies, are not going to "just pay" billions in taxes.

No one's going to "just pay" any amount of taxes, they have to be forced. No matter what else you think about taxes, that's how they work. Paying taxes is always painful; not paying is made to be more painful, at least for some of us.

"...at least for some of us"

it's made to be painful for most every single one of us who aren't mega-companies with an army of lawyers and accountants. This is one reason I go almost blind rolling my eyes when a CEO of such a company gets all preachy about right and wrong, and what's in the public's interest, etc.

And by a similar token, they're also not "just going to be able" to repatriate that money tax-free.

It would be foolish to pay the taxes when they can lobby the public and the government for years until they get their way.

It's foolish to tax capital investment in the U.S. It's like punishing people for working.

they don't owe more taxes (profits already taxed in countries where they were earned) unless they choose to repatriate.

Doubt it. The taxes aren't owed to the US.

Exactly. It's a highly competitive world & it's hard to imagine how long we can continue with "1970s" style government: a decade to approve new bridges, out of control public unions, confiscatory tax rates, NYC subway costs $2B per mile, F-35 now $406B, and so forth. It feels as though the gears, laden with barnacles, are grinding, grinding, grinding to an eventual halt.

At one point in this exchange the reporter says:

"So are you expressing frustration with President Trump?"

Jamie replies:

"No, I am expressing frustration with you!"

Can you please explain how this differs from trickle-down economics?

Instead of resorting to hyperbole, look at it this way:

$2 trillion is parked overseas. It is parked overseas because the opportunity cost of bringing it back here is higher than leaving it overseas, mostly due to corporate tax rates that are higher than they are overseas. We can leave tax rates as they are and gain $0, we can lower corporate tax rates and hopefully bring a (large) fraction of that back here to benefit the economy as a whole, or some other solution that increases the wealth of the nation that has not been thought of yet.

If you're considering an alternate solution, bear in mind that history has shown that imposing taxes in situations like this results in increased friction in moving the wealth back and generally less wealth for the nation imposing the taxes.

So maybe it bears some resemblance to trickle-down economics, but is there even a marginally better solution available?

I wasn't using hyperbole. It was an honest question. I'm not an economist, but I try to stay up, and this sounds - to me, a non-economist - just like trickle-down economics (with regard to the parent comment - not yours).

Is there a different phrase I should use so as to not offend?

Edited for clarification

Your identification of this as trickle-down economics comes from WkndTriathlete's assumption that bringing the money back here will benefit the economy as a whole (as opposed to the few who obviously directly benefit). I think this idea has been mostly debunked but the topic is complex and there are probably details that reasonable people can disagree over.

Appreciate the response! I agree that there is room for disagreement. I was just curious to see if there was some nuance that I am missing.

If the US lowered corporate taxes but increased personal taxes for the top gainers, would that be a more palatable solution?

If you meant "eliminate corporate income taxes", it would be a great compromise. We should never be taxing capital formation and investment, only when it's converted into consumption.

Taxes are not completely useless.

'Repatriation' is a nice doublespeak for money earned in foreign countries being coerced into US tax coffers.

He's probably sick of his new commute given the subway delays and transit breakdowns.

No kidding. If DC were operating correctly a bunch of his buddies would be in prison.