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Don't cry for J.P. Morgan's profits

J.P. Morgan's fearless leader isn't a big fan of derivatives reform:

Revenue lost by dealers could be significant. Research and advisory firm TABB Group estimates the top 20 dealers generate around $40 billion annually from privately-traded derivatives, excluding credit default swaps.

Jamie Dimon, chief executive of JPMorgan Chase & Co , told bank analysts earlier this month that forcing dealers to trade derivatives on exchanges could cost his firm up to a couple of billion dollars in revenue annually.

"You’ll note that what’s missing from Dimon’s argument is any kind of compelling reason we should care about this," comments Matt Yglesias. "What he’s saying is that this measure to enhance the stability of the system will take a firm with $11.73 billion in 2009 profits and turn it into a firm whose profits might be as low as $9 billion."

I'd actually take this a step further: We should actively want that to happen. What Dimon is saying is that the complexity and opacity of the current derivatives market lets his firm skim billions of dollars in revenue from other business. Some of those business are hedge funds and professional investors and if they want to hand money over to J.P. Morgan, more power to them. But some of them are actual corporations that make actual things and are trying to hedge legitimate risks. It would be a good thing if the market weren't structured such that J.P. Morgan could take them to the cleaners.

Investment banks don't invent money (well, sometimes thy do, but you know what I mean). If a bank can't charge such high fees anymore, than that money doesn't go away. It stays with the people who were getting charged the high fees. That could be good or it could be bad, but if Dimon think it's bad, he should explain why.

By Ezra Klein  |  April 23, 2010; 12:20 PM ET
Categories:  Financial Regulation  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   StumbleUpon   Technorati   Google Buzz   Previous: Curious why the Senate Agricultural Committee handles derivatives?
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Skimming is exactly the word. The way I see it, and I am a very unsophisticated observer, is that in good times so many people were pouring money into the same investments (mutual funds) that Wall Street almost HAD to invent ways to skim off the excess. There was no way to absorb the money that conventional wisdom advised everyone to invest in the same place. It must be that the tax laws are structured to discourage other long-term investments, such as rental property, to provide income for retirees. Maybe we should be looking at reforming and simplifying the tax code in conjunction with financial reform. If only Congress worked for us . . . oh, yeah, it does. Or should.

Posted by: gailjens | April 23, 2010 12:51 PM | Report abuse

Dimon thinks it's important because he thinks extremely rich people are so much better than ordinary people that ordinary people are morally obligated to do whatever it takes to keep the extremely rich people extremely rich.

The problem is that the Congress thinks the same way Dimon does, mostly because they expect that one day they will leave Congree and become extremely rich people themselves.

Posted by: exgovgirl | April 23, 2010 12:56 PM | Report abuse

This issue is pretty much the financial industry versus every other company and every other individual in America. The fact that the issue is even a close call in Congress is startling, and demonstrates what outsized influence this industry has on our Congress.

Posted by: vvf2 | April 23, 2010 1:17 PM | Report abuse

not entirely accurate about banks not inventing money. look up fractional reserve banking.

Posted by: elainelinc | April 23, 2010 1:22 PM | Report abuse

exgovgirl - You don't know that. Do you know Dimon? Then how can you say what he thinks?

I don't know the guy either, and I don't want to defend him, but accusations like yours serve nobody.

Posted by: nisleib | April 23, 2010 1:55 PM | Report abuse

Chase and Dimon are all about FRAUD.

It all started with Fraudulent mortgages - "Chase mortgage memo pushes ‘Cheats & Tricks’" -

"1) In the income section of your 1003, make sure you input all income in base income. DO NOT break it down by overtime, commissions or bonus.

2) NO GIFT FUNDS! If your borrower is getting a gift, add it to a bank account along with the rest of the assets. Be sure to remove any mention of gift funds on the rest of your 1003.

3) If you do not get Stated/Stated, try resubmitting with slightly higher income.
Inch it up $500 to see if you can get the findings you want. Do the same for assets."

Just Inflate Assets - to approve those mortgages - that made Chase billions.

From Fraudulent Mortgages to Fraudulent Investments. Why aren't Dimon and Chase CEOs in jail!!!

Posted by: fair001 | April 23, 2010 1:56 PM | Report abuse

I have sympathy for Dimon's position.

After all, government regulation of my industry has cut billions from the profits of my company, Guy Who Steals Lots of Money From Rich Bankers, Inc.

My research indicates that the top 20 kidnap-for-ransom firms in my industry were severely affected by legislation that put curbs on this unique financial instrument.

Posted by: dpurp | April 23, 2010 2:47 PM | Report abuse

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