Dimonfreude Is Irresistible, But May Be Dangerous

Agenda-Setting Financial Insight.
May 11 2012 5:10 PM

Dimonfreude Is Irresistible, But May Be Dangerous

144016065
Dimon has not taken kindly to the march of new regulation of the financial industry.

Photo by Jemal Countess/Getty Images for Time

t’s easy to sympathize with the collective glee that greeted JPMorgan’s shock revelation of some $2 billion of trading losses. The bank and its chief executive Jamie Dimon have received their long-awaited comeuppance. But this emotion - Dimonfreude, if you will - is dangerous. If one of the few big banks that managed to sidestep most of the credit crisis is proven fallible, confidence in the system itself will be shaken.

Dimon and JPMorgan deserve a good knocking, to be sure. After all, this is the firm widely credited, if somewhat unfairly, with hammering the final nail into the coffins of not just Bear Stearns - which it bought for a pittance in 2008 - but also of Lehman Brothers and later MF Global, mainly through collateral calls. Rivals on Wall Street and in financial centres across the world may take some satisfaction from seeing JPMorgan stumble.

Advertisement

And Dimon has not taken kindly to the march of new regulation of the financial industry. He has called tough capital standards proposed by the Basel Committee “anti-American.” A little over a year ago he publicly carpeted Ben Bernanke over whether the Fed had properly analyzed the costs and benefits of the Dodd-Frank Act. Regulators everywhere may find succor in JPMorgan’s failed whaling voyage.

All this may prove salutary if it serves as a reminder to Dimon and his managers that they, too, are human, and like all humans prone to err. As a consequence, the bank should toughen up its controls, take its lumps, stamp down its rhetoric and conduct a more rigorous and honest appraisal of its businesses. It might even soften Dimon’s stance on accepting new capital standards, and perhaps lead to some comity with regulators over interpreting and implementing admittedly complicated rules like the one named after Paul Volcker.

By all means, those who have been on the receiving end of JPMorgan’s arrogance or flexing of financial power - be they rivals, regulators, politicians, customers or even journalists - may savor this moment. But they must be careful what they wish for. A swift but humbling lesson in fallibility would do some good. A prolonged loss of confidence in the financial system could bring back some pretty dark days. 

Read more at Reuters Breakingviews.

Rob Cox helped establish breakingviews in 2000 in London. From 2004 he spearheaded the firm's expansion in the U.S. and edited its American edition, including the daily breakingviews column in the New York Times. Prior to joining breakingviews, Rob held senior editorial positions at Bloomberg News in London, Milan, and New York.