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A Dose of Clear-Eyed Thinking From Jamie Dimon
This year's letter to JPMorgan shareholders is outstandingly good

Thomas Brown ( about me )
Posted 04/01/2009
bankstocks.com
tbrown@bankstocks.com

If you read nothing else today, be sure to read Jamie Dimon’s letter to JPMorgan Chase shareholders, published last night. It’s outstanding. The letter isn’t just a wrap-up of how Morgan did last year (although, as is typical, Jamie’s candid on the topic)—it’s also a worthwhile meditation on how and why financial crisis happened, and what sort of changes need to be made to prevent another one. This is just the sort of letter, that is to say, that a lot of us hoped Warren Buffett might write this year, but did not. As far as that goes, it may be the best shareholder letter I’ve ever read, from any CEO, ever.

You may or may not agree with all Jamie’s ideas; either way, they are, in my view, the best blueprint for an overhaul of the regulatory system I’ve yet seen. Jamie’s thoughts are certainly worth taking seriously: the White House and Congress would do the country a huge favor if they took some time out from their daily huffing and puffing and gave some serious thought to what he has to say.

What do you think? Let me know!

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Comment:

Nat Posted On 4/1/2009 4:05:07 PM

Jamie should be asked to chair the President's commission on regulatory framework. I am confident he will do an excellent job. I read through his letter and I have to admire his thoughts on the global crisis, institutional stasis and economic stagnation. He has meticulously thought each and every thing in detail. It was a good letter and worth reading. I am preserving a copy for posterity.

mopedman Posted On 4/1/2009 4:09:42 PM

In short it will require we simply change our...human nature. There's no set of rules that won't eventually be circumvented for more money. But it does sound refreshing. I read where Bank of America has upped it's bad check charge to $35 and may bounce it up to 10 times $350. Now here's how you don't really pay more for fuel or banking. JPM, C, WFC, BAC, FAS for tomorrow as mark to market heads for the door. By tomorrow night crude will get the jitters even though it's overflowing over at Cushing, OK, that will not matter. Decision time how much banking if any changes into goo. My offer still stands. Everything I own except for $500 dollars, for your working crystal ball.

Tom Elliott Posted On 4/1/2009 6:05:44 PM

Tier I Capital, which JD makes such big deal of, doesn't mean much (which I painfully learned as a former shareholder of NCC). JPM is leveraged way beyond desirable levels in today's brave new world. JPM also had a big hand in creating the synthetic (financial vaporware) investment products that blew this economy and the world's economy to smithereens last year. Plus we all know that what happened didn't occur because the best and brightest on Wall Street were (a) honest and (b) competent. As with all the other debacles over the modern banking era from Penn Square on, lazy, stupid and/or incompetent bankers had their fingers all over this. .Perhaps he leads the best of the worst. Regardless, he has been humbled into the ranks of the average bank executive.

Herb Greenwald Posted On 4/2/2009 11:54:04 AM

Tom, Great article and I look forward to reading Jamie Dimon's letter when I get my annual report. On a different note, are you coming to Washington DC to root on the Miami Redhawks in the frozen four next week. We have tickets and my kids (all travel hockey players) are very excited. Miami has done a great job building up the hockey program. Also do you know Shawn Lynes? He played at Miami in the late 70's early 80's. He currently coaches one of my kids. Not sure the exact years you attended Miami. Keep up the great work with your web site. I find it very informative. Herb Greenwald

First Coast Wave Rider Posted On 4/2/2009 12:26:19 PM

Jamie hits all the contributing factors but doesn't identify the root cause of many of those factor. That is Federal politicians abusing their power. Federal politicians needed the economy to keep growing so they could take credit for the economic growth and then be re-elected. The ONLY way to keep the economy growing was through more and more debt in the private sector. Fannie and Freddie led the charge (or should I say "charge it!) and we were all willing to go along. The Federal pols didn't want to regulate the mortgage brokers and companies or clamp down on Fannie/Freddie. So they either ran interference or encouraged them further. I could go on and on but the point is Federal politicians were behind the scenes one way or another and the result has been disasterous. Jamie's failure to identify the root cause then leads him to mistakenly call on the same knuckleheads to fix all the ills of our country. Not only does he want the Federal politicians to rescue the financial system but healthcare, energy and education as well. Folks, it's time to go back and read our Constitution. Our Federal government has powers and reach which our Founding Fathers feared. Heck, that's why the wrote the darn thing. The radical overhaul of our country has to start at the top and that means a smaller, limited central government with the states returning to their the role our Founding Fathers intended.

L.C.S. Posted On 4/2/2009 1:01:35 PM

A great thesis. Should be awarded a Honorary Doctorate of Finance & Banking. This should be required reading at all Graduate Schools of Banking.

jsc173 Posted On 4/2/2009 1:29:58 PM

Only serves to confirm what a blithering idiot Sandy Weill is -- tossing Dimon out of Citigroup at the point in Citi's history when he would have been the most valuable has to be one of the "top 10" boneheaded moves ever. In retrospect, though, I bet Dimon would thank Weill for doing it as he has been able to become his own man rather than being "Sandy's Boy."

rs Posted On 4/2/2009 3:16:16 PM

well if private "risk managers" failed, let's try public "risk managers!" the failure can be 1000x better next time

Blitherman Posted On 4/2/2009 3:45:37 PM

Jamie for President!

Ken Hill Posted On 4/2/2009 6:27:57 PM

Jamie Dimon for President

rs Posted On 4/2/2009 7:02:17 PM

i read dimon's article now, it's pretty bad. he blames short sellers and hedge funds. wahhhh

lol Posted On 4/2/2009 8:36:09 PM

Well, whatever else, you gotta love the oversized photo of the guy that sits atop his letter. Maybe next year it'll be a full page. ... assuming JPM is still with us.

PureDakota Posted On 4/3/2009 9:35:40 AM

It was a very good effort, and I commend Mr. Dimon for it. Although his discussion of the causes was good, I found one thing very troubling about his bullet-point list of causes, particularly the first one: "The burst of a major housing bubble." It grates at me every time I hear intelligent people make that statement. It is especially troubling from Mr. Dimon, because it violates the Einstein quote in the paragraph immediately before. It's like saying the 400 pound man died a premature death because he had a heart attack. Wouldn't it be better to figure out how the guy got so freaking fat, and then behave in a way that improves our chances of not ending up in that condition? The burst of the bubble was simply the market doing what it is supposed to do. I would have felt much better if Mr. Dimon's first bullet point was "Government policies and business practices that created a housing bubble [that was destined to burst]." He would have then put at least the next three bullet points under that heading.

Bob McCoy Posted On 4/3/2009 2:26:20 PM

Tom, I am glad that you forwarded his letter. I would agree that the letter is an outstanding example of a thoughtful message to shareholders. It is also encouraging to have a CEO put in words that are easy to understand a wonderful summary of the current finacial environment that applies to all business, not just financial companies. You may not remember me but I was CFO at Wachovia for several years prior to the merger with First Union. I am glad to see that you are doing well and still on top of the "Industry". Thank you, Bob.

J Michael Younger Posted On 4/6/2009 9:50:35 AM

Goodness me what a lot to read and not fall asleep to whilst so attempting! Seems well set out. But surely misses the point. We are just not clever enough to operate a financial system as complex as man seems to want to construct. We need a bottom up system. One brick on top of another brick builds an economy. Politicians running things as liberally as they want to get votes for providing free services and not charging for them (as they want votes) is where it all goes wrong. We can not have honest politicians as they don't exist running a dishonest economy and money supply system. Surely therefore someone should address the rape of value and savings by the greatest give-away economic system that is our liberal political set up. Only then will true growth and enduring value emerge from the colossal mess we are in. A free enterprises system where only the government seems to have piles and piles of money in our marvelous democracies that stacks up so poorly against communist states where the government is far smaller relatively speaking seems just so odd.

Michael Posted On 4/6/2009 10:49:22 AM

Mr. Brown, you would do yourself a world of good if you would read Mises and listen to the Austrian economists instead of fascists like Mr. Dimon. Did you notice who Mr. Dimon skimmed over the enormous, gargantuan derivative issue for JPM? Risk management, don't make me laugh. And not one word in all those words about JPM's short postion in silver. Nor, not surprisingly, how much money JPM made while manipulating the price of silver. JPM and all the big banks love regulation. The government loves regulation. Fascism is the rule. How has that worked out in the past?

Michael Posted On 4/6/2009 11:39:57 AM

From the Ted Butler Archives: In silver, there was a decline in total precious metals derivatives from $18.7 billion on September 30th to $9.1 billion on December 31st, a reduction of $9.6 billion. Since the price of silver was 5.5% lower on December 31st than it was on September 30th, the reduction may be somewhat overstated. Since the price of silver averaged around $10 per ounce during the fourth quarter, as many as 960 million ounces of equivalent silver were liquidated. JPMorgan and HSBC accounted for 76% of the total amount liquidated. During the fourth quarter of 2008, I was repeatedly struck by the viciousness of the sell-off in silver, as we twice plunged below $9 an ounce, down almost 60% from the highs of a year ago. I was puzzled why the manipulators had continued to force the price so low, considering that the bulk of the COMEX liquidation was over by September and October. After all, there was no evidence of physical selling of silver, as all categories and measurements of investor demand for physical silver grew during the quarter. This OCC report explains the exaggerated price sell-off completely, despite strong investor demand for silver. Quite simply, the amount of paper silver (and gold) transacted in the OTC market dwarfed what took place in the real physical market. Further, since the OTC is so opaque, the transparent paper COMEX market was used to set the price for, and cause, the massive liquidation in the larger OTC market. The price that is disseminated from the COMEX is the price that the world goes by and prices all silver (and gold) transactions. Miners, refiners, industrial consumers, investors and paper hedge fund speculators all price off the COMEX. Control the COMEX price and you control the world of silver (and gold). Hedge funds and other large leveraged speculators holding long positions were faced with increasing margin calls as COMEX silver prices were manipulated lower and they sold to the big banks who were short and

Michael Posted On 4/6/2009 11:42:16 AM

bought back their shorts. That’s why the concentrated short position is so illegal and manipulative. In fact, this same concentration exists, in spades, in the OTC market as well. Just read the OCC reports. Further, the OCC reports prove that JPMorgan not only inherited from Bear Stearns the massive COMEX silver short position in March of 2008 (as well as a COMEX gold short position), it also inherited from Bear Stearns a much larger OTC silver and gold short position. From December 31, 2007 to March 30, 2008, JPMorgan’s OTC silver short position grew from $4.9 billion to $12.5 billion. Adjusting for the 16% price increase in silver between those dates, JPMorgan’s silver short position grew by more than 400 million ounces to as much as 735 million ounces, from 335 million ounces. This is separate and distinct from and in addition to their COMEX silver short position. I know these numbers are shocking. That’s why you must take some time to study the data for yourself. Even if silver is not 100% of the precious metals category, any reasonable percentage will still result in shocking numbers. More than that, such a large and concentrated short position, on both the COMEX and in the OTC market should explain the motive and stakes involved in the great silver flush out of 2008. This silver short position needed to be reduced by any means necessary, due to the unthinkable exposure that would exist if it were not closed out. But so large was this short exposure that while JPM did succeed in reducing its short silver exposure from the highest level in its history when it took over Bear Stearns, to the lowest level in three years, there still exists a silver short exposure of hundreds of millions of ounces. That the U.S. Government has aided and abetted JPMorgan in this illegal endeavor you should find as repugnant as I do. U.S. Government agencies, like the Treasury Department and the CFTC are the ones publishing these data. The Treasury Department and the Federal

Michael Posted On 4/6/2009 11:43:52 AM

Reserve arranged the JPMorgan/Bear Stearns takeover. How could they not be aware of and have sanctioned this historic silver liquidation? It is sickening. Officials should and must go to jail over this.

John Posted On 4/6/2009 1:09:52 PM

Being a community banker, I was skeptical about your very sanguine introduction Dimon's letter. After reading it, I see why you concluded it is one of the best shareholder letters you have ever seen. I agree.

TL Posted On 4/6/2009 1:21:31 PM

I agree that Mr. Dimon's shareholder letter is one the most thorough analyses of the financial crisis to date. However, I am surprised that Mr. Dimon's letter makes absolutely no mention of the abolition of the uptick rule by the SEC in July of 2007. It seems to me that this should certainly have been at least mentioned as one cause in the accentuation of the stock price declines. For example, do the stock prices of Bear Stearns, Lehman and Washington Mutual go to zero so quickly if we have an uptick rule? Do banks stock on average decline by 90% if we still have the uptick rule? How does rampant naked short selling not even get mentioned? In July of 2007, when the SEC abolisheed the uptick rule, the SEC claimed that they would crack down on naked short selling, but they didn't! Jaime Dimon is too smart of a man not too recognize this regulatory breakdown!

jake Posted On 4/6/2009 11:01:40 PM

It is a good letter (but not the best ever)..detailed and summarizes good ideas that have surfaced to date from many thoughtful people. Mr. Dimon though was somewhat quick to declare that the worst was behind us in early to mid 2008. I believe he also stated in a taped world economic forum that we just need to get the smartest people in a room and just get it done he said.. "It is getting old". Sounded like bravado and showboating. The problem has since gotten deeper and more serious. As I recall JP Morgan benefited significantly from the AIG bailout as did Goldman....the point is all these guys share responsibility for this crisis...none of them saw it coming....some just got lucky. This will take time and discipline to fix. Experienced unbiased leadership without a vested interested in the past will make the difference...not impatient insiders.

B. Madoff Posted On 4/7/2009 9:26:57 AM

GIMME MY MONEY BACK! I WANT OUT!

W.Wriston Posted On 4/10/2009 2:27:37 PM

Compare and contrast Mr. Dimon's letter to the shareholder letter of Citibank's CEO Mr. Pandit. All 3.5 pages of it. Is this because: 1. He does not understand what is going on so there is nothing he can say? 2. He understands exactly what is going on so there is nothing he can say?

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