Too big to ...?

October 21, 2013 7:56 PM

Matt Levine writes in the Wall Street Journal: Morgan Stanley Now Obeying Rules, Reducing Risks, Eating Cupcakes

So while of course it's possible that this is just next-level perception manipulation and I've fallen for it -- that Morgan Stanley has found a novel way to take on immense amounts of complex risk and hide it behind an army of retail brokers and a layer of cream-cheese frosting -- I think that this story is what it appears to be. Morgan Stanley seems to be de-risking by cutting back on risky activities, and responding to new regulations by obeying them.

On the New Wall Street, Boring Is Better

sub required (or not) for WSJ: Life on Wall Street Grows Less Risky: "Morgan Stanley and CEO James Gorman are undertaking an extreme makeover to shed risk."

The firm also has changed in less noticeable ways. There now are 3,000 different limits that restrict such things as how much capital traders can put at risk, up from 30 before the crisis. About 50 full-time government regulators are now stationed at Morgan Stanley. There were none before 2008, when it was regulated as a brokerage firm instead of a bank. Most deals over $10 million now require a green light from a risk committee and Mr. Gorman.

The other descendant of the House of Morgan is perhaps less charmed.

JPMorgan Said to Reach Record $13 Billion U.S. Settlement

JPMorgan Chase & Co.’s record $13 billion deal to end U.S. probes of its mortgage-bond sales would free the nation’s largest bank from mounting civil disputes with the government while leaving a criminal inquiry unresolved.

Washington Post: "JPMorgan chief [Jamie Dimon, previously] meets Holder in bid for deal to end probes, avoid criminal charges"
So Why is Dimon Getting to Plead His Case for JP Morgan (and Maybe Himself) Directly with Holder?
The Guardian:JP Morgan chief executive 'so damn proud' of bank set to be fined $13bn

So How Big a Deal is the Pending “$13 Billion” JP Morgan Settlement?

Focus on the cash component, which is $9 billion. $4 billion is in the form of “relief to homeowners”. In the recent mortgage settlements, the non-cash component has had PR value and has been generally meaningless in economic terms. It’s certainly not a real punishment. The company gets credit for activities that are either in its financial interest (like modifying mortgages on its balance sheet to viable borrowers) , or it would have done anyhow (giving homes to cities to be bulldozed), or it should have been doing all along (short sales). These items are mainly chits that give the bank cover to write down inflated assets on their books. Oh, and the New York Times indicates that many of the borrower relief items will be tax deductible.

The FDIC might eat as much as $3.5 billion of that total, reducing the cash component to $5.5 billion

What's Wrong With Fining JP Morgan Chase $13 Billion?
Where J.P. Morgan’s Settlement Sits in History of Corporate Fines

The JP Morgan apologists of CNBC

I don’t know which producer at CNBC had the genius idea of asking Alex Pareene on to discuss Jamie Dimon with Dimon’s biggest cheerleaders, but the result was truly great television. What’s more, as Kevin Roose says, it illustrates “the divide between the finance media bubble and the normals” in an uncommonly stark and compelling manner.

the Epicurean Dealmaker: To Whom It May Concern

You can see both the naïve belief in meritocracy by one of our members and the gradual realization that perhaps all was not as advertised in paired interviews of the same banker, conducted two months apart, on Joris Luyendijk’s banking blog at The Guardian, here and here. The smug, eager triumphalism of the first interview gives way to resignation and a dawning understanding in the second that his fate was never fully in his own hands.

(selling equities in Dallas)

posted by the man of twists and turns (26 comments total)

anecdotally, my finance friends in nyc were all talking six months ago about how boring banking has become, with several moving to silicon valley because that's where the easy money is now.
posted by slapshot57 at 8:49 PM on October 21, 2013 [1 favorite]

So Eric Holder offered a deal that either Jamie Dimon resign or else he is going to fine the JP Morgan shareholders $13 billion. Guess which one Dimon chose.
posted by JackFlash at 10:02 PM on October 21, 2013 [2 favorites]

The JP Morgan apologists of CNBC

I have my moments when I want to find a wall against which I line up guys like Jamie Dimon and his ilk. After watching the video, I want those idiot CNBC anchors standing by with buckets and brushes, forced to scrub it clean between executions.
posted by fatbird at 10:09 PM on October 21, 2013 [3 favorites]

Death is too easy. What they really need is to be consigned the kind of humdrum 9 to 5 worklife and mediocre home and all its attendant maintenance hassles and a set of squabbling kids and PTA nights and all that most of the rest of us live as ordinary lives. Take away their money, power, and prestige; condemn them to obscure normalcy. Let them scrub toilets, push shopping carts, and stock the shelves, ride the bus, and worry about having to eat cat food when they're too old to work and too poor to retire.
posted by five fresh fish at 11:02 PM on October 21, 2013 [8 favorites]

anecdotally, my finance friends in nyc were all talking six months ago about how boring banking has become, with several moving to silicon valley because that's where the easy money is now.

Welp, time to sell off all my stock in tech companies...

just kidding I don't have any
posted by en forme de poire at 11:06 PM on October 21, 2013 [1 favorite]

I'll believe the fraud train has slowed when the steady stream of scandals abates.

A penalty that puts nobody in jail and imperils a single quarter's profits is not obviously a sufficient deterrent.

The worry is still that the fine will be viewed as a cost of doing business criminal activity.
posted by airing nerdy laundry at 11:31 PM on October 21, 2013 [5 favorites]

Krugman gets his wish. He wrote a column in 2009, make banking boring again (SLNYT).
posted by kadonoishi at 12:19 AM on October 22, 2013

You always hear that thing about people who work in chocolate factories who say that, after the first couple of days, they have no interest in eating the stuff, and it becomes a factory job like any other. Unfortunately, working in banking is more like working in a crack factory. Nobody gets tired of wealth, and the thought that a big chunk of this money could somehow become yours never gets stale.

Anyway, that's my theory of banking.
posted by pipeski at 2:12 AM on October 22, 2013 [3 favorites]

So How Big a Deal is the Pending “$13 Billion” JP Morgan Settlement?

J.P. Morgan reported 2013H2 net income of $6.5 billion, or $1.60 a share, versus $4.96 billion, or $1.21 a share, a year earlier.

I believe the term in the banking industry is "peanuts." They'll skim a little more from everyone's retirement investments and it'll hardly be noticed.
posted by three blind mice at 3:20 AM on October 22, 2013 [4 favorites]

Now that the transfer of wealth is complete, they need only keep the engine ticking over while the anger of the middle classes abates as they become used to the new status quo. As for the lower classes, they've been co-opted for decades now and they needn't be worried about.
posted by Homemade Interossiter at 3:38 AM on October 22, 2013 [4 favorites]

the interesting irony here: MS's "boring" activities are non-banking activities that would be banned as too risky under a Glass-Steagall regime, while JPM is getting clobbered for its banking activities.* as Levine is fond of pointing out, banking is inherently risky.

* the presence of alleged fraud, depending on your take on banking and whether you're prone to peppering your conversation with the word "bankster," makes this a little different, but still.......
posted by jpe at 3:57 AM on October 22, 2013

A full year of profits is peanuts?
posted by leopard at 4:13 AM on October 22, 2013 [1 favorite]

I'll believe the fraud train has slowed when the steady stream of scandals abates.

Okay - you know how a couple months ago, pretty much everyone at the hedge fund SAC Capital Partners was being investigated for insider trading earlier this year, including the CEO Steve Cohen?

Do you know how many business expenses one of my old bosses at my old job had that dealt with Steve Cohen? Every week it was either a business dinner, or a business trip or a basketball game or a Christmas present or....

I am never working in banking again. Never.
posted by EmpressCallipygos at 4:45 AM on October 22, 2013

Take away their money, power, and prestige; condemn them to obscure normalcy.

Make it a combination of ostracism and the witness relocation program. Offenders who heinously abuse their wealth and power and severely damage the public trust are sentenced to a new identity for a predetermined period of time and forbidden from contacting any business associates or using any personal wealth beyond whatever assets that identity has.

Of course if we were in a science fiction setting, this punishment would be accomplished via technology that would simulate an entire mundane lifespan within a few moments of real time and would be colloquially referred to as the "seeing the Inner Light".
posted by RonButNotStupid at 4:46 AM on October 22, 2013 [3 favorites]

the man of twists and turns - nice compilation. Probably won't read through all it for a while as I don't have the energy left to get angry at this point. Which means I'm doing exactly what they need, I guess. :|
posted by tilde at 5:04 AM on October 22, 2013

Of course if we were in a science fiction setting, this punishment would be accomplished via technology that would simulate an entire mundane lifespan within a few moments of real time and would be colloquially referred to as the "seeing the Inner Light".

And your annoying roommate during that lifespan is this guy.
posted by Z. Aurelius Fraught at 5:37 AM on October 22, 2013 [1 favorite]

I'm nervous when big banks do reckless things, but something about hearing them getting conservative also makes me nervous. I know they have access to more information than I do. If they are getting risk averse it must mean that they expect some bad things coming. It would be really nice to go five years without a recession.
posted by dgran at 5:43 AM on October 22, 2013

Puff piece.

Who's auditing this supposedly "boring" bank? Is the auditor also a consultant for the bank?

Or is the auditor one of those rookie regulators fed a couple of Powerpoint slides and left clueless in a meeting room until they slink back to their own offices.
posted by surplus at 5:55 AM on October 22, 2013

It is a puff piece, and I also distrust the audited statements and disclosed "Value-At-Risk" measures - but there is real evidence that Morgan Stanley has been exiting more capital/risk intensive business lines and telling employees to expect lower risk and the associate lower comp levels going forward.
posted by JPD at 6:30 AM on October 22, 2013

JPMorgan: Wall Street's Not Saying It's Guilty. It's Not Even Sorry
posted by yeoz at 10:13 AM on October 22, 2013

The $13 Billion JPMorgan Settlement Is a Good Start—Now Someone Should Go to Jail
posted by yeoz at 10:28 AM on October 22, 2013

Basically, investors are treating Jamie Dimon just like investors treated Bernie Madoff. They know he is a crook, but he's earning them lots of money so are willing to look the other way. The main difference is that Dimon has an implicit government backup while Madoff did not.
posted by JackFlash at 11:03 AM on October 22, 2013

JackFlash - do you have a cite for the AG offering to let JPM off the hook if Dimon resigned? I'd not seen that and I find it very interesting. I tried a google news search but didn't find anything.

Yes Dimon is crook - look who is his mentor was - Sandy. Dimon should go - he should have gone after the CIO/London Whale debacle. The irony is that for as long as we have this benign credit environment guys like Dimon look like geniuses while guys like Gorman look like schmucks. If winter doesn't come soon Gorman will lose his job to someone willing to push the rules. Eventually the board gets pressure and the are forced to make a change. Which is absolutely a shame.
posted by JPD at 11:45 AM on October 22, 2013

This is peanuts. If there's a $13 Billion settlement, you damn well know they're hiding something that would cost them $13 times ten.
posted by BlueHorse at 11:46 AM on October 22, 2013

Its actually a figure outable thing - its related to the assets of WaMu for the most part.

I'm sure it could easily be double or even triple. 10x starts to strain credibility.
posted by JPD at 11:48 AM on October 22, 2013

Bill Black: The U.S. Attorney Who Prosecutes JP Morgan Will Be Its First Witness
posted by the man of twists and turns at 5:01 AM on November 11, 2013