Jamie Dimon, president and CEO of JP Morgan-Chase Bank




I watched a documentary on the "London Whale" fiasco today, the ridiculous gamble that so-called "smart" JP Morgan-Chase executives took with investors' money, so I'm meditating on the principle of balance. Balance is basic to any success-breeding life philosophy, in my view, and thus it applies in all areas of life, in Economics as much as anywhere else. But what does this principle of balance mean in the world of Economics, or rather to be more exact, what should it mean? 

I remember reading Milton Friedman's famous New York Times article back in the '70's. Here is the quote I most often recall: 


"...a corporate executive is an employee of the owners .... He has a direct re­sponsibility to his employers. That responsi­bility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con­forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom."  



The things that pass for profundity. Make money, but conform to the ethics of society and to the law. He neatly avoids saying that these laws are made up by people, and they can be bent and manipulated by other people. Most importantly, he says nothing about what makes a practice ethical or unethical, the big question of Philosophy. His profundity leaves us no smarter than we were before we read the article.  

My point today is very simple. As I believe that human societies and individuals should always be seeking to balance courage and wisdom so I believe that in the economic sector of society, we should be aiming to balance ambition with responsibility. 

The man pictured at the top of today's post, Jamie Dimon, I think, simply does not get what that balance should mean to him and his colleagues. But in a wisely designed society, he isn't expected to get it. He is just smacked down when he goes too far. He'll figure it out from there.  

Every banker has a vested interest in trying to talk potential depositors and shareholders into trusting his firm with whatever monies they have to invest and then in exhorting his employees to make profits with that money. It's just business. It's what he does. What this means in the real world is that, people being the rationalizing fools they are, the risks taken will keep rising ever more recklessly until something has to crash.  

Therefore, the responsibility for seeing that these high-flying investment artists don't risk the savings of ordinary depositors and shareholders in reckless ways must lie with regulators. And I feel strongly that right now the regulators are paper tigers. They are going to have to start showing some real toughness. And legislators are going to have to give these regulators back the whips and chains that regulators used to have. 

Federal governments all over the world are going to have to come together and set up a code of laws that tells the bankers in clear terms: "Here are the kinds of risks you can take with other people's money and here are the kinds you are not to touch. Here is the level of transparency you should be constantly aiming to achieve with your investors and depositors and here are the kinds of lies and omissions that we simply will not tolerate. Violate these rules and you'll go to jail as well as lose your personal net worth down to the last dime." 

The US federal regulators need a Glass-Steagall Act, or something like it, back and a Securities and Exchange Commission with real weapons, real power to make Wall Street "gamblers" hurt, and the regulators need to use those tools. If these changes don't come about, the big risk - that the world economy is going to crash completely - will keep rising until the unthinkable becomes inevitable.  

Bankers don't like red tape? Too bad. Get over it. The elected representatives of the people should be telling the bankers what will be allowed and not allowed, not the other way around.  

The goal should be to achieve a balance between risk and responsibility and no, the bankers on their own won't achieve that balance because they won't try to. That is not what they do or how they think. Striking that balance is up to the legislators and the regulators.  

The threat of serving time with a cell-mate named "Spike", who may, if they're lucky, be a simian with a kind heart ...that the bankers will understand. And make no mistake. These financiers are smart guys. At that point, they will start to behave like they accept that they are human and fallible - like the rest of us.  


    
                                 Dick Fuld, former CEO of (now defunct) Lehman Brothers