In an interview Thursday on PBS NewsHour, Jeffrey Brown and Treasury Secretary Tim Geithner had the following exchange:
"JEFFREY BROWN: Do you think Jamie Dimon should be off the board [of the New York Federal Reserve Board]?
TIMOTHY GEITHNER: Well, that's a question he'll have to make and the Fed will have to make. But again, on the basic point, which is it is very important, particularly given the damage caused by the crisis, that our system of oversight and safeguards and the enforcement authorities have not just the resources they need, but they are perceived to be above any political influence and have the independence and the ability to make sure these reforms are tough and effective so we protect the American people, again, from a crisis like this. And we're going to, we're going to do that."
In the diplomatic language of Treasury communications, Mr. Geithner just told Jamie Dimon to resign from the New York Fed board (here is the current board composition). It looks bad -- and it is bad -- to have him on the board of this key part of the Federal Reserve System at a time when his bank is under investigation with regard to its large trading losses and the apparent failure of its risk management system.
Mr. Geithner's call is a major and perhaps unprecedented development which can go in one of two ways.
If Mr. Dimon resigns, that is a major humiliation and recognition -- at the highest levels of government -- that even the country's best connected banker has overstepped his limits. This would be a major victory for democracy and a step towards reopening the debate on financial reform, including introducing more restrictions on what global megabanks can do.
In modern American politics, symbols and substance are hard to disentangle. The big banks have won many rounds, so many times in recent years -- including with the help of Mr. Geithner at key moments during the Dodd-Frank debate, in subsequent discussions over capital requirements, and with regard to design and potential implementation of the Volcker Rule (which would limit proprietary trading and other forms of excessive risk taking by big banks). If Mr. Dimon resigns, this could help open the doors to a broader reevaluation of power in the hands of Too Big To Fail banks -- and how they undermine the rest of our economy.
If, as seems more likely, Mr. Dimon stays in place, that would be a great victory for the big banks -- and a reminder of who is really in charge of the country. Mr. Geithner will be forced to walk back from his statement; that would not exactly inspire confidence in our officials -- or help President Obama get re-elected.
Keep in mind that Mr. Dimon himself decided to transform the relevant part of JP Morgan Chase into a risk-taking operation -- and it is the people he chose and the systems he put in place that have now blown up.
The entire record of recent interactions between JP Morgan Chase and the New York Federal Reserve will presumably be looked at by investigators -- including the total number of meetings, the precise content, and the involvement of Mr. Dimon himself. For example, how often did Mr. Dimon meet with Bill Dudley, president of the New York Fed, over the past 12 months, either one-on-one or in a group meeting? What exactly was discussed? How did any of these interactions filter down into the supervisory process?
We need an independent investigation of the JP Morgan losses -- as I argued Thursday morning on NYT.com's Economix blog. This investigation should examine, among other things, the relationship between Mr. Dimon, his bank, and the New York Fed.
Who will prove more powerful, Jamie Dimon or Tim Geithner?
Simon Johnson is the co-author of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters To You, available from April 3rd. This post is cross-posted from The Baseline Scenario. Read more from the Fiscal Affairs series here.
Follow Simon Johnson on Twitter: www.twitter.com/baselinescene
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In 3 plus years I havent heard one intelligent thought from mr Treasury secretary.
Hey Geithner, how much is in the treasury?
Not to defend Giethner but he was the "Technican" duriung the Asain and Mexican Economic crisies, brought back $600Million to the US Tax Payer, and prevented significant reduction in US
at the time.
Since I don't speak Fed Speak did not come away with the same black & white imression implied here. But assume that the more pressure is applied he could end up stepping down., Whether the
structure or membership changes may require separate pressures. But do believe that the Dodd-Frank "Regs" are getting the speed-up behind those scenes. (While Republicans, on behalf of their
benefactors through glass on regulators' paty)
After 30 years of Republican DRIVEN Deregulation (since Reagan told Americans that their Government is their enemy and appointed people to head up Agencies who did not believe in
their missions) AND With Dark Markets being much bigger than open ones -- This event is excellent timing, and high time -- and you can be sure there is a lot more where this came from!
Mr. Obama was willing to "take a stand" on same-sex marriage. His was an opinion, not a call for Federal legislation, but his revelation "rocked the world" because of his stature.
His opinion on whether Mr. Dimon should resign is at least as important to America (indeed, the world).
Let's hear it, Mr. President.
In my book that disqualifies Geitherner from rendering any viable opinion
Tim Geithner outdid himself with three hypocritical, self-deceiving, and typically ignominious statements in the interview with Jeffrey Brown of PBS NewsHour. The Treasury debacle-in-chief admits he doesn't understand how the debt limit had bubbled back up (seeing it as part of a partisan political agenda); admited that perhaps the NY Fed had a 'perception problem' with Jamie Dimon on the board (OK one issue may soon be resolved); and his piece-de-resistance was his cognitive dissonance erupted as he touted Obama's economic and jobs record: "look how well we are doing relative to any other major country".
It seems the election cycle is well and truly upon us and revisionism and populism will once again trump sensibility and forthrightness. The guy hasn't got a clue.
Under the circumstances it is very inappropriate for him to remain on the Fed Reserve board.
But as the author said, it is very likely that he will thumb his nose at Geithner, and the rest of us, and remain firmly entrenched in his position (gawd forbid that he should all-a-sudden get an infusion of humility); thus showing all of us who is really in charge in this country. ... the 1%.
JP Morgan has made more then 4 billion dollars during this quarter, inspite of the London loss. Mr. Geithner needs to spend some time as an intern under Mr. Dimon. compare their records, who exactly has brought questionable, even actionable, discredit to The New York Federal Board.