Blodget: Big banks are ‘kids playing with dynamite’May 14, 2012
JP Morgan CEO Jamie Dimon would have us all believe that his banks’ $2 billion trading loss was “just a stupid mistake.” But our guest Henry Blodget (@hblodget), CEO and Editor-in Chief of Business Insider, agrees that this is just the latest indication that the unreformed shadow banking system — revealed, covered up and funded by more than $30 trillion in 2008 has simply been perpetuated by the current administration. Giant banks that were leveraged $40, $50, even $100 for every dollar they had prior to the financial crisis are bigger than they’ve ever been. And for the past few years, bankers from JP Morgan were collecting astounding bonuses on positions that ended up blowing up.
Watch at Business Insiders’ Henry Blodget joins us on the show:
RUSH TRANSCRIPT FROM MSNBC:
>>> we made a terrible egregious mistake. we know we were sloppy, we know we were stupid. in hindsight we took far too much risk. it was barely monitored. it should never have happened.
>> so jp morgan's ceo jamie dimon would have us all believe his $2 billion trading loss was just a stupid mistake. you know, things happen. but our next guest agrees that this is just the latest indication that the as yet unreformed shadow banking system revealed the covered-up and funded with more than $30 trillion in 2008 has simply been covered up and perpetuated by the current administration. giant banks that were levered 40, 50, 60, even $100 million they had before the financial crisis, well, they're bigger than they've ever been, and for the past three years, those jp morgan bankers were collecting big bonuses on the very system that then blew up. but were there crawl backs for them? goodness, no. henry, i love wall street because you pay yourself first for a few years, like i take 20 million for me, 20 million for you, 20 million for our friends, and then a few years later, the whole thing comes unraveled and everybody complains about it and then maybe we get fired, but at least we keep the money that we stole. how do we prevent ourselves from being distracted by the big numbers and the hoopla of jamie dimon, celebrity ceo, to see through this side show into the dark belly of the beast that is as yet unreformed?
>> i think you nailed it. the issue is the incentives for individual traders and for pretty much everybody at the bank are completely screwed. there is no incentive not to roll the dice, because the worst thing that can happen is, hey, you lose a couple billion, you get fired, the next week you get hired by hedge funds, you're probably making more money than you were making at the bank. there really is no down side for the individuals. i am going to confess to being a big fan of jamie dimon in part because he uses language like stupid and idiot and terrible, egregious mistake -- you rarely see that with ceos -- it's not that they made a bad mistake -- of course, they did -- but this happens all the time with bigger banks because they don't understand what they're dealing w. these are the smartest people in the world, but basically they're kids playing with dynamite.
>> what's the dynamite?
>> the dynamite are derivatives and the bets they're making. what happened here was jp morning an had a model that said, look, this bet we're putting on is not going to be particularly risky. suddenly it turns out it was massively risky. there were not huge dislocations in the markets that were utterly unpredictab unpredictable, black swan once in a century things, they were legal data and suddenly jp morgan loses $2 billion. thank gold it was only $2 billion.
>> when you look at what happened in 2008 and you look at the complete and utter refusal to either break up the banks or to move the swap markets into public, which is the derivatives market. if you want to go crazy, it's out of my league, but at the very least, it seems like you should do it in public. they refused to do it in public and refused to make the banks smaller. do you get a sense that any politician or anybody with any influence in the treasury department, in the fdic, at the federal reserve, anybody anywhere is looking at this problem through the same pair of glasses that you and i are and is trying to do something?
>> we've got a couple sound bites after a $2 billion loss. we should take a look at this again. but we had an absolute disaster in 2008 and 2009 and basically nothing was done. as you said earlier, the banks are now bigger than they were before. there is more concentrated risk. so in my opinion, absolutely not. what's so frustrating is that the solution is not mysterious. it is basically -- first, it would be nice to bring back glad seigal which was working for 70 years, why don't we bring that back, and the other big problem is too big to fail. it would be relatively he's toy construct a system where you could let firms fail. you just simply go in and restructure them, it's not a system-ending thing, and then you finally have an incentive for the folks on wall street not to blow up their firms because they wouldn't know that they will not be bailed out.
>> do you remember the days when guys would be told they made partner in an investment bank, skp and instead of taking more risk, they would be told you now have $6 billion in liability.
>> what a shocking idea, right.
>> all right, henry, thanks for coming out and walking us through all this. you, of course, can always catch henry at his property. one of the finest out there.