Testifying at the Financial Crisis Inquiry Commission – a 10-member panel created by Congress to find out the reasons behind the economic crisis – JPMorgan’s (NYSE:JPM) CEO Jamie Dimon reiterated what Bank of America’s (NYSE:BAC) CEO Brian Moynihan also stated, and that was the reason for the banking crisis wasn’t because the banks were too large.
This is a big deal because there’s a growing political movement that asserts this is the case, because it curries strong favor among the constituents of the politicians at a time when politicians, not just bankers, are under fire.
So a growing number of politicians are pushing the idea that banks need to be broken up, and that the consumer banking and investment banking units of a business not be allowed to funcion in a bank
The argument of Jamie Dimon is the reason JPMorgan performed so well during the banking crisis was because of its diversification, and not in spite of it. It was a number of units contributing which seemingly allowed the company to be one of the stronger in the industry, according to Dimon.
In 2009 that was especially true of investment banking at a number of the banks, as that was the primary driver of profits in midst of the failing credit markets.
This comes back to really taking the eyes off the real issue of government interference, and that is if they government would have stayed out of the picture and allowed the big banks to fail, it would have done what the market does best: discipline those that can’t run a business as well as another.
I question as well the premise that ‘too big to fail’ had anything to do with the crisis, rather it was the assumption by clueless politicians that the banks were too big to fail which generated the bailouts, which a number of the banks and financial institutions, like Wells Fargo (NYSE:WFC) and Goldman Sachs (NYSE:GS) didn’t want to partake in, but were forced to.
Now we’ll never know what would have happened, as the bailouts took away the place of the market in it all, and so what would have truly been needed to change within companies will never be known, because the adaptation by management wasn’t allowed to proceed based on market forces rather than government interference.
The point is that the continual interference by the government takes away from the realities of what caused the problems to happen and what really needs to be done to fix them. The government needs to stay out of it and let the market determine who the winners and losers are, and why. That’s how we learn, not from a bunch of politicians who have no idea what’s going on, and just throw money and regulations around to make it look like they’re doing something to help the situation, when all they’re really doing is prolonging the pain.
