The $2 billion trading loss that JPMorgan Chase suffered in recent weeks should cost the bank’s CEO Jamie Dimon his job, says MIT economist Simon Johnson.
“Risk management totally broke down at JPMorgan,” the former IMF chief economist tells Yahoo. And that’s the area where JPMorgan’s CEO was supposed to shine.
“Jamie Dimon is famous for meticulous attention to risk,” Johnson says.
“Any suggestion he didn’t know what was going on with the credit derivatives portfolio or a hedging operation, that’s just not plausible.”
And that should push Dimon from his job, Johnson says. “In any other company, in any other industry, under these circumstances, the CEO would resign.”
If he didn’t, the company’s board of directors would remove him, Simon says. And if that didn’t occur, in a regulated industry, regulators would sack him.
“But it’s not going to happen in banking,” Johnson says. “It’s the power and privilege of being too big to fail.”
The loss itself speaks to the inadequacy of bank regulation, the economist says. “The lesson should be that the Federal Reserve’s approach to bank capital and stress tests has completely failed.”
JPMorgan’s loss taints the entire bank sector, Paul Miller, an analyst at FBR Capital Markets, tells Bloomberg. “Investors are going to say that these are general big black boxes that can’t be analyzed, not even the management companies understand what they’re doing themselves.”
Miller and Christopher Mutascio of Stifel Nicolaus downgraded bank shares Friday.
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