Joe Nocera's lastest column on banking juxtaposes good banker, Citigroup's Vikram Pandit, with bad banker, JP Morgan's Jamie Dimon. Pandit, Nocera tells us, is good because his bank invests in good assets, namely U.S. Treasuries. Dimon is bad because his bank invests in bad assets, derivatives and the like, which recently lost a lot of money.
Joe clearly likes Pandit's demeanor and doesn't like Dimon's. Dimon has "swagger." He likens Pandit, who Joe says has no swagger, to former Citigroup chief, Walter Wriston, "one of the great bankers of the modern era." I had lunch a while back with the late Walt Wriston and, there's no question, Wriston had no swagger.
Joe's column is entitled "The Safest Bank," so he's not only saying that Pandit has no swagger, but that he also saying Pandit has the safest bank. And in choosing this title, Joe's leading the reader to equate no swagger with having a safe bank.
This is about as naive and off base as it gets.
First, no swagger Wriston invested huge sums in Latin America and lost a bundle for Citigroup -- four years of earnings to be precise. In reviewing Philip Zweig biography of Wriston, the New York Times concluded that "Mr. Wriston's goal was for profit increases of 15 percent a year. What this inevitably did was to push the bank's culture toward excesses. Mr. Zweig provides us with many of these, from bribes of foreign officials, to large sums of money simply disappearing, to the booking of transactions in offices other than where they took place, to Asian drug running."
When Wriston died, Paul Volcker recalled that, in thinking about Wriston, "The word aggressive keeps coming back." The New York Times wrote that "the two clashed over Mr. Wriston's contention that banks no longer needed high levels of capital as long as they were profitable, well managed and growing. In the end, Mr. Wriston won out: capital restrictions today are much lower."
Wriston, in short, was no Jimmy Stewart, a.k.a. George Bailey. As for Pandit, his "safest" bank just scored lower than JP Morgan in March's Fed's stress test. Indeed, Citigroup was one of four banks that the Fed singled out as particularly risky -- so risky that the Fed denied its request to pay out a dividend.
Joe, on the off chance you are reading this, let me now address you directly.
I'm not suggesting that JP Morgan is a better run bank than Citigroup. Your faith in Pandit may be justified. Maybe you know something the Fed doesn't know. But it sure sounds like you are saying that a bank is safe if it's CEO is a modest guy, even if he likes to gamble big time.
The reality is that the huge banks are so big that no single person can oversee what they are doing. The JP Morgan derivative deal that went south demonstrates this. Dimon, apparently, had little clue about this mega trade that he now says was stupid and reckless. Nor, for that matter, did any of our government regulators.
So Joe, it's not about Jamie or Pandit being more or less like Wriston. The problem is not with the guy at the top. Jimmy Stewart Is Dead. He's not coming back. We're not going to have a safe financial system by putting more likable people in charge.
And suggesting, as you do, Joe, that Pandit is not only likable, but also playing it safe by investing in U.S. Treasuries ignores the lesson we've learned repeatedly over the last five years -- a lesson that I will spell out for you in caps: THERE ARE NO SAFE ASSETS!
AIG was rated AAA, Lehman's Bonds were rated AAA, Italian bonds were selling at prices close to those of German Bunds in 2005, top tier CDO tranches were rated AAA, and the list goes on. And, Joe, you might recall that U.S. Treasuries used to be AAA. Now they are AA+.
In my view, U.S. Treasuries are among the riskiest assets in the world today given that the U.S. government is in worst fiscal shape than any developed country when you consider the long-term picture. The fact, Joe, that you judge U.S. Treasuries to be absolutely safe indicates to me that you haven't looked at these facts either.
Joe, we're not going to get a safe banking system by appointing bankers that you decide, this week, are good guys. We're going to get a safe banking system when we eliminate opacity and leverage, which is easily done by restricting financial corporations to do one thing only, market 100-percent equity financed mutual funds and by having a federal agency vet and disclose on the web in real time all elements of all securities being bought, held, and sold by the mutual funds.
Joe, you are the New York Times chief columnist on banking. It's time for you to focus on the real problem with the banking system and stop looking for saviors. It's banking policy, not people, Joe, that needs changing.
best, Larry
PS, sorry for the tough love.