Ever since the bottom fell out of the financial markets in late 2008, Jamie Dimon has had one overriding message for Washington: Don’t crucify me for the sins of other banks. Or, as Dimon told me two years ago: “It’s never fair to punish everybody regardless of their behavior. There are good banks and bad banks just like there are good politicians and bad politicians.” Other megabanks had vaporized themselves by piling on preposterous amounts of risk—often risks they only dimly understood. But Dimon ran JP Morgan like the rector of a Catholic prep school, and the bank breezed through the crisis thanks to his exacting standards. He didn’t need the government second-guessing him. 

During his extraordinary conference call Thursday night, in which the all-powerful CEO fessed up to a $2 billion trading loss, Dimon offered an updated version of his old mantra: Don’t crucify other banks for my sins. When an analyst asked Dimon if he thought his rivals might be sitting on similar time-bombs, Dimon shot back: “I don't know. Just because we are stupid doesn’t mean everybody else was.”

Suffice it to say, the proper response to the $2 billion blunder was not to tout the theoretical wisdom of other banks. It was to acknowledge that we now have ironclad proof—as if we really needed it—that everyone is capable of disastrous stupidity. But that’s the one thing Dimon can't admit, since it would require him to support intrusive regulations. Stupidity, in Dimon’s mind, is always isolated and explainable, not systemic and unavoidable. 

Dimon’s refusal to see how the fiasco demolishes his critique of financial reform is really quite stunning. In fact, almost every mitigating circumstance he cited actually strengthens the case for reform. Dimon made clear that the loss wasn’t the work of a rogue trader: The position was completely authorized, he suggested, just poorly executed and weakly monitored. One shudders to think what might have happened at a less scrupulously-managed bank—of which there are many—when the losses could have escaped detection much longer. 

Dimon said that, even after the loss, the company is on track to earn $4 billion this quarter, and that the loss barely dents its capital cushion, which exists to protect depositors, bondholders, and other creditors. Fine. But most megabanks are far less profitable than JP Morgan, and their capital reserves are less bountiful. The same $2 billion slip-up could have brought real distress to one of its rivals. Dimon also observed that “none of this has anything to do with clients,” by which he meant the firm had lost its own money, not customers' money. But if the loss had occurred at a weaker bank, it wouldn’t have mattered where it originated. The red ink would have engulfed both the company and its clients. Dimon’s pleas were reassuring only if you somehow think JP Morgan is the only fallible bank. But, of course, we know from experience that it makes fewer mistakes than most. 

Above all, Dimon was adamant to point out that the trade didn’t violate the Volcker Rule, which prevents government-backed banks from placing risky bets for their own bottom line. According to Dimon, the point of the bet wasn’t to make money, it was to hedge (i.e., offset) risks in its portfolio of loans, bonds, and other debt. But, if true, then the implication isn’t that JP Morgan’s trade was kosher. It’s that the Volcker Rule doesn’t go far enough. And the reason it doesn’t is because CEOs like Dimon lobbied to rein it in. If the classic definition of chutzpah is killing your parents and then pleading for mercy as an orphan, then Wall Street’s version is gutting a regulation and then claiming it’s pointless because it didn’t stop you from screwing up. 

Still, the real lesson of Dimon's hedging hiccup isn’t that we need a tougher Volcker rule, though that's certainly true. It’s that we need to break up overgrown megabanks of the sort Dimon runs. Two years ago, Andrew Haldane, an official at the Bank of England, delivered an eye-opening speech about the relative merits of bank beefiness. Haldane’s reading of the data was that the benefits of size typically top out at around $100 billion—or less than one-twentieth of JP Morgan’s balance sheet—beyond which banks rarely become more efficient, and often far less so. The reason, he posited, was that banks simply become too massive and convoluted to manage. “Large banks grew to comprise several thousand distinct legal entities,” Haldane said of the run-up to the financial crisis. “Whatever the technology budget, it is questionable whether any man’s mind or memory could cope with such complexity.” 

Now that we know even Jamie Dimon’s state-of-the-art financial mind can’t cope with such complexity, who can say with a straight face that any banker can? 

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