Every day we rise and tell ourselves this will be a good day, free of that unique combination of predation, self-pity, mediocrity and disingenousness which characterizes the modern bank executive. And every day somebody proves us wrong.
Today it's William B. "Bill" Harrison, Jr., the retired banker who engineered the mega-merger which created JPMorgan Chase. That means the capstone of Harrison's career was the creation of an institution that has repeatedly broken the law, deceived its customers foreclosed on homeowners with a motley crew of college-aged temps known as "the Burger King kids," received billions in public assistance ...
... and still underperformed the Dow Jones average, dropping in stock value to $37.23 (Thursday's closing price) from around $53 per share when it was created by Harrison in 2000.1 You'd have been better off buying Treasuries.
If that's your idea of a stellar resume, you will no doubt read Harrison's defense of mega-banks in the New York Times with great anticipation, an emotion which will be followed promptly thereafter by profound disappointment. Harrison's apologia is as mediocre in its conception, as deceptive in its packaging, as vacant in its morality and as unimpressive in its execution as JPMorgan Chase itself.
And believe me, that's saying something.
They Can Get It For You Wholesale
Harrison begins by oversimplifying and misstating his opponents' arguments (and goes downhill from there), characterizing their position as follows: "In the years before the crisis, greedy bankers used their political muscle to grow from small, specialized banks into giant, all-purpose financial institutions. This transformation led to the financial crisis because banks became too big to manage and too big to fail. If we break them back up, we will eliminate the risk of future crises."
No informed critic would ever suggest that too-big-to-fail banks were the only cause of the last crisis. Beware of a debater who begins by mischaracterizing his opponents' arguments.
"The first fallacy," writes Harrison, "is that the emergence of large, universal banks... was an artificial or unnatural development... The consolidation that took place was driven by the market's needs and represented an evolution toward greater efficiency in banking, just as companies like Amazon, Starbucks and Home Depot brought efficiency to retail."
If you are in a Starbucks as you read this, we will pause for a moment to let you spit out that grande cappuccino in comic Danny Thomas style. This is an argument that Harrison's successor at JPM, Jamie Dimon, is also fond of making. And it makes absolutely no sense.
Starbucks' success was due to salesmanship, attractive retail outlets, and its ability to use its market volume to drive down the prices charged by its suppliers. Home Depot's success came from its identification of an unmet market niche -- and its ability to use market volume to drive down the prices charged by its suppliers. Amazon's success was driven by its concept and execution, the fact it was able to avoid charging sales tax, and ... you guessed it ... by its ability to use market volume to drive down the prices charged by its suppliers.
Pop quiz: How many of these factors apply to too-big-to-fail banks like JPMorgan Chase? If you answered "none," you are correct. With one possible exception: The one "wholesaler" JPM and its peers have successfully arm-twisted on price is the Federal Reserve. And since the Fed is a creation of Congress, that means... you.
Harrison sniffs at the idea that the creation of the mega-banks was the result of "political muscle," clearly hoping that nobody remembers how Citigroup was formed. The architects of that merger were so confident of political support that the deal was announced before it was legal. Treasury Secretary Robert Rubin joined Citi not long after helping to change the law. Now that's "political muscle."
Harrison's merger of Chase Manhattan Bank and J.P. Morgan, Inc. took place shortly afterwards.