Poor Jaime got knocked about the head ad shoulders in Davos today. Seems as though some folks didn't like the results attributed to the "London Whale" and decided that it was all Jamie's fault. Inasmuch as Jamie had always made it clear in and outside the organization that he was The Man, I suppose this particular shoe fit and to his credit he took the responsibility for the loss and embarrassment. Also took a hell of a pay cut but don't cry for Jamie Argentina. He still made a bomb.
Funny thing is, however, we still don't know what really happened other than the Whale and his buddies made a bad bet, doubled down and doubled down again. There had been allegations that one or more of the folks involved deliberately attempted to mislead management but this has not yet been proven. I guess the position was so large that half the City knew about It at which point a couple of Hedgies made their own bet that without them the Whale would be able to get out and squeezed Morgan to great success. Or so the story goes.
Frankly, I don't care who won and who lost. Morgan, in my experience, has never been staffed with dumb people: arrogant and egotistical perhaps (see: Dimon, James) but not stupid. And yet a handful of risk managers apparently hadn't a clue what was going on until, essentially, market chatter led them to make, as Scotland Yard likes to say, "further inquiries." After all is said and done I'll bet dollars to green apples that the real cause of the debacle and the reason these boys had the ability to double down was that that folks in charge of risk evaluation and management didn't understand what they were being told and were loath to admit it. The classic mis-application of the "Average Intelligent Man Theory of Risk," i.e. if the Average Intelligent Man doesn't understand it, it's too much...and these were far more than average intelligent men and women. Anyway, J.P. Morgan and Jamie will survive; battered and embarrassed but hopefully wiser and driven less by hubris than in the past. At least that's the way it should work.
Of course part of the fall-out from this episode has been causing Jamie to respond to calls that Morgan and his competitors be broken up on the basis that they are too big to manage. And yet, if I am correct and I'm pretty sure I am, in the case of the Whale all of the checks and imbalances were in place and actually worked; not as rapidly, perhaps, as one would have expected but the information was there. It was not a failure of the structure or the complexity of the organization but a failure on the human level, to wit, humans acting like humans, which is another way of saying it's going to happen again if not at Morgan but at some institution just around the corner from Main Street, Wall Street or whatever street in your lexicon. There will be (and should be) consequences and in this case they have been pretty wide-spread and harsh, but to demand a break-up of what is a pretty focused institution is simply stupid. Better work can be done by both the institutions and by regulators but let us not delude ourselves that any business--especially one like finance which in some areas requires highly subjective decision making by humans--can be made risk free simply by organizational structure. It's about people; it's always about the people so find the best you can, train the hell out of them, oversee them as best you can...and hang on! And the most important thing? Don't be afraid to admit that there is something you don't understand and for goodness sake ask for help when you need it. Got it Jamie, and all you other Managers of the Year out there? Oh, and have a great time spending the shareholder's money in the most expensive place in the world.
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