You may remember JPMorgan as being one of the major players in the fiscal crisis of 2008. It was big banks like JPMorgan, Goldman Sachs, Citigroup, and the rest of Wall Street who engineered the subprime mortgage products that wreaked havoc on the housing market, the stock market, and the overall economy. The CEOs of some of these banks would like to have you believe that they suffered through the recession just like everyone else. Jamie Dimon, CEO of JPMorgan Chase, is a bit different though. Either that or he didn’t know the cameras were on when he said, “This bank is anti-fragile, we actually benefit from downturns.”
What Dimon said today at a conference where he spoke to his investors only serves to show the callousness of the people who ran our economy into the ground. It also confirms what I’ve been saying for a long time, which is that banks set themselves up to profit at the expense of others during the crash of 2008. They bet against the subprime products they were selling to unsuspecting investors, a move which allowed them to make money when those investments declined in value. And decline they did.
What the banks did in 2008 is known as taking a ‘short” position. In the investing world, you can take two positions in regard to an investment. When you take a “long” position, you invest in something and then hope its value increases over time. When you take a short position, you actually bet against the investment, and you stand to make money if it declines in value. All the major banks were taking short positions against subprime products like Collateralized Debt Obligations in 2008, mostly because they designed these products to fail. Internal emails from several large financial firms show that now only did they short their own products, but they actually knew they would decline in value, even as they encouraged investors to take a long position on the same products.
But that’s not the only way Dimon and JPMorgan benefited from the economic downturn. They also got a massive bailout from the federal government, and they got to buy the remains of the defunct Bear Stearns for next to nothing.
So flash forward to today, and you have Jamie Dimon bragging to his investors about how his company is “anti-fragile” and somehow managed to weather the economic firestorm that claimed so many others. If I was those investors, I would be cautious about entrusting my money to this man.
Phil Cannella is founder and CEO of Retirement Media, Inc.