DAVOS – French President Nicolas Sarkozy clashed with the chief executive of US investment bank JP Morgan Chase at the Davos forum, telling him bankers had done things which defied common sense.
JP Morgan boss Jamie Dimon had earlier in the day lashed out at persistent bank bashing nearly three years after the global credit crisis began, saying it was “unproductive and unfair”. But when he rose at a later session of the World Economic Forum to ask Sarkozy to get the G20 to avoid overregulation of banks, the French president launched into a broadside accusing financiers of behaviour that he said had caused the crisis.
“The world has paid with tens of millions of unemployed, who were in no way to blame and who paid for everything,” Sarkozy said to Dimon. “…It caused a lot of anger, Mr President, a lot of anger.” The conservative French leader also renewed his call for a financial transaction tax to fund development but acknowledged that many G20 countries opposed such a levy.
He suggested a small pioneer group of states might go ahead with a tiny levy or some other form of innovative financing to lead the way. Dimon praised governments for intervening to save the financial system in 2008. But he said the G20 group of major economies, which Sarkozy chairs this year, should take a deep breath before imposing more regulation. “Too much is too much.”
He was not given a chance to respond to Sarkozy’s criticism. Credited with being one of the few US bankers who steered his firm through the financial turmoil of 2007-08, Dimon had earlier told a separate panel discussion not all banks made the same mistakes in the run-up to the crisis. Sarkozy went on to say that, “the world was stupefied to see one of five biggest US banks collapse like a house of cards. We saw that for the last 10 years, major institutions in which we thought we could trust had done things which had nothing to do with simple common sense. That is what happened.”
The United States government spent hundred of billions of dollars of public money to bail out financial institutions, after the dramatic failure of Lehman Brothers in 2008, through the controversial Troubled Asset Relief Program (TARP). “There is a huge misconception. Not all banks needed that TARP. Not all banks would have failed,” Dimon said at the earlier session.
“A lot of banks were stabilising the problem – JP Morgan bought Bear Stearns because the US asked us to.” Dimon closed the earlier session by saying his biggest current concern was that “bad policy” could make things worse as the banking industry was trying to recover. He appealed to Sarkozy for flexibility in governments’ approach to regulation, saying the rules should allow big banks to fail without bringing down the financial system but that it was important to get policies right.
Sarkozy said bankers were wrong to resist tough rules. “There is an ocean between flexibility and the scandal we saw,” he said. “So if people present me as obsessed with regulation, it’s because there is a need for regulation. I do not contest the principle of securitisation, but when one offshore country guaranteed 700 times its GDP, are we in the market economy or in a madhouse?”
Finally, the French president took aim at bank bonuses. “Bonuses don’t bother me, provided there are also … draw-downs when there are losses. When things don’t work, you can never find anyone responsible. Those who got bumper bonuses for seven years should have made losses in 2008 when things collapsed.”
