Dimon is the new John Pierpont Morgan but the coming men are the wonk and the axeman

Felix Salmon

For 16 years, Jamie Dimon and Sandy Weill were the ultimate Wall Street power team, starting with a tiny finance company called Consumer Credit and building it through aggressive acquisition into Citigroup, the largest bank in the world.

Dimon, at this point, is seen not so much as the successor to Sandy Weill, but more as the heir to John Pierpont Morgan himself, he who stepped in to save the day during the panic of 1907. It’s a role which should by rights have been played by Hank Paulson, the man who stepped down as chief executive of Goldman Sachs to take over as Secretary of the US Treasury. But Paulson has generally been seen as being one step behind the curve, a man who would always prefer to talk the markets around rather than actually do something. Dimon, by contrast, has said relatively little over the course of the past few months, but his actions have spoken very loudly indeed.

Even Dimon, however, is ultimately just playing his part in a drama being directed by the Federal Reserve. And while the Fed president Ben Bernanke attracts the media limelight, the man who is shouldering the lion’s share of the most important work at the Fed right now is Tim Geithner, the president of the New York branch.

Bernanke is an expert when it comes to deciding when to cut interest rates and when to raise them. But the Fed, in recent months, has been doing a great deal more than simply cutting interest rates. It announced brand-new financing facilities, it slashed the punitive rates at which it will lend to banks and most dramatically of all, it decided to lend to unregulated investment banks at the same rates and against the same collateral as it lends to regulated commercial banks.

Economist Jim Hamilton calls this ‘monetary policy using the asset side of the Fed’s balance sheet’, and it’s largely uncharted territory for the Fed generally and in particular for Bernanke, who knows much more about macroeconomics than he does about finance.

Into the breach, then, has stepped Geithner, a finance wonk charged with being the prime liaison between Wall Street and the Federal Reserve. It’s his job to make the really hard decisions: is this bank insolvent, in which case it should be allowed to fail, or is it merely illiquid, in which case the Fed should probably help keep it afloat? And more generally, when does Fed activity ratify the irresponsible behaviour of financial institutions in the past, and when does it save the economy from unnecessary turmoil?

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jonners

May 11th, 2008 2:05am Report this comment

Good Article as always Felix.

Would note though that Rufeh's specialism at Lehmans and Credit Suiise was "organic" productivity, gradually taking out non-people costs, streamlining and increasing automation. Will be interesting to see him in this role at Citi where clearly the expectation is axe-man.

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