Some say it’s natural optimism that makes the Americans so different from the British, and some say it’s a lack of cynicism. Either way, our cousins over there have long had difficulty distinguishing fact from fiction, and are forever finding ways to make their public life look like the action movie that always ends well for the hero, or the TV series in which some of the good guys turn out to be bad but the really good guy lives to fight another season.
The ultimate expression of this national naivety — for that’s surely what it is — occurred on 1 May 2003 when President George W. Bush, apparently in imitation of Bill Pullman’s ‘President Whitmore’ in the Hollywood blockbuster Independence Day, appeared costumed as a fighter pilot on an aircraft carrier to announce ‘mission accomplished’ in Iraq eight years and 4,000 American deaths ahead of the final troop withdrawal. But 31 July 2011 and 17 October 2013 will also go down in history as dates when America made a fool of itself — by concocting debt-ceiling crises that imitate the formulaic cliffhangers of screen fantasy.
When Tea Party Republicans and disenchanted Democrats held President Obama to ransom in the summer of 2011 — and his military chiefs were briefly unable to reassure their soldiers that they would continue to be paid — I called it ‘small-town’ government that was ‘a disaster for America’s standing in the financial world’. The impasse was resolved by a midnight compromise that kicked the debt problem forward by a few months. But with hindsight there’s no doubt that it traumatised investors and provoked descent towards double-dip recession on both sides of the Atlantic. In one small illustration, a friend of mine in the theme-park business told me US box-office takings ‘fell off a cliff at the beginning of August’ as consumers slashed discretionary spending.
And here we are again, back on the roller-coaster (or should that be Rollercoaster, the 1977 theme-park-disaster movie) of Congressional non-cooperation. Indications as we go to press are that a bipartisan deal will be scrambled to raise the $16.7 trillion debt limit, avert default, end a partial shutdown of federal government and keep the show on the road until January, while allowing Obama to enact the healthcare measures that inflamed the Republican right in the first place. Even if the episode follows that predictable script, it will stand in memory as a display of irresponsibility and incompetence that diminished Washington and shook faith in a still-fragile recovery. And it certainly won’t win any Oscars.
Late faller
Speaking of good guys who turn out to be bad, a late faller in the field of American financial reputation is Jamie Dimon, chairman and chief executive of JPMorgan Chase — which has reported a quarterly loss, its first in Dimon’s eight-year tenure, after setting aside $9 billion for legal costs relating to sales of mortgage-backed securities.
Until now, Dimon was the golden boy of US banking. Grandson of Greek immigrants, he made his name in the 1990s as right-hand man to Sandy Weill, the Wall Street titan who built Citigroup into the world’s biggest financial conglomerate. Weill eventually fired him — but one of the few positive things said about Weill in recent times was that he had the nous to pick Dimon as his protégé. At JPMorgan, Dimon pulled off a coup in 2008 by buying the crippled trading firm Bear Stearns for a fraction of its previous value, and bagged another fire-sale bargain in the Washington Mutual savings bank. The New York Times called him ‘arguably the most powerful banker in the world’ while Bloomberg Markets labelled him ‘the closest thing modern finance has to a statesman’. He used that eminence to deride global bank capital rules as ‘anti-American’ and dismiss concerns about the likes of JPMorgan being ‘too big to fail’.
Then last year along came the ‘London Whale’, the Morgan trader who clocked up $2 billion of losses on credit default swaps in defiance of Dimon’s supposedly blue-chip risk management systems. And now the revelation of massive litigation costs, much of which relate back to the activities of Bear Stearns and Washington Mutual. ‘It’s very painful for me personally,’ said Dimon last week. Not painful enough, mutter those who have envied his untouchable status all these years. Morgan shareholders are restless, and the word on the Street is that the Dimon days are numbered.
Plot twist
A new star of the great American soap opera is Janet Yellen, Obama’s nominee to succeed Ben Bernanke as chairman of the Federal Reserve — and, assuming she is confirmed, the first woman to take office as the world’s most powerful central banker. Her emergence follows a curious little plot twist in which the President appeared to favour his combative former economic adviser Larry Summers for the job. But everyone in Washington knew that Summers, who had gathered many distinguished enemies during his stints as Clinton’s Treasury secretary and president of Harvard university, would meet fierce Congressional resistance.
So perhaps that was a White House spin-doctor’s feint to clear the path for the lower-profile but well respected Yellen, who has no controversy against her name but whose left-leaning stance is by no means a secret. In 2003 she was a signatory with her economist husband George Akerlof and his fellow Nobel laureate Joseph Stiglitz of a petition against President Bush’s tax-cuts-for-the-rich stimulus package. Latterly, as vice chair of the Fed, she has been seen to be more concerned about employment than inflation — which means the prospect of a ‘taper’ or gradual elimination of the Fed’s quantitative easing programme, or of higher interest rates to avert a housing bubble, will recede into the distance with her appointment. US inflation is running at just 1.5 per cent, so that may not worry her fellow citizens. But as ever, the rest of the world will watch nervously what America does next.
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