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Economy Lab

Carney v. Dimon a clash of world views Add to ...

The clash of financial titans Mark Carney and Jamie Dimon works on so many dramatic levels: The plucky upstart vs. the King of the Mountain; Good vs. Evil (assign the role of white knight and dark as you see fit); Us vs. Them.







But there’s an even bigger theme that justifies the urge to frame their confrontation in Washington on Friday as an epic struggle.







Mr. Carney, the Bank of Canada governor, and Mr. Dimon, the head of JP Morgan Chase & Co., represent two very different world views -- world views that define the debate over financial regulation and economic policy.







The Wall Street banker is a fatalist. Mr. Dimon famously told the committee that Congress established to study the financial crisis that such calamities are simply a part of life. Mr. Dimon recounted for the Financial Crisis Inquiry Commission an exchange he had with one of his daughters, who had asked her dad to explain a financial crisis? His answer: “Without trying to be funny, I said, `This is the type of thing (that) happens every five to seven years.’”







Mr. Dimon is articulating an acceptance of the boom-bust cycle, something that many equate to a natural phenomenon. The affect of this world view on attitudes toward economic policy is obvious. You have about as much chance to influence the course of the economy as you do lassoing a tornado; better to get out of the way.







Canada’s central bank governor has a serious distaste for this philosophy.







Mr. Carney left behind millions of dollars in salary when he quit Goldman Sachs to take up public service. He believes policy can make a difference. In a speech in Germany a year ago, Mr. Carney referenced Mr. Dimon’s remarks. Here’s the passage:







Keynes wrote prophetically of the economic consequences of the Treaty of Versailles. Could the same be said of current financial reforms? Are policy-makers taking for granted the essential role performed by finance in a vain pursuit of its risk-proofing? Do we assume that our "late advantage" of an open, global capital market and trade environment is a "natural, permanent" feature of the economic landscape?



Or is the other extreme possible? Are we being too timid? Consider the jaded attitudes of the bank CEO who recounted: "My daughter called me from school one day, and said, 'Dad, what's a financial crisis?' And, without trying to be funny, I said, 'This type of thing happens every five to seven years.'"



Should we be content with a dreary cycle of upheaval?



Such resignation would be costly. Even after heroic efforts to limit its impact on the real economy, the global financial crisis left a legacy of foregone output, lost jobs, and enormous fiscal deficits. As is typically the case, much of the cost has been borne by countries, businesses, and individuals who did not directly contribute to the fiasco.



In case any of the readers of his speech were unsure of the banker he was talking about, Mr. Carney referenced Mr. Dimon by name in a footnote.



Was Mr. Dimon getting back at Mr. Carney for this slight? If he was, Mr. Carney was unbowed because he repeated his critique of Mr. Dimon’s fatalism in a speech less than 48 hours later:



To conclude, critics of reform generally succumb to three world-weary arguments:



  • any rule will be arbitraged;
  • any insurance will promote greater risk taking; and
  • there will always be financial crises.

Such fatalism should be rejected. In no other aspect of human endeavour do men and women not strive to learn and to improve. The sad experience of the past few years shows that there is ample scope to improve the efficiency and resilience of the global financial system. By clarity of purpose and resolute implementation, we can do so. The current reform initiatives mark real progress.







So who will win this struggle? An important chapter will come to a head over the next couple of months as the Group of 20 works toward a November deadline to do something about banks that are too big to fail.



But as any reader of epic tales knows, the story rarely ends conveniently, and the G20 only has been working on financial regulation for a few years. The battle between Mr. Carney and Mr. Dimon is only beginning.



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