Trump, Dimon and the financial crisis

JPMorgan Chase President Jamie Dimon represented the ready side. President Donald Trump is at the helm of the world's largest borrower, the US government, and has more than a little debt experience since his debut as a real estate developer and casino operator. "I think I could beat Trump," said Dimon about a match for the president. He claimed to be as tough as Trump and "smarter than him." In addition, Dimon added, "This rich New Yorker has earned his money. It was not a daddy's gift, "referring to the starting money Trump had received from his wealthy father developer.

Trump, of course, could not let that go, tweeting that Dimon was not fit to run for president since he "did not have the aptitude or sense of things And that he is a mediocre public speaker. "

There is some irony that a decade after the worst credit crunch in history, top-level representatives of the financial class are at the top of the world's power elite. What might be so surprising is that no one went to jail for the criminal acts that caused the crisis, whether they were Wall Street machine fraud loans that turned toxic mortgages into sharp AAA titles.

The main story remains that the decision makers, from the Treasury to the Federal Reserve, have done everything to fight the crisis. To date, officials (including former Treasury Secretary Henry Paulson) have said that they could not have prevented the demise of Lehman Brothers, the failure to sign the crisis.

This argument is countered by Johns Hopkins economist Laurence Ball in his recent book The Fed and Lehman Brothers: setting a record on a financial disaster, in which he argues that Lehman had enough guarantees to get a loan from the Fed that could have saved him. The day after the bankruptcy of Lehman, the Fed would save AIG, whose failure could have even more disastrous consequences.

The recovery since the crisis has been largely the product of unprecedented monetary policies adopted to fight the recession. Even more extraordinary, these policies persist. German BankStrategists point out that 25% of the global economy still has negative interest rates. And the balance sheets of the Fed, the European Central Bank and the Bank of Japan, whose size has more than quadrupled since the crisis up to $ 14.5 trillion, will only start to decline later this year.

The Fed under Jerome Powell is focusing more and more on the role of these policies in swelling financial bubbles. He noted that the last two recessions have followed financial excesses: the housing bubble that led to the 2008 financial crisis and the tech bubble that erupted in 2000.

Concerns about financial excesses are spreading among central bank officials. In a speech last week, Fed Governor Lael Brainard elaborated on this theme: "

Previously, Brainard had been a dove, supporting the policy of slowing rate hikes by former Fed Chairman Janet Yellen, who in a speech on Friday advised to revive the economy to make up for the previous bankruptcy.

"It's not the Yellen University Fed," writes David Rosenberg, chief economist and strategist for Gluskin Sheff. His past error has been to focus strictly on his dual mandate of stable inflation and low unemployment, without taking into account financial excesses. In this regard, the Fed considers that stocks are expensive and that corporate bonds are also shrinking, he adds.

While markets are rising and falling on the latest tariff news, it is almost certain that the US central bank will eliminate adjustments by raising interest rates, while continuing to reduce its balance sheet. According to Bloomberg, there is a 97.5% probability of a one-quarter increase in the interest rate on federal funds, from 1.75% to 2% currently, at the next Fed policy meeting. The probability of an additional shift on December 19 rose to 79.2%.

In other words, this Fed aims to avoid fueling the excesses that led to past crises. And leave the excesses to the bankers and the presidents bloviateurs.

Write to Randall W. Forsyth at [email protected]