Jamie Dimon, chairman and CEO of JP Morgan Chase, presented an insightful timeline about how the economic meltdown occurred last year during last week’s NYU International Hospitality Investment Conference at the Waldorf-Astoria.
He said banks essentially were forced by the government to take Troubled Assets Relief Program money because if any one of them hadn’t taken the money, it would’ve put a stigma on the ones that did take the money. I guess having a stigma on all banks was OK in the government’s eyes—even if healthy banks didn’t need the money.
Dimon, who has rock-star-like status in the banking industry, also recalled the day earlier this year when his bank paid back its TARP funds. He said a secretary went to the bank branch in the company’s building and had a teller prepare a check for US$25 billion—and the teller didn’t bat an eye. That sounds like the way my kids act when they want something at the mall.
Dimon also said there’s a misunderstanding that banks aren’t lending. In fact, bank lending has increased since the failure of Lehman Brothers last September, and JP Morgan Chase is making US$50 billion in new loans each month.
Hmmm. Someone must have forgotten to tell these lenders the hotel industry can be a major part of any economic recovery. Hopefully, money will find its way to the hotel industry before many more developers and owners get ruined financially. But there’s one important element hotel owners and developers must come to terms with. “If there’s no equity in the deal, (banks) are not going to roll the loan,” Dimon said. “A lot of people will make money putting equity in.”
Dimon deftly sidestepped a question from NYU’s Lalia Rach, who asked if Dimon’s bank was going to open lending to the hotel industry. He responded with many words, but they didn’t add up to a succinct answer. Reading between the lines, the answer was a resounding “no.”
There clearly has been some stability in the economy, and it’s possible the worst part is now, Dimon said. He added that the meltdown wasn’t the fault of banks but was a result of a series of things, including an enormous trade imbalance and low interest rates for such a long period of time.
Could it happen again? “We need a systematic regulator,” Dimon said. “Someone to look at the whole system and make sure there are no gaps. The way to fix it is to do it in the clear light of day and to not oversimplify it.”
That might prove to be the reason that a solution to avoid this kind of freefall in the future is impossible: Have you ever known the government or the banking industry to do things that have no gray areas?