The crisis is over, Dimon told Bernanke. We beat it. Bad companies got taken over (several by his bank). Home-loan standards have been tightened, like they were in the old days.
You now need a job, and savings, to buy a house. Banks have fat piles of money in reserve for the next crisis. Even the wayward derivative securities markets have crashed back to reality.
And yet, Dimon complained, government
agencies keep posting tough new rules on top of laws passed by the last Congress.
The government wants banks to set aside ever more capital. It wants limits on fees. It's trying, clumsily, to fix all of the problems that bankers such as Dimon believe have already been solved.
Maybe it's no coincidence, Dimon suggested, that "job creation isn't growing again."
He phrased it as a question: "Is this holding us back?"
He asked, of the regulations, "Has anyone bothered to study the cumulative effect of all these things?"
"I can't pretend that anybody really has," Bernanke admitted.
Bernanke failed to say, in so many words, "We need new rules and laws, because we can't trust you guys not to get out of control and wreck yourselves again, Jamie."
Out of the way
Dimon's right, says bank-stock analyst Richard X. Bove. "Hysterical congresspeople and born-again regulators have single-mindedly pursued an attack on the banking system, totally unmindful of the impact" on the economy, he told clients of his firm, Rochdale Securities L.L.C.
The Fed should require less reserves, not more, so banks feel free to lend, Bove added. He doesn't believe the Fed's "quantitative easing" - its purchase of Treasury and mortgage bonds - prevented deflation.
Nor does Mohamed El-Erian, co-CEO at $1.2 trillion-asset Pacific Investment Management Co., who told CNBC last week that the latest round of "QE" inflated food and energy prices, and stimulated China and Brazil, without boosting U.S. growth.
Then again, El-Erian believes slow growth is our destiny: He figures the U.S. is assuming its rightful diminished place in the world, while China and India and other fast-growing countries catch up with us.
Is money too cheap?
Bernanke's Fed plans to keep interest rates low and money cheap, at least into next year.
There are signs that is distorting real-world prices: Office and warehouse prices are "being driven up by low-cost debt" and high expectations, "rather than underlying fundamentals" such as job creation or tenant demand, warns John W. Guinee, real estate analyst at Stifel, Nicolaus & Co. Inc., in a report to clients after meeting with corporate landlords at the National Association of Real Estate Investment Trusts.
Investment economist Ed Yardeni is a little more bullish on America. Bernanke knows "monetary policy can't solve all our problems," Yardeni told clients in a report.
Yes, we're in a "soft patch." But a lot of that is due to lower local-government spending, which could be good for the economy in the long run, and to high fuel prices, which have now reversed. Yardeni says cost-cutting corporations are still highly profitable, and hiring will "revive" this fall.
And if the Fed really needs to do more, Yardeni notes, it has options:
It can buy yet more Treasury debt. It can (as Philadelphia Federal Reserve president Charles Plosser keeps suggesting) set more specific inflation targets to reassure investors. It can print more money and water down the dollar, scaring business in the short run, but also making U.S. goods cheaper to export and lifting the debt burden from everyone who owes - including the federal government.
In their exchange, Bernanke did gently admonish Dimon in his final remark:
The Fed will do what it needs to do, the chairman said, "to develop a system that is coherent, and that is consistent with banks performing their vital social functions of extending credit and providing other key financial services."
Well, someone had better. We sure can't trust the banks to govern themselves.
Contact columnist Joseph N. DiStefano at 215-854-5194 or JoeD@phillynews.com.
