“When the Next Crisis Begins…” JPMorgan CEO Jamie Dimon

Interest rates “may go higher and faster than people expect,” the Fed may have to “sell more securities,” and “as all asset prices adjust to a new and maybe not-so-positive environment,” there’s “a risk that volatile and declining markets can lead to market panic.”

JPMorgan Chase CEO James Dimon, in his annual letter to shareholders, discusses a wide-ranging spectrum of issues way beyond the performance of the bank. Practically buried in the very long letter is a warning about the stock and bond markets, the difficulties they may face as inflation may be rising faster than people now expect, and as the Fed may raise rates faster than people now expect, while at the same time unwinding QE, which has never been done before on this scale, and whose consequences remain unknown.

So this is the trimmed down version of that segment of his letter.

Volatility and rapidly moving markets “should surprise no one,” he said. Volatility only shows up as concern when it’s in a downward direction. And it doesn’t take much to trigger it – such as “changing expectations, whether around inflation, growth or recession,” he said. “Extreme volatility can be created by slightly changing factors.”

And he warns that the effects of the Fed’s QE Unwind “will be different from what people expect.”

Since QE has never been done on this scale and we don’t completely know the myriad effects it has had on asset prices, confidence, capital expenditures and other factors, we cannot possibly know all of the effects of its reversal.

We have to deal with the possibility that at one point, the Federal Reserve and other central banks may have to take more drastic action than they currently anticipate.

A simple scenario under which this could happen is if inflation and wages grow more than people expect. I believe that many people underestimate the possibility of higher inflation and wages, which means they might be underestimating the chance that the Federal Reserve may have to raise rates faster than we all think.

While in the past, interest rates have been lower and for longer than people expected, they may go higher and faster than people expect.

And “if this happens,” Dimon said, “it is useful” to look at “all the things that are different or better or worse” than during the last crisis and “try to think through the possible effects.”

Among the things that “are better than during the last crisis in 2009,” he listed: Far more capital and less leverage in the banking system, more collateral in the markets, less total short-term secured financing, safer money market funds, healthier consumers, and vastly improved mortgage underwriting.

While mortgage losses “will go up in a recession, it will be nothing like what happened in the Great Recession,” when mortgage losses rose to over $1 trillion, and the fear of these losses was “a primary reason why there was a devastating loss of confidence in the financial system.” So we might dodge this problem the next time.

But there “some modest negatives,” among them:

About $9 trillion, or 30% of total mutual fund long-term assets are in passive index funds or ETFs, which investors can get out of easily though the underlying assets, such as bonds, may be tough to sell in an illiquid market. And “it is reasonable to worry about what would happen if these funds went into large liquidation.”

“Even more procyclicality has been built into the system. Risk-weighted assets will go up as will collateral requirements – and this is on top of the procyclicality of loan loss reserving.”

Market making is “dramatically smaller” in the bond market than last time. “Virtually every asset manager says today it is much harder to buy and sell securities, particularly the less liquid securities.”

Liquidity requirements, which much higher, are more rigid than before. “Banks will be unable to use that liquidity when they most need to do so – to make loans or intermediate markets…. As clients demand more liquidity from their banks, the banks essentially will be unable to provide it.”

An excessive reliance on models.

“No banks to the rescue this time – banks got punished for helping in the last go-round,” when stronger banks that had absorbed collapsing banks, were hit with big fines for the sins committed previously by collapsed banks. In other words, if a bank collapses, no healthy bank will jump in to absorb it.

And there will be much higher interest rates.

With short-term rates at around 2%, it would be a “reasonable expectation” that the 10-year Treasury “could or should be trading at around 4%.” But the short end “should be” trading around 2.5%. “And this is still a little lower than the Fed is forecasting under these conditions.” Part of the reason why rates are still low is “due to the large purchases” of US debt by the Fed “and others.”

But “this situation is completely reversing,” he said.

The Fed’s QE Unwind is already going on, and “sometime in the next year or so,” many of the major buyers of US Treasuries “will either stop their buying or reverse their purchases,” he said. “Think foreign exchange managers or central banks in Japan or China and Europe.”

While the Fed’s QE-Unwind is still timid, it is picking up pace and is scheduled to reach up to $150 billion a quarter by the end of this year. This will come just when the US government “will need to sell more than $250 billion a quarter to fund its deficit.”

So we could be going into a situation where the Fed will have to raise rates faster and/or sell more securities, which certainly could lead to more uncertainty and market volatility. Whether this would lead to a recession or not, we don’t know — but even that is not the worst case.

If growth in America is accelerating, which it seems to be, and any remaining slack in the labor markets is disappearing — and wages start going up, as do commodity prices — then it is not an unreasonable possibility that inflation could go higher than people might expect.

As a result, the Federal Reserve will also need to raise rates faster and higher than people might expect. In this case, markets will get more volatile as all asset prices adjust to a new and maybe not-so-positive environment.

Remember that former Chairman of the Federal Reserve Paul Volcker increased the discount rate by 100 basis points on a Saturday night back in 1979 in response to a serious double-digit inflation problem. And when markets opened the next business day, the Fed funds rate went up by over 200 basis points.

Also remember that the Federal Reserve is operating with extremely different monetary transmission mechanisms than in the past. The old “money multiplier” has been superseded by the new capital and liquidity requirements. Today’s “excess reserves” (reserves once considered in excess of what banks were required to post in cash at the Federal Reserve – fundamentally reserves that could be lent out) are not lendable, although we still don’t completely understand the effect of this.

“There is a risk that volatile and declining markets can lead to market panic.”

“Financial markets have a life of their own and are sometimes barely connected to the real economy,” he said. So a selloff could leave the real economy unscathed. The relationship is usually the other way around – that markets react to “negative future expectations due to a potential or real recession.” And “in almost all of these cases, stock markets fell, credit losses increased and credit spreads rose, among other disruptions.”

But, “the biggest negative effect of volatile markets is that it can create market panic, which could start to slow the growth of the real economy,” as it did during the Financial Crisis. The probability of that recurring is small, he said. “But because the experience of 2009 is so recent, there is always a chance that people may overreact.”

“One day there will be another crisis, and financial institutions and central banks will need to respond,” he said.

When the next crisis begins, regardless of where or how it starts, multiple actors in the system will take actions — either out of necessity (i.e., they need cash) or sentiment (i.e., they want to reduce risk). This will happen across passive, index and ETF funds, insurance companies, banks and nonbanks.

As individual actors stop providing credit and liquidity in the marketplace, we need to do a better job of understanding how this might unfold. And all this will be happening under a different regulatory regime from before.

So says Jamie Dimon, just when we thought there was nothing ever to worry about again after nine years of central-bank fueled market booms.

It’ll take many more sell-offs and the collapse of many more iffy stocks before this over-enthusiasm, after nine years of central bank nurturing, is finally wrung out of the market. Read… What Kind of Hyper-Enthusiastic Market is this that Blindly Keeps Pursuing Scams to Make a Fortune Overnight, even if They Already Crashed the First Time?

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  65 comments for ““When the Next Crisis Begins…” JPMorgan CEO Jamie Dimon

  1. 2banana says:

    For the last eight years.

    Not one banker in jail.

    QE1, QE2, Q3, QE4, Operation Twist, HARP, TARP, added more to the deficit than ALL other administration combined and accounting for inflation, …

    Rising interest rates + DJT new tax laws + QE unwind = end to “can’t lose” being a banker

    One major issue is that investors (and new investors) for the last eight years have NEVER seen a true bear market.

    And it is coming.

    • TropicalSunset says:

      You could make the argument that we haven’t see a REAL bear market since what the 70’s? Greenspan blew the real estate bubble right after the dot com crash, which lessened the severity of that recession. Then post 2008 the Fed fired up the printing presses far more then ever in history + keeping rates at zero for 6 years (more then ever in history).

    • Setarcos says:

      I do share some of your frustration. It seems that seeing a few bankers publicly hanging would have made lots of people happy. I tend to think that the guys actually hung would only be the scapegoats.

      Would also add that while they were not arrested, some well known bankers were shown the door and not gracefully…Ken Lewis @ BAC, Ken Thompson @ WB, etc. Interestingly, lot of heavy bankers like Dimon were asked to be patriots by the folks in Washington so they took on obvious/known problems. Then even after receiving assurances, they got kicked in the teeth financially by folks in Washington. Hence, Dimon saying now “No banks to the rescue this time – banks got punished for helping in the last go-round,”.

      I tend to think the problem firms should have been allowed to fail, no ridiculously excessive and long lasting Fed accomodation, etc. But it would have been hell for a while, worse than many can imagine, AND lots of pol’s would have lost their jobs as well… an enema, but history says it would not have lasted. So we didn’t get the enema last time, the toxicity is now much increased, Dimon and the bankers aren’t gonna be fooled twice, the current Fed Chairman inherited no wiggle room, …

      • KPL says:

        While I would have been glad to see the public hanging of bankers, I would have been happier to see the public hanging of central bankers (for interest rate policies, acronym money, QE, Operation Twist, opening money spigot, creating moral haard), Hank Paulson and Politicians (for TARP, bailouts), rating agencies (for rating dog s%$^ as chocolate), regulators (for not regulating).

        • RagnarD says:

          While obviously the Central Bankers providing QE/low rates, etc. is a large part of the problem…What I dont’ get is the demonization of these people as individual actors.

          Why? Because, isn’t it very much like getting angry at Mark Hamill for playing Luke Skywalker? Or Anthony Hopkins for being Hannibal Lechter? That is, Bernak and Yellen are simply playing the role they have been cast for. If they weren’t QE afficianados, they wouldn’t be cast the role of Head CBer.

          It’s all simply theater.

          Thus, the real question is why do most pundits persist in criticizing the individual lever pullers at the CB/Fed, and not the fact that the Fed exists? Because it seems, if the Fed exists, ultimately, inexorably the system will work to put QE afficiandos like Bernanke and Yellen in the drivers seat, no?

          Or am I missing something?

        • juanfo says:

          Don’t forget consumers for getting loans they can’t afford.

      • Paul says:

        A lot of talk about jailing and hanging bankers on here.

        I do not know of any individuals who lied on their mortgage applications and then defaulted in late 2007 or 2008 who are in jail.

        Let’s get to the root cause here.

        And do not forget Barney Frank, who I can not ridicule here as I would like to or Wolf will delete my comment, who got a bill passed forcing the banks to loan to people who could not document their income, either because they were tax cheats or the income did not exist.

    • No banks to the rescue, or no banks TO rescue? Maybe a typo?

    • kevin says:

      No banker will ever be in jail for all the persistent fraud because you accepted this current financial system implicitly or otherwise.

      Those brave enough to rat on ’em banksters gets shafted as in this other WS story here:

      Bear market…Bull market…bear market again…bull market again…round and round she goes for the past 100 years or more, and everyone is none the wiser on the theft thats going on.

      We blame the banksters but then we are so proud if its your own son or daughter who happens to work in some big bank earning some big bucks. Hypocrisy is a common human trait.
      Go ask your neighbor who will eagerly remind you more than once every year on how much their bankster son or daughter earns in bank bonuses. lol.

      You can’t expect to defeat a system when you ARE part and parcel of the same system, and accept it thus.
      The only way is to walk away but it ain’t so easy right? So, everyone just continues down the path of least resistance and continues to pay taxes and lives within the very same parasitic financial system that feeds on them.

      We just hope for either a miraculous lottery win or someone else to find an alternative value system that can replace the existing paradigm of global consumerist capitalism.

      Well, you ain’t in any hurry so you just wait by the sidelines for the miracle to happen… Meanwhile, you get to enjoy your capitalistic creature comforts with whats left of your fiat money.

      So yeah…the bear will come… then followed again by the bull, and everyone is still trapped WITHIN the same financial system without realizing it.

  2. mvojy says:

    Remember that time Greece was going to default on their debt and the worldwide markets dropped? My home state has a much bigger GDP than Greece and we didn’t panic. The markets are too full of speculation and it’s speculation of other people’s money. When you gamble with your own money you are a prudent investor. When you gamble with other people’s money you take excessive risk for the sake of reward.

    • Nicko2 says:

      Greece has well over 20% unemployment, they’re practically a failed state.

  3. interesting says:

    “When the Next Crisis Begins…” JPMorgan CEO Jamie Dimon

    Where’s the rest of the quote? Well, I will finish the above quote with the reality of our times.

    “When the Next Crisis Begins we will not care, it doesn’t matter, we have the backing of the FED and the government so no matter what happens we will get bailed out….so while the music keeps playing, we’ll keep dancing”

    I borrowed a bit from another famous quote from another bailed out banker.

    I can not wait to see who gets bailed out this time.

    • LouisDeLaSmart says:

      I just heard Jamie say, “We smeared ourselves into the system so deep, that no matter who is in power and what happens, you will be paying the tab”.

    • Wolf Richter says:

      The whole quote, as per article, is actually a lot more somber. It starts out this way:

      “One day there will be another crisis, and financial institutions and central banks will need to respond.”

      “When the next crisis begins, regardless of where or how it starts, multiple actors in the system will take actions — either out of necessity (i.e., they need cash) or sentiment (i.e., they want to reduce risk). This will happen across passive, index and ETF funds, insurance companies, banks and nonbanks.”

  4. Paulo says:

    Did I miss the part about tariffs and a possible trade war? Or, was that covered in ‘changing expectations’.

    This time, (that old chestnut this time), feels scarier to me because of the debt carried by almost everyone and every entity. We have substituted previous cheap energy with debt to keep up the facade of growth. I know the economy is supposed to be good. If it is, then why do young peope have to work so much harder to get established? Why can’t they buy homes? Why are cars financed for 7 years? Why are grocery prices climbing weekly? (wages sure aren’t).

    I remember the joy of being in my twenties during the early ’80s. Laid off, mortgage raised to 18%, working for cash under the table. Two kids and a wife at home. The only thing that saved us was no debts beyond mortgage. Things are way worse these days for most people. It could go big time ugly, fast. My wife and I are doing fine and will be okay, but I worry about my kids who are in their thirties. They’re just getting established in life.

    • Prairies says:

      I thought the 7 year car loans were excessive until this past winter, a local “toy” dealer was offering 10 year financing on snowmobiles, motorcycles and quads. 10 years of debt for something worth nothing in 5 years.

      I think this wave of borrowers is confusing the term “cash” with “credit”, not understanding one is in hand and the other is still owing.

      • ScottS71 says:

        Great comment! From a young age I was tought what an asset is and a liabilty; assets make you money and liabilities dont (cars are a liability unless its an antique or you use it to make money). If you use it to make money you need to make a margin greater then the cost and presumably enough to make a living or a good living (not uber). Our kids need to understands this basic principal! I bit my tongue when i bought my wife a diamond ring, but that had a different ROI :)

    • Economicminor@gmail.com says:

      I think that people in the Jamie Diamond class live in such a different world than the people you write about. They see the numbers but because their models don’t see real people they have no idea what life is like for an awful lot of people.

      That doesn’t mean he can’t see in his charts and data that something isn’t right.

    • Frederick says:

      Hey Paulo Your story sounds like mine Laid off in the early 80s Newlywed with a mortgage and I just went door to door looking for any renovation work I could find Never got a penny of unemployment or any other govt handout I just simply got the job done Glad to see others who lived through that era in a similar fashion Happy you and the wife are doing well Same here and my son is doing his MBA at Georgetown so he should be fine

  5. James Levy says:

    My question to the community is this: how many players are there that can and do actually move these markets? I am tired of the reified notions of “the market.” The market is people or people acting for institutions. So how many real players are we talking about, what are they doing, and why are they doing it? These are the questions we should be zeroing in on, not “what’s the market doing” or “where is the market going.” It’s doing what it is doing, and going where it is going, because a finite number of individuals are making specific choices.

  6. tk69 says:

    nonsense. the fed does not raise nor lower rates. what matters is the interbank lending rate which is still low.

    • Wolf Richter says:

      Nonsense. The interbank lending rate moves roughly in parallel with short-term Treasury yields, which move roughly in parallel with the federal funds rate, which is kept in a “target range” by the Fed through its market operations. So start paying attention to the Fed.

      The Libor is quite a bit higher at the moment than the Treasury yield:

      3-month dollar Libor = 2.3%
      3-month Treasury yield = 1.7%

      But interbank loans have shrunk to nearly nothing and no longer reflect large-scale transactions. Dollar LIBOR is being replaced by SOFR. Get the relevant info here:


    • Paul says:

      The Fed puts a floor under rates.

      What scares me is that they don’t cap them.

      Supply and demand does that, and supply is rapidly decreasing and demand increasing.

      Further, I see loan demand increasing for all the wrong reasons, sovereign debt, consumptive spending, share buy-back, investing on margin, etc.

      Relatively “good debt”, for starting or expanding businesses, seems to be a thing of the past.

  7. Rates says:

    Remember the 2008 crisis when JP Morgan had gotten out of MBS a couple of years before?

    Here’s an even shorter version of the letter:
    – JPM is ready for the market to crash.
    – JPM is ready for any and all social upheavals. http://disinfo.com/2011/10/jp-morgan-chase-donates-4-6-million-to-nypd-on-eve-of-protests/
    – Own JPM stock and be part of the 0.01% that own Murica.

  8. raxadian says:

    Some people does not think the new FED rates could reach the 3% to 4% range.

    Not they believe this will be a Green year, as in green for dollar.

    But if it really takes until 2019 for the buying of US treasuries to slow down, this will indeed be a good year for the dollar. Not so much for those companies who depend on cheap debt to survive, like zombie companies or zombie unicorns.

    I am looking at you Netfix, Tesla and Uber.

    Sooner or later the fact their debt is getting more and more expensive means they will crash.

    And let’s not even start with Spotify who expend about 80% of their cash paying royalties and who this “Debt is getting expensive” situation is hitting like a sack of bricks.

    I do not own the truth or can I predict the future, If I did I would be a very very rich man.

    But isn’t he basically saying “But US treasuries this year and get rid of them by 2019 or slighty before that?”

  9. caradoc says:

    Monrtsry Authorities Trapped.

    Extracting themselves from the trap will bring about the one thing they tried to avoid – collapse.

    Only ones to gain, large banks with strong balance sheets and liquid reserves. Bargains will abound.

  10. John says:

    That Dimon guy, is he from Saturday Night Live, or what? Or is he just a huge liar? I got an especially nice laugh when he speaks of banks being punished. What should have happened is a few bankers getting punished with real prison sentences and asset forfeiture. F him and the horse he rode in on.

    • Wolf Richter says:

      Getting a bit emotional, no?

      For example, Bank of America was pushed by regulators to absorb collapsing Countrywide during the Crisis and has paid large fines for things that Countrywide had done. That taught all banks a lesson: in a crisis, resist regulators and don’t absorb a collapsing bank. That’s what Dimon was saying. Ignore him at your own risk.

      • timbers says:

        Emotional? Absolutely! I know I am! I’ve no sympathy for these pampered protected Wall Street Banker up-prosecuted criminals like Dimon & Co. See my crickadile tears for bank losses for the criminal entrerprises they bought? In Iceland banksters were imprisoned. Not fined – imprisoned – as Jamie Dimon should be. Banksters committed massive systemic and very easily proven crimes, but Obama protected these criminals and became the first modern President to not prosecute criminal bankster higher ups. Even Reagan & Bush prosecuted criminal higher up banksters.

        • Memento mori says:

          But wait , didn’t we jail Martin Shkreli for lying to investors while more than doubling their money?
          At least the bankers didn’t return our money, they royally screwed us, they deserve no jail.

        • Tom T says:


          I agree with your appraisal of Mr. Dimon et. al., morally he is certainly an appropriate apostle of his firm’s namesake, Mr. J P Morgan. But I will bet you’ll agree that Mr. Dimon is far from being a stupid man … that is what makes this letter to the bank’s stockholders so concerning, if not frightening, at least for me.

          Was it not just three years ago that Mr. Dimon announced his upcoming retirement from J.P. Morgan due to his diagnosis of cancer of the jaw? A suitable replacement for him could not be found as I read and he has stayed on. Imagine managing that level of criminal enterprise in that amount of physical pain. Perhaps that is the justice you and others sought, already delivered. Jamie Dimon … an interesting homo sapien to say the least.

      • KPL says:


        Let us assume for a moment that Bank of America bought Countrywide because it was pushed by regulators. But would it not have been quid pro quo? Like Bank of America would be allowed to survive if it takes in Countrywide. As the central bankers told us later on NOT ONE BANK would have survived if they had let things be. Thus while they married off banks, the central bankers also helped the taking in entity (in this case Bank of America) stay afloat. Come to think of it, Chase and Dimon would probably have been consigned to history if the central bankers had done the right thing and he might not be in the position today-complaining. In short, you cannot complain of the part (unwanted marriage) you did not like when you have fully enjoyed the other part (being kept alive to marry) and benefited from it by way of endless QE, acronym money, FASB norms etc.

      • The prebeakerite says:


        Thank you for this timely article. It makes a a lot of sense from an historical perspective. A lot of people wont be happy and will need to vent. This “news” does not come as any surprise for many aware investors of all descriptions, but who have been scratching their heads for up to decades wondering what was going on. So this is one more indicator that things will return to normality. It would be nice for the legal system oversee what goes on in financial markets. Instead of “New World Order” we have reverted to the law of the jungle. Time for that to change.

      • will says:

        BoA absorbed Countrywide to cover their own idiotic (BoA has never made anything other than the BSD reckless calls, as far as I can tell) counterparty risk to countrywide’s foolish and illegal practices.

        I would say that it was lose-lose for them. Being fined by regulators may have even been the least-bad outcome.

        I mean, what they got fined for didn’t even include the burning of those trucks full of mortgage docs, so they could plead the 5th on all the robo-signed paperwork. I mean, this is the stuff RICO was passed for – “Bigly” you could even call it…

        No one in their right minds would want to pay fines (or go to prison) for these levels of criminality… or be counterparties to this fraud, which any halfway competent risk-management should have put the kabash down on back before anyone put any ink on those contracts.

        BoA /then/ went out and fraudulently foreclosed on who knows how many thousands of homeowners, many of which never even had a loan with BoA (or countrywide), and some of which never even had a mortgage at all (ie paid with cash, and I actually know one such instance personally).

        So yea, +1 to the “F* those guys” comment, neither BoA nor countrywide deserve to be alive at this point. And honestly, most of the banks probably don’t – but BoA’s been amongst the worst and stupidest, they’re definitely not the victims in the room..

        When it comes to BoA, as Takashi Kovacs would say – “make it personal.”

      • BofA was forced by Bernanke and Paulson, (I pause to call them regulators), to buy Merrill in a deal that clearly violated shareholder rights. The Countrywide business belonged to Citi and they paid a 600M settlement. Citi got preferential treatment I believe because of their international retail banking business. I supplant that the banking industry and the Fed/USG have been at odds since 2008 and Powell and Mnuchin may not have the clout. What would Congress do this time around? You want tanks in the street, would they say “bring it on”? Call their bluff?

  11. David Calder says:

    His comment or one like it wasn’t heard for close to 40 years after the Great Depression when we regulated banks. Dimon just admitted the banks have factored in another crisis as just ho-hum business as usual because we will bail the banks once again. He might have wagered wrong this time because I don’t the public has the stomach for another bailout, making whole those who made us poorer.

    • Setarcos says:

      I share some of the frustration, but we the people are not separated from the banks. Our deposits are insured with insurance premiums the banks pay. Where else do we go to get our deposits back? As bad as bank can sometimes be, are the Pol’s more trustworthy?

      IMHO, the root cause last time was bad policy shared to some extent by both sides of the aisle. It was very much in the Pol’s best interest to bail out the banks last time because the downturn would have been much more severe, i.e. more voters more upset than over bailouts. Keep in mind that the strong/profitable banks were actually FORCED to take TARP!!!…something most media outlets or politician would want to avoid talking about, because it would have queered the narrative about “excessive greed” and making evil banks and wall street the scapegoats. What did Barney Frank mean when he said “WE are rolling the dice”? He didn’t say Wall Street ks rolling the dice, he said WE are rolling the dice.

      Our individual and collective anger, carefully stoked, keeps us distracted and arrests our ability to identify root causes. Think about it ….If “excessive greed” and evil banks were the root cause, we would have been doomed long long ago. I would wager that the scapegoat has already been identified and will be a much easier narrative to sell if this comes about within the next couple of years.

      • will says:

        > Where else do we go to get our deposits back? As bad as bank can sometimes be, are the Pol’s more trustworthy?

        Are you talking about NCUA? I would trust NCUA before I’d trust FDIC. Just look at Sheila Bair’s comments about what assets FDIC has to fall back on in the event of a banking catastrophe. Then look at that nifty “Citi Amendment” that everyone was all up in arms about, but now seems to have forgotten about. Then go look at the Bail-In resolutions adopted by the US (and everyone else) that kicked in last year.

        I would definitely trust the ‘full faith and credit of the US government’ that backs up NCUA to make me whole, way before I’d trust the bail-in provision haircuts, and the entire deposit base of the FDIC system to backstop the derivative books of the i-banks, to make me whole.

        There are even a handful of court cases since the great recession to boot that clearly put depositors last in the event of the resolution of a failed bank, assuming you needed any further convincing…

        So… put your money in a credit union, rather than a bank. A nice side-benefit is that they’re not using your deposits to make the world a worse place with your implied consent.

      • elysianfield says:

        ” Keep in mind that the strong/profitable banks were actually FORCED to take TARP!! ”

        Correct me if I am wrong, but the banks forced to take TARP were charged interest for the money, in an attempt to get the banks to begin lending again…no?

      • Thanks goodness the deposits I have at the bank of Goldman Sachs are insured by FDIC, that allows me to sleep at night.

        • Paul says:

          Maybe you should look at the asset levels of FDIC and estimate how many banks the size of GS it could bail out with those funds?

          Then you wouldn’t sleep so well.

          Further, you are only insured on the first $100,000.

          If that is all you have, and you are over 40 years old, you should be losing sleep over the quality of life you will be able to maintain in retirement.

        • Wolf Richter says:


          Almost everything you say in this comment is wrong, including the limit of FDIC insurance which is $250,000.

          You do not understand how insurance works. You do not understand that banks have assets, and when banks collapse the value of these assets help pay for most or all of the liabilities (deposits etc), and the left-over gap is much smaller than the total amount of deposits.

          I was personally involved in three bank collapses, including Mbank (1980s, the second largest bank collapse at the time), and Washington Mutual during the Financial Crisis. I have never lost a dime. The FDIC moves in on Friday night, and on Monday my accounts had been transferred to another bank ready to use.

          Please don’t spread this nonsense on this site.

  12. FDR Liberal says:

    Can someone please explain this quote from Dimon, “Today’s “excess reserves” (reserves once considered in excess of what banks were required to post in cash at the Federal Reserve – fundamentally reserves that could be lent out) are not lendable, ….”

    Why aren’t excess reserves lendable? I understand the banks that do have excess reserves @ the FED are receiving interest on those reserves so it may not be prudent to lend them or get a more secured rate from a borrower but why aren’t they lendable?

    • Petunia says:

      They are not lendable because the fed killed the overnight lending business. The fed funds rate was the overnight rate and now the fed pays more to the banks for excess reserves. The banks would be making less lending to each other than just holding on to the money. It seems that paying more than the fed funds rate for excess reserves may be illegal, who knew.

      • Justme says:

        I just had an epiphany (maybe ;)) inspired by what Petunia said (although I will say it is not absolutely not her responsibility if what I write here turns out to be wrong): Maybe the reason that the FRB has been paying interest on excess reserves is to ensure that these mostly new reserves do not get used as basis for more lending? (and multiplied by the fractional reserve ratio in the process). Basically FRB wanted to rescue the big banks by taking the most solid bonds (USG and MBS) off their hands as backing for new reserves, thereby shoring up the interbank payment system and giving all banks enough reserves to pay off their losses, and then at the same time force the retail customers to take risk and force up the value of low-grade MBS and other crap bonds in their search for yield? But FRB did not want to create (wage) inflation, so the pay-interest-on-excess-reserves scheme was cooked up to somewhat “sterilize” the effect of some banks ending up with an unusually large amount of reserves?

      • FDR Liberal says:


        Thx for replying.

      • The Fed is raising interest rates because a) the economy is overheating. b) They really care about normalizing, really. c) They have to raise rates (and hurry please) so they can lower them when the economy that is overheating, suddenly collapses. d) To keep the dollar from sinking further. e) To prepare the bond market for a surfeit of new Treasury bonds and fiscal spending, and should the House flip back it will really just be a matter of where the money is spent, HC and a fiscal spending plan as well. f) Because they can.

  13. Drango says:

    “One day there will be another crisis, and financial institutions and central banks will need to respond.” What a nice way of saying that he expects the Fed to bail out JPM when the time comes.

    • Paulo says:

      And you know who just announced another 100 bilion in tariffs. And China states it is prepared to unload treasuries as part of their tit for tat. You know who is making contingency plans to help farmers.

      Hang on. Futures down immediately 350 pts within an hour of the statement.

      • James Levy says:

        Trump is in a tough spot because his base will not forgive or forget if he issues a blank check to the financial giants if the system implodes again. It will also blow the House Republican caucus to smithereens. Despite despising Trump, I have to admit that his first instinctive response will be the correct one–to demand an equity share of any firm he bails out. However, his party and most of his cabinet will scream “socialism” and he’ll be confused and outflanked. And Mnuchin is in no way the interlocutor with Wall Street that Paulson was. The Dems, of course, will fall all over each other to do the “responsible” thing and back the bailouts, thus flushing any political advantage they might have levered from an implosion under Trump right down the toilet. Expect an angrier, more confused, and desperate electorate in 2020.

    • Rates says:

      Was JPM bailed out last time? Can’t recall that. In fact JPM ate a Bear for dinner.

      Jamie Dimon is a smooth operator. He bailed out of CDS, etc a couple of years before the crisis.

  14. TropicalSunset says:

    I will believe a 4% 10 year T when I see it. Over 3% will probably take equities down, and whenever equities fall precipitously, the 10 year falls precipitously. Check the charts, every time. Will there be a day when stocks crash but the 10 year goes up?

  15. MF says:

    Seems crystal clear to me:

    1. Wages will be brutally suppressed, even if we have to resort to Volkeresque rate hikes.

    2. The small guys will fail. The big guys will have access to “special” windows at the Fed because they are designated as systemically important financial institutions (SIFIs).

    3. SIFI’s won’t be caught holding MBS’s or anything that smells like them, this time. Thus, we can assume mortgage risk has been externalized elsewhere in the economy; i.e.: those small guys mentioned earlier.

    4. The Fed will need to mop up more nominal dollars than anyone imagines. The excuse will be the lack of “multiplier effect” of the newfangled liquidity instruments that are used now. What won’t be mentioned is that they were supposed to be temporary.

  16. Laughing Eagle says:

    “the biggest negative effect of volatile markets is that it can create market panic,
    there is always a chance that people may overreact.”
    Is Dimon saying the HFT computers or a flash crash are people reacting?

  17. ScottS71 says:

    It seems simple to me. Here is the money, come take take you corp biz, its 0 percent; make us proud! SO, like another poster said, its not our money, (we can surely make enough, he didnt say this, but is what I think) so lets take it and roll the dice. Company buy backs, “asset” housing construction, stock purchases, takeovers, anything to pay off the 0% interest….. I should have signed up; if i was JPM….they have my back….

  18. The macro is much simpler, USG has to float new debt, while they are rolling old debt off the books. Driving investors into bonds, implies that the money must come out of stocks. The Federal Reserve is going to make the stock market say UNCLE (Sam), and if the money is being drained away from foreign stock investors who got into the NYSE, thinking they could get out quickly, that may be a liquidity problem. Since the SNB simply printed money to buy stocks, can they recollateralize , (no probably it wasn’t real money in the first instance) and will paper gains into real losses? The USG would like to see that money simply shift over, and fund its spending, and keep yields low, so something there has to be done or the Swiss may go CH11 and on the back of all the other CB monetary float, it will come crashing down.

  19. Steve clayton says:

    Hi Wolf, hope ur well. This week Barclays credit rating has been changed to one above junk rating by Moody’s. Barclays aren’t one of the banks which springs to mind if having a bad balance sheet. With that in mind please could you an article on mainstream banks credit ratings.

    • Wolf Richter says:

      I was thinking about writing an article about the Barclays downgrade but abandoned it.

      It had to do with the consequences of the ringfencing regulations in the UK being currently implemented that are supposed to protect the depository institutions from the bank’s other activities.

      I don’t remember all the details of the Moody’s report now, but I think one or two of the entities in the UK under the Barclays umbrella were downgraded, and the others were not, because the downgraded entity was getting funding from another entity on the other side of the ringfence, and that the funding might dry up in a crisis due to the ringfence that will be in place.

      Moody’s said that it’s also looking at other banks in the UK that might run into the same situation. This is not a sign that balance sheets have deteriorated.

      I abandoned the article because to do it right it would have been so complicated, with so many different but similar sounding “Barclays” names in it, that it would have given me and perhaps my readers a headache.

      • Steve clayton says:

        No worries Wolf. Barclays I believe have got an 18bn funding repayment due in 2019. What I have noticed through work-personal a lot of the UK banks are tightening the amounts they’re willing to lend. The criteria for lending has got a lot more tighter. It reminds me of post 2008.

    • Another bit of ammunition in the LIBOR credit squeeze situation?

  20. Daxx says:

    Those that had children in the 1950-1960’s maybe the last of the Mohicans, fondly referred to as The Greatest Generation. They were raised by depression era parents, they grew up amidst the horrors of war, that vile pathology which licenses humans to inflict unimaginable brutality on each other. Then post facto, to emerged clear eyed on the serenity and value of life and family.

    Unfortunately for everyone living today, their children, the “Baby Boomers” navigated into their young adult lives demanding a never ending access to all things consumable. To wit after 30 years of a proverbial sugar glazed doughnut central bank face stuffing policy, we hardly comprehend which way is up or down. So, like a skier upended and entrapped in in an avalanche of snow, we are compelled to to drool just to discern which directions the sky.

    The good news is we’re witnessing the Baby Boomers getting shuffled to the sidelines and out of political power. The Generation X’ers are in the process of being the primary stewards (citizens) charged with paying our gargantuan national debt obligations as well as Social Security and Medicare.

    It’s fast looking like these fresh water Keynesians (Baby Boomers) maybe reaching the end of their generations profligate ways, as the recent sightings of the thought to be extinct economic “laws of supply and demand” would suggest.

    If Jamie’s prognostications are correct and the economic reset button is hit again. We may all have to get reacquaint ourselves with The Greatest Generations
    economic framework under the Bretton Woods agreement.

  21. Rick says:

    When the price of the most important commodity, money, isn’t allowed to find its true market-based price via CB manipulation, as has been the case for the last 10 years, then we have no idea how idea how bad the distortion will play out going forward as the Fed unwind continues to drain liquidity from a market that has come to expect and rely on it.

    Nothing has been done to deal with run-away debt either that just continues to grow unabated….does anybody have any idea where the $100Trillion+ is going to come from to fund the US’s off-balance obligations??? There’s not enough money in the world to buy the level of debt it will require to fund that….so it only leaves the Fed to issue new currency into oblivion and completely destroy the US Dollar. There’s no political will to take this on either and it is THE 600-Pound gorilla in the room…..I can’t believe we have let ourselves get here as a country. There are no good options left to deal with it…..only bad and worse.

Comments are closed.