The Third Chamber: Why AIG's CEO and Jamie Dimon Don't Give a Damn What You Think

Why don't the CEOs of AIG and JPMorgan Chase give a damn what you think? Because they don't have to. The Third Chamber of government, that unelected body of lobbyists and wealthy executives symbolized by the U.S. Chamber of Commerce, has insulated them from public outrage.

Chase CEO Jamie Dimon's nonstop narcissistic tirade against any and all criticism of banks is entering its third quarter. The CEO of AIG, a company I know from the inside, just insulted millions of his company's owners, rescuers, and customers [1]. Every day brings more evidence of the Third Chamber's growing power. These CEOs and others like them will continue to be protected and enriched at public expense until more pressure is brought on politicians from the President on down to make it stop.

Bankers, Bankers, Bankers ... Bankers

Dimon vented his spleen all over the mountain peaks of the Swiss luxury resort Davos last week, complaining about "this constant refrain -- bankers, bankers, bankers [2]." It seems Dimon's sick of seeing bank executives criticized for a few little mistakes - like bringing about the collapse of the world's economy through greed and criminality.

Dimon's hardly in a position to be morally outraged. JPMorgan Chase became so deeply enmeshed in bribery and corruption in Alabama under his leadership that it had to forego nearly three-quarters of a billion dollars to escape criminal prosecution. And now Dimon's Chase is being implicated inthe Bernie Madoff scandal. [3]

In 2007 a Chase employee warned his bosses that "there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a (P)onzi scheme." Yet the bank continued its relationship with Madoff, who stole an estimated $20 billion, until his arrest. Last week an attorney for Madoff's victims said that "the bank's top executives were warned in blunt terms about speculation that Madoff was running a Ponzi scheme, yet the bank appears to have been more concerned only with protecting its own investments in (the Madoff firm's) feeder funds."

Besides the Madoff allegations and the Alabama corruption case, there were also allegedly illegal and/or improper mortgage filings by untrained "Burger King kids [4]," one of the legal problems that has led Chase to set aside $2.3 billion for mortgage repurchases and litigation settlements [5].

The most generous possible interpretation of these scandals and allegations is that a couple of boxes on Jamie Dimon's performance review should be marked "needs improvement." (We'll leave the less generous interpretations to others.)

Is Dimon a social pariah as the result of these scandals? No. Are law enforcement officials examining his emails and phone records to determine, in those time-worn words, "what he knew and when he knew it"? No. Instead, Dimon had an Oval Office meeting with the President last month. One of his senior executives became the President's Chief of Staff this month. And now we're told that Dimon's good friend Bill Clinton thinks he'd make a great politician.

Politician? Nah. Pop star, maybe. Jamie Dimon's becoming the John Mayer of high finance. His combination of aggression, talent, and self-aggrandizing victimhood and destructiveness is turning him into a public train wreck, the same way that Mayer's touchy-feely ballads ("fathers, be good to your daughters"), cranked-up Stevie Ray Vaughan knockoff guitar leads, confessional blurts, and vile online rants made him the target of morbid fascination for gossip hounds from six to sixty.

And we now know that Dimon's public emo face is matched by an equally aggressive - and at times near-sadistic [6] - management style. President Clinton, this is not a career that will win the public's favor.

But Dimon doesn't need to care what the public thinks. His real constituency is people like Bill Clinton - along with the current President, Tony Blair (who serves as a consultant), and anyone else in a position of influence. And if the politico in question isn't interesting enough for Dimon to hang with personally, he just writes them a fat check (as he's been doing lately for many Republicans).

John Mayer can't inflict economic damage on anything except the allowances of an ever-dwindling cohort of infatuated preteens. But Dimon's spirited defense of the indefensible permits hardship for millions and poses a systemic threat to the economy. We do agree with Dimon on one point: We'd like to see bankers' names on a few less angry editorials ... and on a few more subpoenas instead.

AIG: Where's Colonel Sanders When We Need Him?

As I've written before, the destruction that was brought by (and to) AIG through sleazy financial speculation is personal for me. I worked at AIG for many years. I liked it there, met a lot of good people, and traveled the world for it. But eventually there was easy money to be made in financial products (not my area), thanks to deregulation and a bipartisan failure to adequately enforce the law. The results helped bring down the world economy, and destroyed the company I knew, which is now a corporate charity case waiting to be dismantled so its parts can be sold.

So when AIG CEO Robert Benmosche said insulting things last week about liberals as customers, I was outraged like Barney Frank and others - but not necessarily for the same reason. "All of the states where we're ... the #1 insurer (in mortgage insurance) are red states," said Benmosche, while "all of the states where we're at the bottom are blue states." He added: "Part of what we found out is that our model is about culture and it's about the attitude in the public. And what we find is where there's more of a tendency for people to be more liberal, more that the government is responsible for what happens to me."

A less generous soul than me might offer another explanation: Maybe they're stupider in red states, and that's why they buy crappy products like the ones Robert Benmosche sells.

But I wouldn't insult my fellow citizens that way, whatever their political leanings, and I wouldn't denigrate AIG's products gratuitously. And while I understand the reactions of Frank and other Dems, I'm outraged for a different reason: What Benmosche said was terrible management. It's dumb because it's bad for business. Why alienate one-third of your company's customer base?

My guess (it's just a guess, unless Benmosche discloses more) is that AIG does better in red states because it's been able to work the state regulators to its own advantage more successfully there. (Insurers devote a lot of time and money to that effort.) Or there may be other underwriting factors at work.

I suspect that Benmosche's ideological fervor overwhelmed his business sense, and he knew that he'd pay no price for it. After all, AIG was the conduit for a backdoor bailout to Goldman Sachs - which Goldman then publicly lied about [7]. Despite that, and with the Treasury Department's blessing, the sell-off of the taxpayers' AIG assets was awarded to several Wall Street firms including - are you ready for this? - Goldman Sachs. Why would Benmosche expect repercussions? Accountability isn't a big factor in his world.

You know who was smarter than Benmosche? Colonel Sanders. Back in the sixties the country was divided between "straight" older people, of whom the elderly Southern Colonel was an extreme example, and "hippies" or "freaks" with long hair and crazy clothing. (I was in the latter group.) A writer for Rolling Stone sat next to Colonel Sanders on an airplane back then and asked him what he thought of hippies.

According to the writer, the Colonel's answer was: "Well, dey eats chicken, don't they?" He was too wily to alienate any customers. But then again, Col. Sanders wasn't running a "too big to fail" institution. He had to make money the old fashioned way, like the rest of us.

The Third Chamber

The Constitution says we have a bicameral, or two-chamber, legislative branch of government. But the President's speech today illustrated the ever-growing power of that Third Chamber, funded by executives like Dimon and Benmosche. It's fiction to say that the U.S. Chamber of Commerce represents "business." It represents a small number of massively powerful and influential businesses, most of whom are suffocating real businesses - the entrepreneurial startups and mid-sized companies that are the engines of growth.

All those headlines about President Obama showing a more "pro-business" stance are misleading. What the President really tried to demonstrate today was a more "pro-enormous-business" stance. The Wall Street firms who bankroll the Chamber of Commerce brought down the economy through greed and fraud. And yet we keep talking about bringing the economy back, without talking about what took it down in the first place.

That's the speech the rest of us want to hear.

From Davos to Allenwood

As corporate jets returned from Davos to executive terminals around New York, Connecticut, and Long Island, those terminals could have been prime spots for process servers with warrants and subpoenas for Wall Street fraud. More bankers need to do jail time for their crimes - not out of revenge, but as a deterrent to future criminality. Instead, their crimes have either gone uninvestigated or been resolved with SEC fines that come out of stockholders' pockets and not the perp's.

Why? For one thing, it's hard for a politician to approve the criminal investigation of someone he likes, someone he sees regularly - at Davos, at fundraisers, or in his own oval-shaped office. Listen, I've come to know and like a number of people in my career who I now realize might warrant investigation. I can imagine how uncomfortable it can get for political leaders. But that's their job - or it should be.

As for Benmosche, he's not part of the Wall Street cabal and shouldn't be under a cloud. I respect his decision to take over AIG at a difficult time. He's weathered public criticism, much of it unfair, without Dimon-like whining or complaint (and apparently during a time of personal difficulty). But his remarks showed just how insulated Wall Street executives are from ground-level reality, thanks to the ministrations of politicians in both parties.

The good news is that Democrats and Republicans do offer voters a choice in their approach to Wall Street. The bad news is that too often it seems to be a choice between the cozy and the downright servile.

When the going gets tough ...

If you're tempted to read this and write a comment that says "the President's a XXX or Congress is YYY," here's another suggestion: As appreciated as your comments are, use the time to write to them instead.

Despair's never an option, and it's not called for ... even now. The President retreated from plans to announce Social Security cuts during the State of the Union, and Congress passed improved Wall Street regulation and created the Consumer Financial Protection Bureau. Why? Because people got organized, made public statements, and called the White House, Senators, and Representatives in droves. Neither our leaders - or, for that matter, the executives in question - are evil. They're responding to incentives. We need to change those incentives.

Emails and calls really work. Politicians want to please constituents, and they want to get re-elected. Those who want to see this broken system fixed have to stay on top of them - all of them - consistently and forcefully. Why shouldn't we make calling and emailing politicians a regularly-scheduled task, like paying the bills? That would make sense, since the task of pressing for political change will also make it a lot easier to pay the bills.

It won't be enough, of course, but it's a start. And from there we can start to build a movement - one that someday can reclaim the two chambers of the legislature, along with the other two branches of the government, the way the Framers of the Constitution intended.
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This post was produced as part of the Curbing Wall Street [8]project. Richard also blogs at A Night Light [9].