In the chaos of the 2008 recession, perhaps no bank was better prepared than Jamie Dimon’s JP Morgan Chase & Co. (NYSE:JPM).
Before the crisis, Jamie Dimon realized that “underwriting standards were deteriorating across the industry,” with delinquencies on subprime loans increasing.
In late 2006, the bank led his firm to exit Wall Street’s hot subprime business, starting with a panicked phone call to JP Morgan’s vacationing Chief of Securitized Products, where he said, “I really want you to watch out for subprime! We need to sell a lot of our positions. I’ve seen it before. This stuff could go up in smoke!’
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By getting out of the soon-to-be toxic products, JP Morgan was able to go on the offensive when other banks retreated too late or went bankrupt.
JP Morgan’s share price is up almost 260% from its pre-global financial crisis peak.
Reflecting on the recession, Dimon said, “Contrary to popular belief, many of the extreme actions we took were not done to make a profit; they were done to support our country and its financial system.”
Dimon is sounding the alarm about a debt-driven economy that appears healthier than reality appears.
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In his most recent annual shareholder letter, Dimon said, “The U.S. economy remains resilient, while consumers are still spending. And markets are currently expecting a soft landing.” However, he offered this caveat, saying that “it is important to note that the economy is being fueled by large amounts of government deficit spending and previous stimulus measures.”
With the US national debt already exceeding $34.6 trillion, at a time when the Federal Reserve remains unable to lower interest rates due to persistent inflation, interest payments on the national debt this year are likely to overwhelm US defense spending transcend.
Whether rising budget debt becomes an issue that will impact broader markets to the same extent as the subprime crisis remains to be seen, but Dimon and his firm are prepared for anything with JP Morgan’s self-described “strong balance sheet.”
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This article Jamie Dimon knew Subprime could ‘go up in smoke’; Now He’s Worried About an Artificial Economy ‘Powered by Government Deficits’ originally appeared on Benzinga.com
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