Wednesday, April 8, 2009

Worth Noting: Dimon's Letter to All

For years, Warren Buffett's letter to shareholders has been anxiously anticipated and widely read. The message is not an extensive review of operations, performance and profits. It's more an opinion piece on the state of investing. Sometimes it's a mini-course or a required primer in a specific topic in finance, where Buffett, Berkshire Hathaway's CEO, explains the mechanics of his approach. It's best known for being straightforward and rational, packing as much common sense as possible.

Enter Jamie Dimon, closely watched CEO at JPMorgan Chase. His letter to shareholders is a spin-off of Buffett's approach: straightforward, colloquial at times, hard-hitting, rational, reading like an extended op-ed piece. Some in the industry contend his letter this year is a must-read for all in banking and perhaps for all in Washington. It's not your basic review of all business lines.

For example, he assessed the state of "structured finance": "We deliberately avoided the structured CDO business because we believed the associated risks were too high. Structured finance in its most complicated forms, such as CDO-squared, has largely disappeared after unleashing a myriad of problems on the financial system. They will not be missed."

He discusses whether large banks are "too big to fail." "Size is not the issue," he writes. "It is when institutions are too interconnected that an uncontrolled failure has the potential to bring the whole system down. What we need is a resolution process that allows failure without causing damage to the whole system" (his emphasis).

In general, he criticizes what happened the past two years, but offers an array of thoughtful, practical solutions, especially for regulating the system. For those interested in reading more, refer to

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