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PMorgan CEO: Bear Bankruptcy Could Have Been `Catastrophe'

Last update: 7/8/2008 1:55:33 PM

     By Michael R. Crittenden     Of DOW JONES NEWSWIRES   

ARLINGTON, Va. (Dow Jones)--The U.S. and its economy are being hampered by an "institutional sclerosis" that prevents policymakers and the private sector from dealing with the "very serious issues" they face, JPMorgan Chase & Co. (JPM) Chairman and Chief Executive James Dimon said Tuesday.

"We're not getting to them," Dimon said of issues such as high energy prices and other economic imbalances. "You can't run a trade deficit for eight years and not think you're going to have a weak dollar."

Dimon, speaking at a Federal Deposit Insurance Corp. conference in Arlington, Va., said efforts to deal with these major economic issues are too often thwarted by a reluctance to make decisions unless it is in the face of a crisis.

"We have to get beyond those words, 'it's not politically feasible'," he said.

Dimon said U.S. financial regulators have been "thoughtful" in their response to the ongoing credit and housing market problems, particularly praising the Federal Reserve's decision to step in and assist Bear Stearns Cos. amidst its collapse.

"A Bear Stearns bankruptcy could've been ... a catastrophe to the United States," Dimon said.

He said the Bear Stearns experience has eliminated the idea that any financial institution is "too big to fail," and offered support for comments made earlier Tuesday by Fed Chairman Ben Bernanke that regulators need to have a formal plan in place for dealing with a failing financial firm. Dimon also said he is "very supportive" of regulators' plans to create clearinghouses for derivative instruments.

One concern Dimon did raise relates to how the accounting treatment of banks when they acquire a bank differs from the treatment of private-equity firms when they do. He said banks are unfairly disadvantaged by existing accounting rules and said it "should be the same for us as it is for private equity."

-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; michael.crittenden@dowjones.com

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