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December 6, 2023

Jamie Dimon is No Longer the Nexus of Permission

Jamie Dimon is No Longer the Nexus of Permission

If you run the world's largest bank and there is a technology that will leapfrog your existing tech stack and the essential role of your bank will be re-rationalized, you do what Jamie Dimon is doing, demonize the tech, slow down adoption while pouring resources in a centrally controlled version.

For 650 years banks have been the mediums of trust between individuals, organizations, and nations who had excess capital and wanted to deploy it with those who could create more, primarily through innovation. This has worked exceptionally well, but both the consolidation in banking and the rise of capital markets that deployed these assets with out the banks own capital invested and an implied sovereign guaranteed have exploded the moral hazard in banking. This is where you have none of the risk of failure but benefit handsomely with success which pushes the employee activities out on the risk spectrum.

This study looks at bank failures and crises through 2011 ( and the central banks management of these crises. Many times exogenous events precipitated the events, sometimes it was merely bad management, or fraud. The primary exogenous event we must be careful of is legislation that encourages a certain behavior or removes a guard rail because humanity has evolved and not longer will do a bad thing (this naivety is deadly to markets).

Glass Steagall became law in 1933, this separated investment banking activities from using commercial banking client deposits. In 1999 this was repealed when Gramm-Leach-Bliley became law. I was at Bear Stearns at the time and watched the demise of truly effective risk management. Previously the partners money was at risk, and now they used OPM, Other People's Money. This is why Goldman ceased being a partnership and became a public company, the allure of OPM. This crashed the most effective form of risk management, self-interest, all the partners capital was at risk in every trade...this is known as distributed risk management.

In 2017 Trump proposed a new version of this architected by Hoenig. (Read the Lords of Easy Money) Elizabeth Warren proposes bringing it back fully, this is the 1.5% of the Venn diagram when she and I agree on something.

Add in the pernicious idea of MMT, (the Fed prints money ad nauseum or ad inflare) which creates its own banking crisis. BTC was created in response to this, Satoshi laid the foundation of new stores of value. We believe Real World Assets (that inflate with currency manipulation) with price discovery, AMM, and connectivity to payment rails will be how capital is stored and search algorithms that finds (Inveniam means to find) assets will be how a networked global economy will save and distribute capital. This will demand a nexus of permission at the instrument, the exchange, or the chain for securities (likely 2 of the 3)...Jamie Dimon is just upset he is no longer the nexus of permission.

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