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Jamie Dimon: JP Morgan Can Stay Solvent Longer Than Europe Can Stay Irrational

Jamie Dimon
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Jamie Dimon

Jamie Dimon told Maria Bartiromo yesterday that he wouldn't mind losing $5 billion in Europe so long as he gets to keep doing business there for the next 100 years.

In an interview during Closing Bell, Dimon said his bank had about $15 billion in exposure. But the risks were worth taking to stay in the business of helping clients do business in Europe.

This is a particularly bold version of a point I've often made about financial asset pricing.

Many market watchers think that the fact that all financial assets transactions have buyers or sellers must reveal either asymmetrical information or divergent forecasts.

To put it more simply, when financial assets are traded there is always one person who thinks it is wiser to sell and one person who thinks it is wiser to buy. So some people conclude that one of these parties must have better information than the other. Or, perhaps, they both just have equally informed but different views of what the future will hold.

But, in fact, one of the reasons people have divergent views about the wisdom of buying or selling something is that they have different time horizons. A liquidity constrained investor may not be able to hold Italian bonds until maturity. This is what killed MF Global. An unconstrained investor, however, may be able to buy these at a discount from constrained investors.

This is one of the ways private equity works. They seek to buy assets with long term capital from owners with short time horizons. This gives them a time horizon edge.

Dimon seems to be saying that this is one of the strengths that a bank like JP Morgan Chase can exploit. It is not about to run out of money or be brought down by a mark-to-market loss on its exposure to sovereign debt . It can wait. It can be, as Goldman used to say, long-term greedy.

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