Jamie Dimon Knew Subprime 'Could Go Up In Smoke'; Now He's Worried About An Artificial Economy 'Fueled by Government Deficit Spending'

In the chaos of the 2008 recession, perhaps no bank stood more prepared than Jamie Dimon's J.P Morgan Chase & Co. JPM.

In advance of the crisis, Jamie Dimon realized that "underwriting standards were deteriorating across the industry," with late payments on subprime loans rising.

In late 2006, the bank led his firm to exit Wall Street's hot subprime business, starting with a frantic call made to J.P. 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, J.P. Morgan was able to go on the offensive when other banks pulled back too late or were forced into bankruptcy.

J.P. Morgan's stock has risen nearly 260% from its pre-global-financial-crisis peak.

Reflecting on the recession, Dimon said "counter to what most people think, many of the extreme actions we took were not done to make a profit; they were done to support our country and the financial system."

Dimon is sounding the alarm on a debt-fueled economy appearing healthier than reality may be.

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In his most recent annual shareholder letter, Dimon said, "The U.S. economy continues to be resilient, with consumers still spending. and the markets currently expect 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 past stimulus."

With the U.S. national debt already surpassing $34.6 trillion at a time when the Federal Reserve is still unable to cut interest rates in the face of stubborn inflation, interest payments on the debt are set to exceed U.S. defense spending this year.

Whether the increasing fiscal debt becomes a problem impacting broader markets to the extent that the subprime crisis did remains to be seen, but Dimon and his firm are prepared for anything with J.P. Morgan's self-described "fortress balance sheet."

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