JPMorgan Chase CEO Jamie Dimon Plays Chicken With U.K. Government

(MoneyWatch)  JPMorgan Chase (JPM) CEO Jamie Dimon and British financial regulators are jousting over the U.K.'s proposed "supertax" on banker bonuses.

The banking executive is threatening to end company plans to build a $2.4 billion European headquarters in London because of the proposed levy, according to The Daily Telegraph.

Sources close to the bank said scrapping or substantially scaling down the development has been on the cards for the past two months. "Why would you want to make that kind of investment in London now?" a senior insider said. Others claimed that Mr. Dimon was so furious with the Treasury about the super-tax -- as JP Morgan has not received U.K. Government support -- that "he wanted to lay down a marker."

Message received, I'm sure. And we'll see if Alistair Darling, the U.K.'s top economic minister and the main champion of the bonus tax, caves under such pressure.

This is a transindustrial, not transatlantic, feud. British bankers are also piling on, warning that the tax and other policies aimed at reining in The City will undermine London as a center of global finance. Indeed, the fight is getting downright personal over there. The British government broke from tradition recently in declining to knight the former Lord Mayor of London, who has defended banker bonuses.

Yes, financial execs are mighty ornery these days. AIG chief Robert Benmosche was so upset over pay czar Ken Feinberg's limits on compensation at TARP-funded companies that he threatened to take his toys and go home. Benmosche changed his tune a few weeks later, perhaps coming to terms with his $10.5 million annual comp.

Is Dimon's ploy a similar bluff? Hard to say, but it's not the CEO's style. Still, he's not preparing to yank JPMorgan Chase out of London altogether. And Dimon is leaving plenty of wiggle room -- threatening to scale back, rather than scrap, the banking giant's HQ sounds like a bargaining chip.

There are a couple of related questions here. What exactly are financial firms threatening -- to abandon financial meccas like London and New York? And go where? Paris, Shanghai, Mumbai? Hey, why not Dubai? In time, maybe. For the foreseeable future, any global banking company worth its dividend must have a major presence in the old-guard financial capitals. Because, to channel Willie Sutton, that's where the money is.

Perhaps the bigger issue is this: Does it really matter if financial services firms carry through on their threats? Certainly in the U.S., there's reason to believe that whittling down the financial sector, which has exploded in size in recent decades, would benefit the economy as a whole. As economist Dean Baker writes:

Finance is an intermediate good. We need the sector to be able to borrow money to buy a home or start a business, but it is not an end in itself. While spending more on health and housing may make us better off, spending more on finance is evidence of an inefficient financial system. An efficient financial system is a small financial system.

It's not only individual financial companies that must get smaller -- it's the industry as a whole, without dismissing the economic and social impact on people who work in the sector. That, in a nutshell, is what it means to solve the "too big to fail" problem.