When rumblings about losses in London were heard in April, Jamie Dimon said the noise was "A tempest-in-a-teapot." Did that reveal defective management process, inattention — or was it the big-lie technique?

More recently, we've heard complaints about Jamie's being a director of the NY Fed. Maybe he would call this one a drizzle-in-a-teapot.

But it's not. The directorship, like the trading losses, matter because if we face them, they can draw our attention to a much larger problem.

Chase isn't just too big to fail. It isn't just too complex to manage.

Chase is too big and well connected to regulate. Jamie Dimon is too big to regulate. And that is what's most dangerous and indeed untenable. It's highlighted and exacerbated by the Fed board membership.

A community banker knows that if he argues with an examiner or fails to respond immediately to demands for information or changes in operation, he's in big trouble. If he goes over the examiner's head, he'll likely be in even bigger trouble.

I've known even very large banks to follow slavishly demands from examiners and supervisors that are irrational, not founded in law or regulation — and which in fact cause rather than correct violations. That's part of the normal course of bank supervision. It's the larger component of the price we pay for deposit insurance. But not at JPMorgan Chase!

Jamie's Chief Investment Office in London has been accumulating risky assets for several years, at the hundred billion dollar level. Example:

The U.K. economy has been doing very badly and is further endangered by the euro's problems. So, what is the CIO hedging when, over a period of years, it reportedly dominates purchases of U.K. mortgage bonds — which it accumulates and retains? Then, for a period of months, the CIO has dominated and in fact warped the market for a credit default swap.

Chase's regulators, the Fed and the OCC, either knew about these things as they happened, and found them acceptable — or else they didn't know. They're not stupid, so my guess is that they didn't know because Chase told them to bugger off.

A significant reason Chase can't be regulated effectively is that its size, amplified by Jamie's loud voice, puts it above and beyond the reach of regulators. If he doesn't like what he hears from the 110 embedded regulatory employees, then Jamie can complain to Tim and Ben, who seemingly count on his help and advice.

Yes, one of the excuses given for Jamie's New York Fed board membership is that the Fed needs his advice, and that of the other bank CEO's on its board. Incredible!

The defining function of a board of directors is to make strategic decisions, not give advice. If the Fed must convoke a focus group of bankers to obtain consulting services, then why call this group a board of directors? Who's kidding whom?

It is also argued that having Jamie and the other CEO's on this board is merely causing a perception problem. Meaning that ignorant people such as I might actually imagine that Jamie and his colleagues have governance authority over the Fed.

Yes, there's certainly a perception problem, but it's not a problem of what the ignorant might fantasize. It's a problem of how regulatory employees and managers, for instance at the Fed, think about and relate to these CEOs and their institutions. If I worked for the Fed or OCC, I'd think twice about annoying Jamie, or anyone who could complain to Jamie.

Lincoln pointed out that 87 years elapsed from the founding of the USA to Gettysburg. A long time, during which much changed. More than 87 years have now elapsed since the Fed's founding. A lot has changed. For instance, the first president of the NY Fed, Ben Strong, could and did, in collaboration with a few foreign colleagues and heads of state, bring down the Western world's monetary system. His present-day successor, Bill Dudley, does not have the power to do that.

How about modernizing the Fed's structure to respond to the fundamental changes in its mission?

Let's entirely strip bankers and banks of any real or apparent role in the governance of any component of the Federal Reserve System. This is not a cooperative or mutual institution. 100% of its power derives from Congress, hence from the people — none from banks.

But that won't be enough to bring Chase under effective regulation. Chase needs to be broken up.

Andrew Kahr is a principal in Credit Builders LLC, a financial product development company, and was the founding chief executive of First Deposit, later known as Providian.