What was supposed to be an old-fashioned Congressional grilling of JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon over approximately $2 billion in losses on risky trades today quickly developed into a chance for Banking panel Senators to project their own interests in lieu of tough questions.
Republicans reiterated their dislike for the Wall Street reform law, enacted in 2010 largely without their assistance. Tea party champion Sen. Jim DeMint (S.C.) shrugged off the failed London-based credit derivative bets because, well, “We lose twice that every day here in Washington.” And almost every lawmaker, regardless of party, seemed to lob more praise at Dimon than sharp criticism.
Of course, Dimon has given $19,000 to Senate Banking Committee members in recent cycles. He also gave more than $55,000 to the Democratic Senatorial Campaign Committee in 2008 and $50,000 to President Barack Obama’s first inaugural committee, according to OpenSecrets.org.
In the two-hour hearing, Dimon reiterated that the actions that led to the massive losses were “isolated,” that he was sorry that they occurred and that the trading strategy implemented was neither “vetted” nor understood by the traders who implemented it.
“We will not make light of these losses, but they should be put into perspective. We will lose some of our shareholders’ money — and for that, we feel terrible — but no client, customer or taxpayer money was impacted by this incident,” Dimon told the panel. “This portfolio morphed into something that, rather than protect the firm, created new and potentially larger risks. As a result, we have let a lot of people down, and we are sorry for it.”
At the center of the policy debate was the so-called Volcker Rule — named after former Federal Reserve Chairman Paul Volcker — which is intended to prohibit banks or institutions that own banks from engaging in proprietary trading that is not on behalf of clients. Republicans, who believe less regulation is better for the financial industry, have long been critical of the policy. Democrats who support it currently are in a bind because the Dodd-Frank law left the specifics of its rules to be written by agencies that have seen their budgets slashed and operations debilitated by the loss in resources.
Because the rule has not yet been written, it is unclear whether it would have prevented the massive losses at JPMorgan from occurring. Regardless, Dimon himself does not believe in the rule’s merits.
“I think we’re really going to struggle to get it right,” Dimon said of the Volker Rule before adding, “I think it’s unnecessary.”
Throughout the questioning, Dimon came off as self-assured, asserting that JPMorgan would have survived the financial crisis if American International Group, Inc., commonly known as AIG, had not needed a bailout from the Federal Reserve in 2008.
“We did not borrow from the Federal Reserve except when they asked us to,” Dimon told Sen. Jeff Merkley (D-Ore.). He denied that JPMorgan was saved by the Troubled Asset Relief Program in the most contentious exchange of the day. Indeed, then-Treasury Secretary Henry Paulson asked all major U.S. banks to take bailout money in an effort to obscure which institutions were more at risk than others.
Dimon then got defensive, telling Merkley he would not engage in his line of questioning. Merkley interjected: “This is not your hearing. I’m asking you to respond to questions.”
Merkley then outlined what Democrats believe the Volcker Rule’s purpose is, that “banks are in the lending business, not in the hedge fund business,” and asked Dimon if he agreed.
The JPMorgan CEO responded that his bank is “not in the hedge fund business.” The JPMorgan website lists “Highbridge Capital Management” as a hedge fund under the umbrella of the bank.
In his opening statements, Senate Banking Committee Chairman Tim Johnson (D-S.D.) provided a defense of Wall Street reform.
“As for the policy implications, some of my colleagues complain that Wall Street Reform micromanages the operation of large banks and that regulators cannot keep up with bank innovation. I disagree that less supervision and less regulation will magically make the system less risky,” Johnson said. “While risk cannot be eliminated from our economy, we can, and must, demand that banks take risk management seriously and maintain strong controls. We must also demand that regulators do their job well.”
Protestors interrupted the beginning of the proceedings, yelling at Dimon about home foreclosures, in what appeared to be one of the most uncomfortable moments of the morning for the bank chief.
Later in the hearing, Sen. Jon Tester (D-Mont.) asked Dimon about some of JPMorgan’s stumbles in the home loan sector to which the CEO responded, “I have to confess we were not very good at it when we first started. We were overwhelmed.”
The hearing ended with Sen. Michael Bennet (D-Colo.) asking Dimon for fiscal policy advice for the U.S. government. Dimon endorsed the bipartisan plan put forward by the president’s deficit commission, known as Bowles-Simpson, and warned that if Congress did not act before the elections to extend tax breaks, raise the debt limit and undo $1.2 trillion in automatic spending cuts, financial markets would likely begin to react negatively and cause a further slowdown of the economy.