J.P. Morgan Chase & Co. didn’t lose $2 billion because of hubris, regulation, or market forces. It lost $2 billion because Ted Kennedy died.
J.P. Morgan’s CEO, Jamie Dimon, explained it differently to the Senate Banking Committee the other day: “To achieve [reduced risk] in the synthetic credit portfolio, the CIO could have simply reduced its existing positions. Instead, starting in mid-January, it embarked on a complex strategy that entailed any positions that it did believe offset the existing ones. This strategy, however, ended up creating a portfolio that was larger and ultimately resulted in even more complex and hard to manage risks.”
Translation: “We have rules against doing what we did because it’s too risky, but I thought we could make a lot of money. Oops.”
It’s the Senate Banking Committee’s job to hold people who gamble with our money accountable. But when Dimon showed up, the Republican members acted like Trekkies who’d been granted a private audience with Leonard Nimoy.
Ranking Republican Richard Shelby hails from Jefferson County, Alabama, which was recently forced into the largest municipal bankruptcy in U.S. history by J.P. Morgan. You’d think that Shelby would have sharp questions for Dimon. But Shelby also took $25,000 from Dimon and J.P. Morgan’s PACs, so instead we got this non sequitur: “You were managing risk. What were you managing on this?”
It’s very hard to dodge a question if you can’t understand it, but Dimon rose to the challenge with this bit of blue-sky balderdash: “What it was meant to do was to earn, in benign environments make a little money, but if there was a crisis, like Lehman, like Eurozone, it would actually reduce this dramatically by making money.”
Translation: “We thought that if everything went well we would make a boatload of money.”
You’d think the Senators would get angry, but instead they asked Dimon for advice on how to implement the Volcker Rule, a section of the Dodd-Frank Wall Street reform bill that goes into effect next month.
Here’s Idaho Republican Mike Crapo, whom Dimon and J.P. Morgan PACs have given $17,982: “What should the function of the regulators be?”
Bob Coker, a Tennessee Republican who’s taken $15,500 from J.P. Morgan, stopped slobbering long enough to put the lazy in laissez faire with this bon mot: “A banker's always going to be ahead of a regulator, basically. And you're giving them the information they're using to regulate. So it's just not really realistic to think that a regulator's going to catch this.”
South Carolina’s Jim Demint ($4,000 from J.P. Morgan) said his goal was to get an idea from Dimon about how he’d like to be regulated, which was like asking BP how they would like us to clean up the Gulf Coast.
Oregon’s Jeff Merkely was the only Senator who put on his big-boy pants that day. His tenacious questioning of Dimon forced the banker to use simple words to tell a complex lie. “We are not in the hedge fund business,” claimed Dimon.
“Well,” answered Merkley, “I wanted to turn to the Bloomberg Report of a few days ago and it reports that Jamie Dimon created the CIO, elevated Drew from treasurer to chief investment officer, had her report directly to him. Encouraged her department, which had invested mostly previously in government backed securities to seek profit by speculating on higher yielding assets such as credit derivatives, according to half a dozen former executives of the company.”
Translation: “You lying melon farmer!” Merkley, though, is from Oregon, so he had to play nice.
We gave Dimon’s bank $25 billion in the bailout, and he’s since repaid us. But now J.P. Morgan Chase lost $2 billion because they are still able to gamble with federally insured deposits. Our drunken teenager of a banking system totaled the first car we bought him, and somehow the second one ended up wrapped around a tree, too. Shocker.
The Volcker Rule goes into effect July 21. It was supposed to ban commercial banks from using federally insured deposits to make risky bets on Wall Street but was gutted to win the vote of Scott Brown, the Republican who replaced Kennedy in the Senate. And if you think that’s why J.P. Morgan’s PAC gave Sen. Brown $10,000 for his re-election this year, then you’re just cynical.