[Vision2020] Whores and Their Johns

[Art Deco]

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June 13, 2012
Mr. Dimon on the Hill

Jamie Dimon, the head of JPMorgan Chase, told the Senate Banking Committee
on Wednesday that he had been “dead wrong” to dismiss early news reports of
his bank’s reckless trading and that he was “sorry” for the resulting
losses, variously estimated at $2 billion to $5 billion, and counting. He
even ventured that too-big-to-fail banks have “negatives,” including “you
know, greed, arrogance, hubris, lack of attention to detail.”

In brief, he didn’t say much that everyone didn’t already know — and he
didn’t give an inch on his fierce opposition to the tough financial
regulations needed to ensure that banks’ risky behavior does not again
threaten to bring down the financial system. The senators did not press him
nearly hard enough. Some Republicans even praised Mr. Dimon for his bank
leadership and let him critique proposed financial regulations, while one
Democrat sought his advice on how to fix the deficit.

A month after the trading losses were first revealed, Mr. Dimon has yet to
offer a thorough explanation for what happened. One of the big questions is
whether the loser trades were really, as Mr. Dimon claims, hedges intended
to protect against potential losses on other of the bank’s positions, or
proprietary trades — speculative bets — placed for profit.

Banks would be allowed to hedge but barred from pure speculation under the
Volcker Rule, one of the Dodd-Frank reforms intended to curtail reckless
trading. Mr. Dimon, who has been the most outspoken critic of the rule,
said that his bank’s trades started out as legitimate hedges, but even his
nonexplanation of events indicates otherwise. In a crisis, like a global
credit crunch, he said, the complex derivatives at the heart of the bank’s
bad trades were supposed to make a lot of money. So much for guarding
against losses on underlying investments.

There were no questions at the hearing about Mr. Dimon’s efforts — and
those of other banks — to win an exemption from the Dodd-Frank rules for
derivative trades made through foreign branches, affiliates or
subsidiaries. The Chase trades that went bad were conducted in London, as
were the bad bets by American International Group in the run-up to the
financial crisis.

Regulators, notably Gary Gensler, the head of the Commodity Futures Trading
Commission, have been
adamant<http://www.cftc.gov/PressRoom/SpeechesTestimony/opagensler-115>that
new
rules <http://www.cftc.gov/PressRoom/SpeechesTestimony/opagensler-113> — on
transparency, monitoring, speculation limits, reporting, and business
conduct standards — must apply to all trades made or backed by federally
insured banks, no matter where the transactions occur.

But with the banks still pushing back hard, he needs full-throated support
from Capitol Hill to persuade the rest of his commission and other
regulators to do what is needed. Unfortunately, not a single Banking
Committee member pressed Mr. Dimon on the issue.

Why is that? Maybe their staffs did not prep them on the complexities.
Another possible explanation is that, even now, senators from both parties
are still in thrall to Mr. Dimon and the deep pockets of the banking
industry.

Some Democratic senators did challenge Mr. Dimon, notably Robert Menendez
of New Jersey and Jeff Merkley of Oregon. But until more lawmakers commit
to the toughest possible rules, the nation’s financial system will remain
vulnerable to all of that “greed, arrogance, hubris, lack of attention to
detail” that Mr. Dimon acknowledges, even as he resists the rules that
would curb it.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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