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Congress hosts Dimonpalooza with financial reform on the back burner Congress hosts Dimonpalooza with financial reform on the back burner
(about 2 hours later)
There's a reason wags called it "Dimonpalooza."There's a reason wags called it "Dimonpalooza."
JP Morgan CEO Jamie Dimon's testimony in front of the Senate banking committee was one of the most anticipated spectacles in Washington DC in months, and perhaps years. Dimon is the golden boy of banking in the United States, and the prospect of seeing him squirm promised rare entertainment in the usually wonky, policy-obsessed precincts of Washington.JP Morgan CEO Jamie Dimon's testimony in front of the Senate banking committee was one of the most anticipated spectacles in Washington DC in months, and perhaps years. Dimon is the golden boy of banking in the United States, and the prospect of seeing him squirm promised rare entertainment in the usually wonky, policy-obsessed precincts of Washington.
The Senate staff wisely reserved a hearing room that could hold 300 people – and even then, it was standing room only. The only notable absences were at the front of the room, where the Senators sat; several of their empty seats were testimony to the fact that at least a few members of the banking committee believed they had better things to do than press Dimon.The Senate staff wisely reserved a hearing room that could hold 300 people – and even then, it was standing room only. The only notable absences were at the front of the room, where the Senators sat; several of their empty seats were testimony to the fact that at least a few members of the banking committee believed they had better things to do than press Dimon.
So if anyone was squirming, it wasn't Dimon. He faced down a heckler by crossing his arms and adopting an expression of disdain. Throughout the hearing, Dimon confidently disarmed the committee by beating them to the punch: he conceded he was "dead wrong" to call JP Morgan's money-losing gamble "a tempest in a teapot"; he took personal responsibility for the failures, declaring, "the buck stops with me"; he said, a little biblically, he "confessed to the sins of the synthetic credit side [of JP Morgan's business]."So if anyone was squirming, it wasn't Dimon. He faced down a heckler by crossing his arms and adopting an expression of disdain. Throughout the hearing, Dimon confidently disarmed the committee by beating them to the punch: he conceded he was "dead wrong" to call JP Morgan's money-losing gamble "a tempest in a teapot"; he took personal responsibility for the failures, declaring, "the buck stops with me"; he said, a little biblically, he "confessed to the sins of the synthetic credit side [of JP Morgan's business]."
Many of the senators were happy to absolve Dimon, for a few reasons.Many of the senators were happy to absolve Dimon, for a few reasons.
The first is that, with 2008 hovering like a specter around the global banking system, there are too many big failures in bank risk-management – and too many European banks in dodgy financial positions – to dwell on the relatively manageable problems of one bank. Dimon provided senators with a good excuse to go easy on him: JP Morgan could lose more than $2bn on its mistake, but the bank has $2tn in assets and can argue that it can absorb stupid trading decisions.The first is that, with 2008 hovering like a specter around the global banking system, there are too many big failures in bank risk-management – and too many European banks in dodgy financial positions – to dwell on the relatively manageable problems of one bank. Dimon provided senators with a good excuse to go easy on him: JP Morgan could lose more than $2bn on its mistake, but the bank has $2tn in assets and can argue that it can absorb stupid trading decisions.
Another reason is that regulatory reform in the United States has hit the shoals. There was a time in 2009 when lawmakers could have pressed the point and pushed through a radical rethinking of the financial system – but three years later, weariness has set in and members of Congress are thinking about their political futures in November's election.Another reason is that regulatory reform in the United States has hit the shoals. There was a time in 2009 when lawmakers could have pressed the point and pushed through a radical rethinking of the financial system – but three years later, weariness has set in and members of Congress are thinking about their political futures in November's election.
Both Democrats and Republicans dislike being reminded of the shortcomings of the effort for financial reform. One senator, in a pro-Dimon moment, commented: "You said you don't know what the Volcker Rule is. Well, neither do we." Those are sobering words from the committee that had a large hand in crafting the Dodd-Frank financial reform bill.Both Democrats and Republicans dislike being reminded of the shortcomings of the effort for financial reform. One senator, in a pro-Dimon moment, commented: "You said you don't know what the Volcker Rule is. Well, neither do we." Those are sobering words from the committee that had a large hand in crafting the Dodd-Frank financial reform bill.
Indeed, about halfway through the hearing it became clear that few men – or women – in the room would stand up for the US's regulatory reform efforts. Dimon's testimony only gave lawmakers a chance to hold a wake for the Dodd-Frank financial reform bill, which has a good chance of sliding into oblivion in a deeply divided election year such as this one.Indeed, about halfway through the hearing it became clear that few men – or women – in the room would stand up for the US's regulatory reform efforts. Dimon's testimony only gave lawmakers a chance to hold a wake for the Dodd-Frank financial reform bill, which has a good chance of sliding into oblivion in a deeply divided election year such as this one.
Then, also, Dimon was certainly well-advised; his consiglieres include Washington veterans Stephen Cutler and Bill McLucas, former key financial enforcement officials who coached Dimon on how to speak the language of Washington.Then, also, Dimon was certainly well-advised; his consiglieres include Washington veterans Stephen Cutler and Bill McLucas, former key financial enforcement officials who coached Dimon on how to speak the language of Washington.
And the most important reason is that everyone in the room acknowledged that even more – or different – regulation can't protect banks from their own bad decisions. No one has yet resolved how to square that fact with the reality that American taxpayers may once again be on the hook if those decisions go bad on a massive scale, as they did in 2008.And the most important reason is that everyone in the room acknowledged that even more – or different – regulation can't protect banks from their own bad decisions. No one has yet resolved how to square that fact with the reality that American taxpayers may once again be on the hook if those decisions go bad on a massive scale, as they did in 2008.
Those factors eased Dimon's way throughout the two-hour hearing. But objective observers had to wonder whether the Senate has the power to absolve Dimon, or any banker. The financial system has a bigger court and jury now – of the American people, who pay fees and wrangle mortgage payments.Those factors eased Dimon's way throughout the two-hour hearing. But objective observers had to wonder whether the Senate has the power to absolve Dimon, or any banker. The financial system has a bigger court and jury now – of the American people, who pay fees and wrangle mortgage payments.
More than ever, the populace has an interest in the workings of the financial system. And lawmakers are torn between the public that elects them and the corporate elite that funds their campaigns. This is clearest in the banking sector: financial lobbyists educate our lawmakers, who then use that information to ask questions of CEOs – the same CEOs who help pay the lobbyists.More than ever, the populace has an interest in the workings of the financial system. And lawmakers are torn between the public that elects them and the corporate elite that funds their campaigns. This is clearest in the banking sector: financial lobbyists educate our lawmakers, who then use that information to ask questions of CEOs – the same CEOs who help pay the lobbyists.
Indeed, it was startling how often Dimon's views were aligned with those of the committee members, and how often they took a "we're all in this together" tone. Dimon insisted that "big, dumb banks" should be allowed to go bankrupt and be dismantled; he used his testimony time to make patriotic speeches about the strength of the US capital markets.Indeed, it was startling how often Dimon's views were aligned with those of the committee members, and how often they took a "we're all in this together" tone. Dimon insisted that "big, dumb banks" should be allowed to go bankrupt and be dismantled; he used his testimony time to make patriotic speeches about the strength of the US capital markets.
Senator Jim DeMint opened his questions with a little love letter: "You're obviously renowned, rightfully so I think, as being one of the … best CEOs in the country for financial institutions." He added later that Congress itself loses more money in a day than JP Morgan ever could. Senator Richard Shelby gazed upon Dimon as a proud father would. In a banking system laid as low as the US banking system has been, it was perhaps unlikely that the banking committee would turn on its favorite son.Senator Jim DeMint opened his questions with a little love letter: "You're obviously renowned, rightfully so I think, as being one of the … best CEOs in the country for financial institutions." He added later that Congress itself loses more money in a day than JP Morgan ever could. Senator Richard Shelby gazed upon Dimon as a proud father would. In a banking system laid as low as the US banking system has been, it was perhaps unlikely that the banking committee would turn on its favorite son.
Many will say that the questions should have been tougher – and they would be right. With the exceptions of a few outraged Senators – Merkely, Brown and Menendez – Dimon got off easy. One tough hearing, of one man's point of view, may satisfy our need to hold someone to account for the financial troubles we have had and will have again. But the problem with JP Morgan's bad trade is not that it happened at JP Morgan; it's that it can happen anywhere. And our brightest minds – in finance, in politics, in law – still don't know how to spot it before it happens.Many will say that the questions should have been tougher – and they would be right. With the exceptions of a few outraged Senators – Merkely, Brown and Menendez – Dimon got off easy. One tough hearing, of one man's point of view, may satisfy our need to hold someone to account for the financial troubles we have had and will have again. But the problem with JP Morgan's bad trade is not that it happened at JP Morgan; it's that it can happen anywhere. And our brightest minds – in finance, in politics, in law – still don't know how to spot it before it happens.
Listen to Heidi Moore's report on the Dimon hearings on Marketplace: