The Senate Committee on Banking held a hearing, A Breakdown in Risk Management: What Went Wrong at JPMorgan Chase? They had one witness, JPMorgan Chase CEO Jamie Dimon.
Dimon revealed very little about the trade and not much more about his knowledge of it. He refused to discuss details of it, lest he reveal secrets to competitors -- who already know all about the trade and have been hammering JPMorgan on it, adding to the bank's losses. But the committee didn't challenge him on that, even after he turned down an offer to close the hearing to the public.
Bloomberg's story quote implies the Senators plain don't understand derivatives:
“The fact that the senators seemed slightly mystified by what had happened is really very significant and very telling,” Chernow said of yesterday’s hearing. “How can the government exercise oversight when the instruments that federally regulated banks are using and trading in have become so complex, high- risk, and highly leveraged?”
Senator Jack Feed (D-RI) managed to ask how JPMorgan Chasewas buying credit default swaps around 2008, yet selling them in 2011. He asks how JPMorgan Chase could be on both sides of a transaction.
Senator Jeff Merkley (D-OR), is about the only Senator who got any licks in.
Of course the massive loss was blown off as an isolated incident and how banning some of these CDSes, regulations and the Volcker rule are magically still not needed:
Dimon was not so chastened that he backed off of his long-standing criticism of Washington reforms.
The 2010 Dodd-Frank financial oversight law, he said, has produced a swarm of uncoordinated regulators, and he warned policymakers that they must smartly craft the Volcker rule that will ban banks from making speculative bets with their own money.
Dimon said Washington must not overreact to JPMorgan's trading loss and create such narrow exemptions that it hurts financial markets.
Naked Capitalism really blasts such claims and points out the JPMorgan Chase's CIO office was all about risky trades. They have coined a new term, Dimonspeak:
In Senate testimony, Dimon revealed his idea of “portfolio hedging” to be even more egregious than the harshest critics thought. Dimon presented the job of the CIO to be to make modest amounts of money in good times and to make a lot of money when there’s a crisis. (That does not appear to be narrowly true, since in the last couple of years, during which there was no crisis, the CIO’s staff were among the best paid in the bank and produced significant profits for the bank. That is a bald faced admission that the CIO’s mandate had nothing to do with hedging. A hedge is a position taken to mitigate losses on an underlying exposure should they occur. Instead, Dimon has admitted that the mission of the CIO is to place bets on tail risks that are unrelated to JP Morgan’s exposures. A massive, systemically destructive strategy like the Magnetar trade would fit perfectly within the CIO’s mandate.
Needless to say, this definition is an inversion of not just what the Volcker rule was meant to stand for (limiting financial firm gambles with taxpayer money), it’s NewSpeak, or in this case, DimonSpeak: “a hedge is whatever I say it is, no more and no less.” Another bit of DimonSpeak was his specious response when he was arguing against the Volcker rule. The JP Morgan chief asserted that a customer loan could be construed to be a prop trade. Um, no, Volcker applies to trading books. The fact that he’d run a line like that shows how little he thinks of the intelligence of the Senate Banking Committee and the public generally.
The crony capitalist show must go on: those bribed by Jamie Dimon are about to ask question of the same person. That this theatrical hearing will be a farce is by now well known by absolutely everyone, as confirmed by the rumor that late last night someone ordered 22 copies of "Credit Default Swaps for Bought and Paid For Senatorial Muppet Idiots" from Amazon.com.