George Zornick is a Washington reporter at The Nation.
As the House Financial Services Committee hearing into recent failures at JPMorgan waned, bank CEO Jamie Dimon finally said what had already been obvious to everyone — he didn't want to be there. "These are complex things that should be done the right way, in my opinion in closed rooms," Dimon said. "I don't think you make a lot of progress in an open hearing like this." In the closed room, Dimon said, everyone would be "talking about what works, what doesn't work, and collaborating with the business that has to conduct it."
Dimon is indeed quite effective in closed rooms. He's received personal audiences with Treasury Secretary Timothy Geithner to push back against a strong Volcker rule, and his staff has enjoyed several more. The closed rooms at JPMorgan are populated by throngs of former Congressional staffers and even former members. The bank has plied current members with millions in donations, including over $522,000 to the Senate Banking Committee, where Dimon testified last week, and $168,000 to members of the House Financial Services Committee just this year.
This works well for Dimon and his allies. The financial services industry was unable to defeat the Dodd-Frank legislation in public view because overwhelming numbers of Americans supported the bill — it was arguably the only popular piece of regulatory legislation in the Obama era — but Wall Street has operated in closed rooms over the past two years to delay and weaken the rules. Before the London Whale catastrophe, Dimon was on the brink of achieving a weak Volcker Rule that would allow a wide variety of risky proprietary trading.
Dimon admitted during today's hearing that the moment he realized how large the losses at the bank were, he knew he'd end up in front of Congressional committees and that the Volcker Rule would become a hot topic of conversation. He presumably knew how serious of a problem this would be: a public flogging could revive popular opposition to weak Wall Street rules and draw unwanted attention to the backroom dealings.
This is why last week's love-fest in the Senate was so troublesome — it was a valuable missed opportunity for Democrats in particular to focus and mobilize public attention towards stronger regulation of the financial sector.
Unfortunately for Dimon, Wednesday's panel of House members wasn't nearly as friendly. And though the questioning was somewhat rambling and occasionally misinformed, there were several instances of righteous populist anger focused at Dimon.
Before Dimon even appeared, during a panel of regulatory chiefs, Commodity Futures Trading Commission head Gary Gensler put the problem in easy-to-understand terms.
"The swap market lacks necessary street lamps," he said. "I think the American public still isn't safe on these roads until we get the rules of the road in place. I think the America public was bystanders to taking on excessive risk in 2008, and we still have been."
There was a big headline from the interrogation of the regulators. Each one — from the Securities and Exchange Commission, the CFTC, the Federal Deposit Insurance Corporation, the Office of the Comptroller of Currency, and the Federal Reserve Board of Governors — admitted that they didn't learn about the losses at JPMorgan Chase until they read about it in the paper. This should focus the attention of the public on the still-inadequate staffing levels and deeper pro-industry philosophies at our top agencies. Journalists were writing about the London Whale positions before it even went bad — why couldn't the OCC, which has inspectors at the bank, see the same?
Once Dimon appeared, he was battered with populist anger. Representative Gary Ackerman (D-NY) had perhaps the best monologue, about the unnecessary nature of the propriety trading Dimon seeks to protect. He delivered it to an extremely huffy Dimon:
I used to think that all of Wall Street was on the level, that it facilitated investing, that it allowed people and institutions to put their money into something that they believed in and believed would be helpful and beneficial and grow and make money and especially help the economy and on the side create a lot of jobs and be good for our country and good for America.
Now a lot of what we're doing with this hedging — and you can call it protecting your investment or whatever, but it is basically gambling — you're just betting that you might have been wrong. It doesn't help anything succeed anymore, doesn't encourage anything anymore. It creates the possibility that people say, 'Do these guys really know what they're doing if they're now betting against their initial bet and if you go and hedge against your hedge? — which means you're betting against your bet against your first bet — it seems to me you're throwing darts at a dartboard and putting a lot of money at risk just in case you were wrong the first time. I don't see how that creates one job in America.
It wasn't just Democrats, either — Republican after Republican filleted Dimon with tough questions about recklessness at his bank and on Wall Street. (The very notable exception was committee chairman Representative Spencer Bachus, who has received more money from JPMorgan Chase than any other donor except one over his career and consistently interrupted even members of his own party when they went too hard on Dimon).
Dimon was asked repeatedly about the dangers of proprietary trading (which he continued to broadly over-over-over define, even saying at one point that "Every time we make a loan, it's proprietary.") He was asked why his bank didn't lend more to small businesses, why he believed his bank wasn't too-big-to-fail, if his pay would be clawed back because of the big losses, even about why he paid janitors in Houston only $18,000 per year when he made over $19 million. Representative Brad Miller repeatedly pressed Dimon on his oversight of the losses and subsequent statements to investors, which if he answered in the wrong way would put Dimon in danger of prosecution under Sarbanes-Oxley. (He's theoretically in danger already anyhow).
I think the questioning could have been a little more focused, hitting repeatedly and simply on the issue of proprietary trading. With so many disparate lines of questioning, Dimon was able to use the five-minute time limit and filibuster into the next questioner.
But just as Mitt Romney prefers income inequality be discussed in "quiet rooms," Dimon would have certainly preferred that this happen in a closed room. He understood the dangers. But it didn't.
The question is, what comes next? Will reformers inside and outside Congress keep public attention focused on the dangers of proprietary trading by federally backed banks, and on the ongoing weakening of the Volcker rule? I'm not naïve enough to think one tough hearing changed the landscape, but it at least presents a roadmap forward for advocates of tougher regulation — take the conversation out of the shadows and into the light.