Last Friday, the legendary Senate Permanent Subcommittee on Investigations, chaired by Sen. Carl Levin, D-Mich., held a six-hour hearing to review the findings of an investigation into the trades of the London Whale that cost JPMorgan Chase about $6.2 billion and created a public relations challenge/opportunity for its celebrity chairman, Jamie Dimon. This first of three articles will introduce the cast of characters and issues to be discussed further in the next two articles.
Any hearing of this Subcommittee is an event, as it has a reputation for blockbuster hearings that goes back more than half a century and has provided a useful platform for its chairmen. Often Levin conducts these hearings alone, and holding them on a Friday facilitates both the opportunity and the chance to take advantage of a slow news day to promote press coverage.
To say that Levin, who has announced that he will not run for a 7th term next year, is thorough is a gross understatement. Sometimes this leads him to repeat the same question over and over to no apparent purpose, while other times his dogged interrogation leads witnesses to make concessions other senators would not have the patience to extract.
No point goes un-belabored at a Levin hearing. However, despite his thoroughness, or maybe because of it, Levin usually misses the big picture, which in this case is that while the Whale trade is a headline-maker, $6 billion is barely material to JP Morgan. The significance of this scandal is what it says about how JP Morgan is run, how ineffectively the “too big to fail” banks are regulated and how indifferent financial markets are to these matters.
The market, the press and Congress have studiously missed the fact that JP Morgan is yet another example of a financial company whose CEO gained the power to push around the analysts, the financial press, regulators and legislators.
The poster man for this phenomenon is the new ranking Republican on the Subcommittee, Sen. John McCain, R-Ariz., who appeared for the first of three panels and asked some worthwhile questions in spite of the following facts. McCain stands as the lone survivor of the Keating Five scandal that accompanied the demise of the savings and loan industry about a quarter century ago. He expiated his sins of accepting money and plane rides from Charlie Keating, a political power in several states, including Arizona, who was able to take control of the industry regulator until his company, the industry and the regulator all cratered.
McCain expiated his sins by sponsoring the McCain-Feingold so-called campaign reform legislation and avoided the fate of the four senators, including Sen. Donald Riegle, D-Mich., and, ironically, Sen. Chris Dodd, D-Conn., former chairmen of the Senate Banking Committee who were caught taking too many contributions and favors from the financial services industry when its standing had reached a low point in the PR cycle.
Now McCain’s personal cycle has led him back into the arms of the banking industry. The following are four of the five largest contributors to McCain over his five-term career, with the total rounded amounts of their contributions as listed by www.opensecrets.org: Merrill Lynch (now Bank of America), $456,000; Citigroup, $408,000; JPMorgan, $392,000; and Goldman Sachs, $350,000.
The third senator who participated, freshman Sen. Ron Johnson, R-Wisc., got right to the point that the fact that JP Morgan was able to engage in the Whale trades stands for its status as too big to fail and for the ineffectiveness of the Comptroller of the Currency as a financial regulator. After making these points in his opening statements, Johnson evidently decided not to waste any more time at the hearing.
Predictably, the stock market is treating this case as another ho-hum incident or a potential buying opportunity, with the buy-side analysts and most of the talkers and traders at CNBC having drunk the sweet liquid that comes in colorful flavors, much as they touted S&Ls, government-sponsored entities and too big to fail banks in the past.
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