Congress Shows Real Chutzpah Questioning Dimon's $2 Bil Loss
IBDEditorials.com
Banks: The forced appearance of JP Morgan Chase CEO Jamie Dimon before Congress to defend his company's $2 billion loss was steeped in irony. Congress, after all, is the biggest money loser of all time.
In the first of two planned appearances, Dimon was appropriately contrite, admitting his firm's trading strategy was "poorly conceived and vetted" and adding: "We have let a lot of people down, and we are sorry for it."
Fair enough. But let's put it into perspective, shall we?
JPMorgan lost the money while hedging its own portfolio with its own money. Those who've claimed that stricter application of the so-called Volcker Rule would have prevented this are wrong. The law does not apply to hedges, only to a bank's proprietary trading.
So the loss really shouldn't be a matter for Congress.
No taxpayer money was put at risk. No bailouts were requested or required. JPMorgan Chase is a massive bank, $2.3 trillion in size at the time of its loss, with $189 billion in net worth, $100 billion in revenue and profits of $19 billion last year.
The $2 billion loss didn't endanger the banking system — or even JPMorgan Chase itself.
Heads rolled, shareholders lost money and the company took a hit. Ina Drew, the chief investment officer, lost her job. That's the appropriate punishment — losses meted out by the market, capitalism at work.
How does that compare to our Democrat-led Congress, which has the worst fiscal record in history?
President Obama and his allies in Congress have racked up over $5 trillion in deficits and debts in just over three years, pushing total U.S. indebtedness to $16 trillion. And, according to our own federal government, future unfunded liabilities exceed $50 trillion.
JP Morgan? How about the Post Office hemorrhaging red ink at the rate of about $12 billion a year?
Heck, the Obama administration wasted billions subsidizing bankrupt solar firms like Solyndra. And it's lost nearly $80 billion in bailing out GM and Chrysler. JPMorgan Chase's losses are nothing compared to that.
Even so, for some, JPMorgan's loss shows we need still more regulation. But regulators, like generals, always fight the last war. Today's regulations were put in place to take care of the last crisis.
Frankly, Congress isn't competent to do the job. We've had financial reform after reform, and yet every decade since the 1960s has featured at least one nasty financial crisis. It's a massive regulatory failure.
Even today, rules are being written to implement the Dodd-Frank financial regulations, with no fewer than five major government agencies involved. The rules will eventually run into the thousands of pages.
So what can be done? Well, a big reason for the U.S.' many financial crises is Congress and regulators deem some banks "too big to fail."
Real reform would start with getting rid of the "too big to fail" doctrine. Tell banks they'll no longer be bailed out, no matter what. Within months, you'll see banks lowering their risk profiles; some may even downsize.
Whatever changes emerge, one thing's for sure: Congress shows real chutzpah lecturing Wall Street on financial responsibility.