The recent excruciating House Financial Services Committee hearing featuring financial regulators and Wall Street wonder boy Jamie Dimon may have been, as Kevin Roose wrote, "a lot less brownnose-y" than the previous week's Senate meeting, but there was still plenty of praise and back-patting from the other side of the dais, and many of the more contentious and important issues were obscured by the meeting's concision (congressional members were afforded a mere five minutes each, after all).
When Dimon couldn't deny, he would dissemble, making the job of the already over-stretched and under-informed lawmakers even more difficult. But there were still a few moments of illumination.
The first: Congressional members confronted Dimon numerous times with JPMorgan's cost-of-borrowing advantage relative to smaller banks, as put forth June 18 by Bloomberg. The gist of the argument: JPMorgan's borrowing costs are lower because of the salient perception that governments will bail out the creditors of systematically important banking institutions. Dimon responded:
I don't believe that's true. I'm going to give you two facts, if you don't mind. Fact number one is, we borrow in the marketplace, unsecured, with the smartest people in the world. It costs us 200 basis points over Treasury. It costs the average single A industrial like 100 basis points over Treasury. So if everyone's so smart and knew that we're too big to fail, we'd be trading at 10 basis points over Treasury.
He then seemed to argue that JPM paid the same for "retail deposits" as small- to medium-sized banks. But as Felix Salmon from Reuters noted, retail deposits are insured by the FDIC, which means "that's not where the cost-of-funds advantage lies."
Rep. Brad Sherman straightforwardly asked, "why should we allow you to be so big" that if you go under governments would be forced to bail out your creditors. Dimon was ready with an answer:
Banks should take risks relative to their size and capability. So you can't compare all the banks. And I would venture -- and I'm not going to change what you believe -- but a lot of banks were a port in the storm. I know it's convenient to blame them all for everything. But JPMorgan's size and capability and diversification in '08, '09 and 2010 allowed us to continue to do the things that you wanted us to do.
But is this at all true? As Time's business reporter Christopher Matthews rebutted:
...it's tough to prove causality between JPMorgan's size and its weathering of the financial crisis. There were certainly plenty of well-managed smaller banks who were able to maintain some level of lending throughout the crisis.
London was another frequent topic. Rep. Maloney asked Dimon if the trade losses were in London, rather than New York, because of a lighter regulatory regime. Dimon dismissed these concerns. Maloney followed up: "What lessons have you learned going forward?" And Dimon was off the hook.
Rep. Meeks, some time later, raised the issue of a "regulatory race to the bottom," challenging Dimon on the so-called "London Loophole." Dimon responded, "I don't know of any loopholes," justifying his firm's activity in London as a way of getting the best deal for his clients. The rules in the United States, said Dimon, are "written so broadly" that American banks, at times, "can't do business at all." Financial expert Bill Black corrects Dimon:
Jamie Dimon is the leading proponent of the purported need for America to "win" the regulatory race to the bottom (see his recent letter to shareholders). He identifies the City of London as our primary competition in the field of financial regulation. JPMorgan has located much of its derivatives gambling operation in the UK because UK financial regulation is notoriously weak. Dimon uses the race to the bottom to secure endemically weak regulation.
And Rep. Ackerman wins for quote of the day:
Ackerman: What is the difference between gambling and investing?
Dimon: I think when you gamble you usually lose to the house.
Ackerman: That's been my general experience with investing.
Dimon: I'd be happy to get you a better financial adviser.
This was the sort of smarmy banter that defined Dimon's testimony. Bachus would often interrupt speakers to remind them that Dimon appeared before them "voluntarily," as if to say congressional members should be grateful that such a titan of industry would grace them with his presence. A good example of this pandering was Rep. Duffy, who repeatedly referred to Dimon as the "best and brightest CEO" in finance, even asking at one point: "But how can the regulators know what the best and brightest CEO in the industry doesn't know?"
In another notable moment, Duffy questioned Dimon over the likelihood of a potential half-trillion-dollar loss. Dimon quipped: "Not unless this earth is hit by a moon."
And when another representative finally asked Dimon about the conflict of interest posed by his presence on the board of the NY Federal Reserve, an issue which has gained tremendous attention in recent weeks, the JPMorgan CEO shrugged it off: "[The board] basically sits around and talks about the economy."
Former Chief Economist of the IMF Simon Johnson countered:
The board of the New York Fed is an essential part of the governance of that institution, which in turn is an important component of the Federal Reserve System. If Mr. Dimon thinks so little of the board and its role, why doesn't he just resign from this position? This would enable him to spend more time on ensuring that JP Morgan does not again suffer large unexpected losses in its proprietary trading operations.