There were lots of remarkable questions during Jamie Dimon's Senate Banking Committee hearing -- remarkable mainly for how easy people were on the head of the largest bank in the United States.
Dimon was called onto the downy soft carpet of the Senate Banking Committee on Wednesday to explain JPMorgan Chase's loss of somewhere between $3 billion and $8 billion, depending on who's counting, in a bad trade on credit derivatives.
In the end, 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.
And there were some aggressive initial questions that were not followed up by senators, who had just five minutes each to complete their questioning. Instead, much of the hearing was spent letting Dimon and some Republican senators rail against Congress' efforts at regulatory reform after the financial crisis. Those reforms include the Volcker Rule, which prohibits banks with federally insured deposits from taking the sort of chances Dimon's own bank took.
"They had a congressional hearing to find out what happened, and he refuses to tell them," said Bill Black, an associate professor of economics and law at the University of Missouri-Kansas City. "And they all say, 'Sorry we even asked you.'"
Preparing questions should have been an easy job for the Senate: In the weeks before the hearing, lots of observers, from the banking-unfriendly (Occupy The SEC) to the banking-friendlier (Andrew Ross Sorkin), had compiled long lists of questions the senators could ask Dimon. Several of those questions were not asked.
For example, nobody asked Sorkin's question about the bank being "too big to hedge" -- which gets to the heart of the Volcker Rule. Dimon argued that banks have to be able to buy credit derivatives to hedge the risks that they take in lending money to support the economy. But as Sorkin points out, JPMorgan's chief investment office had such a huge position in derivatives that it dominated the market for them, making the hedge impossibly dangerous. If such a massive trade is necessary for hedging, then maybe the bank is a bit too big.
Update: Another big question is why this "hedging" was done in risky, hard-to-trade derivatives, if indeed it was hedging and not just gambling, as Bob Menendez (D-N.J.) put it.
And nobody asked Dimon whether he thought his seat on the board of the New York Federal Reserve, a key financial regulatory arm, is a conflict of interest.
When he was asked tough questions, Dimon did not always give satisfying responses. For example, he never really answered when Sen. Jeff Merkley (D-Ore.) pressed him repeatedly about a Bloomberg report that Dimon said the JPMorgan unit that made the risky trade should ramp up its risk-taking. Instead, a visibly angry Dimon growled that he didn't believe everything he read, and maybe the senator shouldn't either.
When pressed further, Dimon said he "didn't know" what Bloomberg's source meant and would have to investigate the details of the story. Nobody asked the follow-up question: You mean you haven't already investigated the details of that story, which Dawn Kopecki and Max Abelson wrote nearly a month ago?
New stories by Bloomberg and the Wall Street Journal Wednesday morning put responsibility for the firm's risk-taking even more firmly in Dimon's pocket, and suggested he knew about it much earlier than he let on in the hearing. Senators did not ask him about those stories, either.
Sen. Jack Reed (D-R.I.) did ask about the bank's eyebrow-raising decision to change the chief investment office's risk model in January to allow it to take on more risk. But Dimon's explanation for that change -- that the bank wanted to comply with new international capital rules -- makes no sense, points out Peter Eavis of The New York Times. In fact, a desire to comply with capital rules would have led to the bank taking less risk.
The market seems to believe that Dimon handled the hearing well: JPMorgan stock was up nearly 2 percent recently, while the rest of the stock market is falling. Still, the fact that only a few senators pressed Dimon should maybe not be surprising: This is a group of members of Congress to whom Dimon's bank has delivered "a boatload" of money since the financial crisis, as Business Insider puts it.
And the public may not ultimately be satisfied with what MarketWatch's David Weidner described as Dimon's open disdain for the entire process or for his need to be answering questions at all.