Jamie Explains The World

1.       He struck the right tone. Jamie took responsibility for the surprise $3 billion loss at CIO, repeated his view that the trades were poorly conceived and monitored, and put them in the proper perspective relative to J.P. Morgan's overall balance sheet. Good. The few senators on the panel who have a clue about how banking works must have been glad to hear that. But while Jamie's tone was appropriate given the forum, I still would have liked him tbe more aggressive in sticking up for the banking business, and in lambasting some of the nutty regulations coming out of Washington. Yes, he took a few shots, but he might have taken more.

For example, he was asked several times about Dodd-Frank. He said (as he has before) that he likes some parts of the law but thinks it adds needless complexity to bank regulation, and costs banks a bundle. That's fine, as far as it goes. But we also know that Jamie believes Dodd-Frank is an important challenge to the basic competitiveness of the U.S. banking industry. He might have driven that point home. I also thought that his take on the Volcker rule was too nuanced. Jamie did make the point that the rule would hurt the liquidity of U.S. capital markets, now the broadest and deepest in the world. But he should have been more concrete as to what that means. Take, for instance, public debt offerings. When J.P. Morgan underwrites a municipal offering, it can't always sell all the bonds investors on the first day and will retain some in inventory. Under a narrowly written Volcker rule, that market-making activity (which is what it is) might count as proprietary trading—which would effectively take Morgan out of the business of underwriting for small municipalities.  That in turn would hurt the municipalities' access to capital and raise its cost.

2.       The Senators proved once again they don't like bankers from big banks--and simply don't understand banking. It was sometimes humorous to watch certain senators stumble through the questions that had been written by their staffers. It was clear the lawmakers had no clue what they were asking about, and didn't understand Jamie's answers, either. I especially enjoyed listening to Herb Kohl try to figure out how to pronounce "loan-to-deposit ratio." The moment deserves a special spot on YouTube.

Then there were the two craziest senators, Robert Menendez of New Jersey and Jeff Merkley of Oregon, both Democrats, who seem to think that J.P. Morgan was at death's door during the crisis and is only around today because the government bailed it out. When Jamie pointed out that Morgan took TARP money only because it was instructed to by Hank Paulson, Merkely quickly interrupted and changed the subject.

3.       The trading loss is not a big deal for JP Morgan or the banking industry. It will be roughly $3 billion; Morgan's assets, for perspective, come to $2.3 trillion. Trading loss or not, the company will be solidly profitable for the quarter and the year. What's more, regulators just put the company through a severe stress test, with the result being that the company is so well capitalized and liquid that it could absorb $80 billion of losses and still be well-capitalized! So, again, a $3 billion trading loss is just not a big deal. Yet these senators (who haven't been able to find the time to vote on a budget for the U.S. Government in over three years, remember) thought it was important enough to hold hearings on it. What a colossal waste of time. The senators need to get their priorities in order. And how hypocritical for a couple of the senators to suggest J.P. Morgan is too big to manage when the Senate is so dysfunctional that it can barely run itself.  

Of course, Jamie's still not done in Washington; he'll testify to a House committee next week. That will prove to be equally as useless!  Nothing will change!