Usually, congressional hearings featuring Wall Street executives are kind of a predictable circus. The basic format is: elected officials spent their allotted time talking about how farmers in their districts need a bailout like the one Goldman Sachs got, a Republican attacks Dodd-Frank as being a job-killing menace, Maxine Waters says something modestly crazy, and the bankers kind of cringe and give over-lawyered statements of innocence the whole time while showing off their pretty suits and cuff links, and then everyone breaks for lunch.
Today's Senate hearing about JPMorgan's "London Whale" trading disaster was different.
For starters, there were only two Senators doing most of the heavy lifting at today's flagellation-fest: Senators John McCain and Carl Levin, with Levin responsible for roughly 90 percent of the interrogating. This is actually my preferred method, since Levin, unlike almost every other elected official in Washington, is smart and prosecutorial enough to question bankers about their work without sounding like a high-school junior who is trying to get class-participation points in English class but has only read the SparkNotes.
Today, JPMorgan's goal was to look stupid for letting one of its traders lose $6 billion on an ill-fated credit bet. Stupid, after all, is not a crime. And the alternative interpretation of the London Whale saga – that the bank willfully lied about the extent of the Whale's trades as they were losing money by changing risk models and leaving regulators in the dark – requires a lot more expensive lawyers to sort out.
So instead of trying to be all slick and defensive, JPMorgan's executives just tried to say as little as possible. Here's who showed up:
This is Ina Drew, the Whale's former boss, who was fired after the debacle and got a relatively sympathetic profile in the New York Times Magazine not long thereafter. Drew said basically nothing of consequence during the entire hearing, other than saying that losing her job over the botched trades of one of her employees was "devastating."
This is Mike Cavanaugh, co-CEO of JPMorgan's investment bank. Doesn't he look like a banker? Anyway, he and Sen. Levin got into a long debate about the meaning of the word "tweak," with respect to a conversation between JPMorgan executives about how they were "tweaking" their metrics in order to make the London Whale's trades look better on paper than they were in actuality. They said tweak a lot.
(Also, fun fact: the evil-looking dude to the right of Cavanaugh is Steve Cutler, the former SEC enforcement chief, who used to bust Wall Street banks and is now general counsel at JPMorgan. Viva la revolving door!)
This is Doug Braunstein, JPMorgan's former chief financial officer, who was relieved of his duties and given the title of vice-chairman after the Whale debacle. Braunstein had a rough day. He and Senator Levin got into it on a number of issues related to statements he'd made to investors and analysts during the Whale episode, all of which amounted to "things are A-OK!" when things were not even remotely A-OK.
It got ugly. Here is an actual exchange between Braunstein and Levin (paraphrased to the best of my recollection — I was eating a sandwich at the time):
Levin: "Do you remember the specifics of that conversation?"
Braunstein: "No, I don't remember the specifics of that conversation."
Levin: "Well, do you remember the generalities of it?"
Braunstein: "As I said, I don't remember the specifics."
Levin: [Blank, disdainful stare.]
McCain, who was sort of checked out for most of the day, jumped in at one point to ask Braunstein to detail how much his compensation was cut as a result of the Whale scandal. Braunstein said "50 percent," after which McCain made him humiliate himself by asking, "Yes, but how much in dollars?" and Braunstein was forced to admit that he still made $5 million last year even after having his paycheck lopped in half. (This is the funniest thing McCain has done since that "build the dang fence" TV ad.)
In conclusion, the day was good for the theater of democracy, good for Senators Levin and McCain, and bad for Jamie Dimon and the rest of JPMorgan, with the exception of Braunstein, for whom it was extra-bad. I agree with Matt Levine that the upshot of the PSI's report on the London Whale situation and today's tesimony will be a whole lot of civil lawsuits, many of which will result in JPMorgan being forced to shell out money for misleading investors about the state of their books. (But no real criminal charges, since that's hard and all.)
My only unfulfilled wish was that Bruno Iksil, the London Whale himself, would attend the hearings. It's got to be fun, watching a bunch of your former bosses sweating over a debacle you caused. And doubly so when you've already extricated yourself from the mess.