We've grown accustomed to the spectacle of business leaders testifying before Congress to explain some anomaly in their operations. This is not something that should be a regular part of American free enterprise.
J.P. Morgan Chase CEO Jamie Dimon is making a pilgrimage to Washington to tell the Senate Banking Committee about a recent trading loss that could cost the megabank as much as $5 billion. The question is: Why is this Congress's business?
The loss, which came from a division in London that took risks it shouldn't have, has been a huge embarrassment for J.P. Morgan. It cracked Dimon's image as one of the shrewdest risk-takers on Wall Street. The bank's stock dropped from $44 before the news to about $34 today. Shareholders have already lost a bundle and Dimon has publicly acknowledged a major mistake.
Companies lose money all the time, however, and never testify before Congress about it. Regulators are supposedly looking into the trading loss, but unless there were misdeeds still unknown to the public, that's a pro forma matter that will probably be wrapped up quietly without any consequence. It's not against the law to lose money.
J.P. Morgan is different, of course, because it's a "systemically important financial institution," in the inelegant parlance of financial regulation. That means it's "too big to fail" and would have to be rescued if it foundered, lest it bring down the whole financial system with it.
It also happens that Jamie Dimon has been an outspoken critic of new financial regulations meant to rein in risk-taking, especially at banks that hold consumer deposits and enjoy FDIC backing. So there's unmistakable irony in J.P. Morgan losing a huge sum on the kind of trading that new rules, coming soon, would most likely ban.
But J.P. Morgan isn't troubled and it's not seeking any kind of government help. The bank will still be nicely profitable this year, with analysts expecting it to earn a slightly lower profit than it did last year, when net income was $19 billion.
Yet Senators will probe Dimon as if he's the head of a government agency they have oversight over, rather than the CEO of a publicly traded company. Dimon isn't obligated to testify, but with many financial regulations still being written, he probably figured it would be prudent to explain himself, press his own case for softer regulation, and generally make nice with Washington.
Members of the Senate Banking Committee, meanwhile, will get the usual chance to hog the stage in a high-profile hearing. Some will feign shock and disgust at the very idea that a Wall Street bank might lose money in such a way. Others will take Dimon's side and do the bidding of the Wall Street lobbyists funding their reelection efforts, arguing that the banks ought to be left alone. We've heard it all before.
This is the farce that financial regulation has become. Instead of dog-and-pony shows like this, we ought to have clear and tough regulations that everybody understands. If somebody breaks the rules, they should be investigated, prosecuted, and jailed if necessary. Hearings are helpful when they explain complicated issues, but they're pointless when grandstanding is the main agenda item.
Dimon, meanwhile, could turn the table on the senators and ask them a few questions. Why are they dithering instead of resolving vital questions on taxes and spending that must be decided soon? Do they know that Congressional ineptitude is a major factor holding back the economy? Do they plan to accomplish anything at all this year, other than holding hearings?
But that would be uncouth, and Jamie Dimon is not foolish enough to spoil his visit to Washington.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.