Jamie Dimon's testimony on Capitol Hill was of decent entertainment value, as the unflappable CEO of JPMorgan Chase
I saw only the highlights but was especially interested by Dimon's responses to questions regarding regulation. In particular, I thought his reference to the Volcker Rule especially intriguing. His remark that he didn't know what the law was because "it hasn't been written yet" may be closer to the truth than we know. After all, he and his bank, along with Goldman Sachs
However, the idea that Dimon would lobby against a law about which he knew nothing doesn't wash. But, wait: Dimon changed his mind, twice. First, he said he wasn't sure that the Volcker Rule would have kept the trade from happening; later, he backpedaled, saying that the rule might have helped to prevent the trading debacle. In all, though, Dimon seems to consider the law "unnecessary."
Despite Dimon's concern about losing shareholders' money, he never really explained what actually happened. His explanation circled around a concept that seemed to go something like this: The bank tried to hedge risky assets, but the trade "morphed" into something else that actually, somehow, doubled the risk. Clarity? Not quite.
For investors, Dimon's testimony can give some guidance, once the nonsense is cleared away. It seems certain that either Dimon doesn't understand what happened, or he does understand but won't tell. Either scenario leaves the door open for the whole mess to happen again. Investors are familiar with risk, but they can't be expected to understand what the financial titans don't themselves grasp, and they can't know what the risk-takers hide from view.
In addition, Dimon's hedging on the merits of the Volcker Rule is telling. In essence, he seems to be saying one of two things: that the Rule probably wouldn't have prevented the trade, so it's useless; or, that the law might have done so, but he's against it anyway.
Either way, investors know that JPMorgan and its peers lobbied against the rule for a reason -- because they all engage in risky trading and don't want to stop. Risk is one thing; arrogance is quite another. Investors, be warned.
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