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What went wrong at JPMorgan Chase?

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    Jamie Dimon testifies on Capitol Hill

  • Duration 7:19
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Making if you have positions where over a period you have got a significant profit or loss clearly.

It's it's not a hedged position.

You -- actually defined parameters around those concepts.

For a simple -- -- But the industry lobbied to say -- -- -- that would be.

That would be you know you'd miss too much so they added complexity at a complexity and the role as we saw it come out it in an initial form.

Was for more complex than it had to -- Is really missing the more and so now we're gonna see the regulators continue down that -- and what they're gonna introduce next month in giving up something that's Obama.

As we -- -- theater on Capitol Hill listening to the CEO of JPMorgan Chase.

Talking about the fact that there is so complex -- these systems are really.

I'm not designed to be in.

Defected in ways that can be put for the general public in ways they can understand.

What do you think overall.

The -- going to be from now on that and shareholders as well.

Wright whom I think that this just frustration I think that home -- the normal public thinks they're not -- fair shake they they see.

All these hearings come up then we see bailouts if you go back tonight that would Glass-Steagall my -- On Jamie Dimon with the -- with that would sandy -- and -- repealed so.

-- certainly he's not gonna think that that's -- A proper regulation and I think essentially -- they have complex regulations -- support relations on the bankers are going to figure out.

Oh wait to try to -- -- you know gain the system officially I'll certainly do all of you know legal things but.

I'll figure out how to make you money for -- for the bank and essentially on in this case that didn't happen because they Jamie Dimon did in fact say.

All of that they could reduce risk by selling some of the securities there were on -- it.

And a good example of the -- basically if you had a couple how to do so when you reduce risk if you start buying on synthetic coupons to say -- the housing market moves in the certain direction.

-- going to be protected and in fact you actually make some part of a profit.

Essentially.

That's certainly it's not just has and that is our home trading and no matter what the regulations are going to be it's going to be very difficult to separate.

Two you -- I think that's right.

You know it was interesting there were a couple of comments that that Jamie Dimon made today which -- really -- self contradictory -- on the one hand he talked about.

You know the need for greater capital.

And the fact that models are fallible which is why.

We shouldn't put so much faith in models and in fact judgment actually matters and on the other hand.

We found out that really the reason that they changed the model which allowed for these losses.

Was to arbitrage.

Changes that occurred from balls -- one.

To Basel III and risk -- which allowed them to essentially.

Reduced the amount of capital that they had against these position.

Sandwich -- -- matter that there are new international standards for capital requirements which come out of the negotiation -- Basel Switzerland.

Basel III is where we're headed out yeah which -- gonna require banks have a lot more capital.

Well -- although different models which means again we keep rearing you know senator Shelby who I think is right think capital is a big part of the answer.

But then you also have to recognize that these new rules.

Define what the capital has to be against specific assets which is incredibly fallible and model so.

Up up until this crisis will still.

Sovereign debt country's own death was considered to have a zero whisper risk way to -- it would seem to him.

Wrist -- -- you had to have no capital -- well as we've seen in this crisis and European crisis.

That really isn't to correct assumption so the models have failed and yet we're allowing these institutions to increasingly rely on these models.

In orbit trudging.

At their own capital gang keep in mind to -- we talked about the repeal of Glass-Steagall it wasn't just Jamie Dimon that there are great forces in favor of that Bill Clinton.

Robert Rubin.

Who sat on the risks through committee at Citigroup who made a 120 million dollars of the last decade and I don't think -- returned an avid.

And of course we save Citigroup and and JPMorgan Chase may not have needed to our U Virginia yes -- -- talk about this.

Yes the ten banks in the room at treasury three years ago were forced to take that money.

Some of them needed it and Citigroup needed.

So -- -- a lot of people were rewarded for very bad decision making and yet.

They're not dumb people that nobody can can totally anticipate there is no.

Formula for risk as we learned -- long term capital management I was twenty years ago as we've seen over and over again.

You can't be the law which is human nature some.

Times this.

I'm -- it's interesting that you bring up long term capital because after long term capital's -- the president's working group on financial markets came out with a a white paper on what went wrong and what we need to fix.

And what they said -- they're very clear changes to the bankruptcy code.

Didn't need to be fixed so that we can move derivative books.

Here we are twenty years later and -- and we didn't make those changes and instead of doing that we create Dodd-Frank so that we don't have to fix the bankruptcy code which would say.

Everyone can fail by the same law instead we created Dodd-Frank which creates this group of special.

Firms who don't have to go through bankruptcy where everyone else would.

And so rather than go back and fix that we've really confirmed this permanent special status.

Hum what I think or implied government guarantee you for the new government sponsored entities like Fannie and right.

-- a final thought from you on the well I think once again that when main street looks at this -- Republican large suddenly feel like they're not getting a fair shake and essentially a home.

-- while we're debating over regulation whether more or less essentially.

Of what's getting lost here is.

Certainly it was a small amount of money and no overall scheme of -- JPMorgan -- capital base.

But no amount of capital will actually overcome.

Bad judgment and on bad trades that they're allowed to be -- a certain size.

Yeah not hearing on now and I agree with him.

Nothing you know over that no -- definitely listen when when people say it was a small amount you know I was two billion every day at -- -- and I you know.

Yeah it's it's a large amount of my hand I -- reason.

We all freaked out for lack of better term.

Was a three weeks ago back in May when we first learned that this is because Jamie Dimon.

Supposed to be the smartest of the Smart JPMorgan Chase is for us to be the best of the best and look what happened -- once again yeah.

To the smartest of the Smart and the best of the best they're gonna lose possibly now up at five billion dollars.

That this experience.

An issue isn't money.

Right because it could have been more there was a failure of oversight there was a failure of internal control he's added that.

Okay and so that's -- two billion could have potentially been twenty or forty billion because there's a failure.

And I were talking about -- -- -- -- -- -- thank you so much for joining us appreciate that you can thank you so much for joining us from Washington today thanks for your insights -- -- you come back again and visit with us.

Let's -- -- for us here we thank you so much for joining us have a great day and we'll see again next time take care of my.

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