Dimon's Congressional Testimony

A high-ranking finance professional
Who was called to a hearing Congressional
To give his account
Of a massive amount
That was lost, made a searing confessional:

"My Office of Risk Diminution
Found a newfangled hedging solution,
Which no one construed
Nor checked, nor reviewed,
Nor subjected to sound execution."

"But in spite of my solemn admission
(Which I make with humblest contrition)
That we bungled our bets -
We are hiring vets
And expanding our lending position."

"So before you propose regulation
To limit our trade fluctuation,
No federal commission
Could outmatch our mission
To aid the American nation."

J.P. Morgan Chase CEO Jamie Dimon has been called to testify before the U.S. Senate Committee on Banking, Housing and Urban Affairs, to answer for the infamous and still-growing loss from derivative positions in the bank's Chief Investment Office. For those of you too busy to review the full text of the CEO's prepared testimony, I humbly offer the foregoing summary in verse. The rest of you may draw some insightfully ironic enjoyment from Mr. Dimon's deft attempt to deflect criticism of the bank's errors and omissions, and to convince the Senators that the bank is its own best overseer.

A Whale of a Tale

Said the boss of a trading facility,
Whose job was to crimp volatility:
"While I'm away jettin',
Be sure you don't threaten
The global financial stability."

Though much has been written about JP Morgan's "London Whale" and the $2-billion-and-growing loss that arose from his credit index trades, there has not been much focus on the interpersonal management dynamics of the case, until yesterday. The New York Times' Jessica Silver-Greenberg and Nelson Schwartz looked into the story and concluded that "Discord at J.P. Morgan Unit is Faulted at Loss." In a modern, highly-leveraged twist on "when the cat's away, the mice will play," it appears that the egos and ambitions of Bruno Iksil (the Whale) and his boss Achilles Macris could not be contained once the bank's chief investment officer, Ina Drew, was out sick for an extended period. Without Ms. Drew's "coolheaded, steely resolve", the internecine tensions between the CIO's New York and London offices devolved into daily screaming matches with no clear leader to to set limits and keep discipline.

Cruelty to Muppets

Said a Goldmanite, freaking his guys out:
"How my conscience courageously cries out!
Though I trusted this firm, it
Exploited poor Kermit,
Rapaciously ripping his eyes out."

The New York Times set Wall Street ablaze today with its publication of Why I Am Leaving Goldman, a banker's bitter swan song to a financial culture gone astray. Greg Smith, the suddenly former head of equity derivatives in the firm's London office, made an earnest confession (perhaps too earnest) of what everyone else has said for years: Goldman, Sachs makes money by ripping off its clients. Inside the firm, clients are disparaged as "muppets" who deserved to get their "eyes ripped out" (sorry, Kermit). But, aside from the insertion of non-disparagement clauses in the Vampire Squid's employment contracts, what will change as a result of this cri de coeur? Maybe nothing, but it does provide a moment of clarity for reflection: conservative blogger Noah Millman, a former equity derivatives man himself, explains the money behind Goldman's changing ethos -

It takes discipline to say, “let’s take care of the customer, and think of the long term” when you’re talking about normal amounts of money. When the amounts of money become as staggering as they were in the mid-2000s, the game – at best – becomes “how can we convince ourselves that we’re taking care of the customer.” Because what if the only way to take care of the customer is to get out of the game?

However, the final word should go to Marketplace's Heidi Moore, who looks into the soul of Wall Street and asks:

Did Goldman change the way it did business? Maybe. But the more likely view is that those flaws - in the industry, in the firm, in other firms - have been there for a long time and the scales just fell from his eyes when it finally turned against him.

Those M*F* Risk Controls

A risk manager, naturally prone
To deny an improvident loan,
Heard the boss say: "We're wishin'
To cut this position;
Not that of the loan, but your own."

The Wall Street Journal reports that the Chief Risk Officer of MF Global found himself out of a job after he questioned that firm's big bet on European bonds, arranged by CEO Jon Corzine (pictured). CRO Michael Roseman had argued that the "repo to maturity" trades - in essence, leveraged long bets on treasury bonds of Italy and other sovereigns - could endanger the firm's capital if markets went strongly against them. Both privately and in front of the MF Global board, Mr. Corzine had responded that Mr. Roseman's dire scenarios were unlikely or even impossible. Eventually, Mr. Corzine is said to have grown annoyed with the CRO's persistence; whatever the reason, Mr. Roseman soon found himself assisting in the transition to his successor. Of course, soon afterward, his impossibly dire scenarios came true and the firm was bankrupt.

Down with Capital

One regards with an eye that is jaundiced
Those lobbyists doing their darndest
To convince you and me
That risk should be free,
A view of which Wall Street is fondest.    

Andrew Ross Sorkin, writing the The New York Times' Dealbook, reports on an "independent" study, sponsored by the Business Roundtable and other lobbying groups, that purports to show the "job-killing" dangers of requiring users of derivatives to reserve more capital against the risks of those trades. Within hours, some of the economists whose names were misleadingly attached to the study had disavowed it. One, Joseph Stiglitz, derided the "particularly foolish" argument that US corporations, sitting on $2 trillion of cash, would have to forego hiring in order to afford more robust margin requirements.  (Hat tip to Simon Johnson's Baseline Scenario blog.)

Financial Reform Bill

Now the Senate has passed legislation
To invigorate bank regulation,
But left many a crater
To be filled in later,
As lobbyists learned with elation.   



Reform's really only been bracketed
So Dodd and Frank soon must be back at it,
And the agencies' staff
Write the more-detailed half,
So the lobbyists still get a crack at it.

One Bad Apple, or a Rotten Bunch?

There's a time-honored CDO dictum,
When a firm's charged with fleecing a victim:
Every other firm too
Will conduct a review
Of the tranches it sold, and who picked 'em.

Overheard at the Desk of "Fabulous Fab"

"This CDO's fit, if you please,
For a carry trade like IKB's,
With a mortgage portfolio
Hand-picked, as I told you,
By investors with deep expertise."

They'll Live Forever, Won't They?

Barney Frank has explained with assurance
How default swaps defaulted in torrents.
Says Frank: "AIG's
View of poor mortgagees
Was like vampires buying insurance."

Swap Talk

Said Obama: "For all of our betterment,
Derivatives need clearinghouse settlement,
But the five biggest banks
Are circling their tanks,
A politically potent impediment."

A Derivative Argument

Goldman and Morgan disputed
That derivatives must be concluded
Via centralized clearing:
"Our return's disappearing 
If this bank reform bill's not diluted."