It is safe to assume that Jamie Dimon, the chief executive officer of JPMorgan Chase, was not looking forward to his June 13 appearance before the Senate Banking Committee, where he testified about his firm’s recent $3 billion-plus trading loss.
What likely made the public inquisition even more galling to Dimon and his peers in the financial services industry was that it seemed so unnecessary. As Bloomberg Businessweek reported on Monday, Dimon’s Wall Street colleagues viewed the hearing, in addition to the five federal probes spawned by the JPMorgan loss, as an overreaction to a relatively minor, private loss.
“Occasional losses are inevitable,” Blackstone Group CEO Stephen Schwarzman told Bloomberg, “Publicly excoriating JPMorgan serves no purpose except to reduce people’s confidence in the financial system.”
Indeed, the market has already punished JPMorgan with a 17 percent decline in its share price since the announcement of the loss, a $27 billion loss in market value.
Why then did Dimon have to submit to a potentially humiliating exercise of little lasting value?
The senators calling for the hearing argue that uncovering what went wrong at JPMorgan is necessary for Congress to fulfill its oversight responsibility and ensure a sound banking system.
Of course, such an investigation could be accomplished without the televised spectacle of a Senate hearing featuring the CEO of the nation’s largest bank.
No, the real reason for the hearing was, of course, politics.
Whether JPMorgan’s loss actually poses a systemic threat to the financial system or is a harbinger of problems to come is beside the point. Fairly or not, elected officials from both political parties understand that, four years after the financial crisis, there is no political benefit to extending much public sympathy to Dimon or his industry.
Democrats know that any action that appears to “get tough” on Wall Street remains hugely popular among their party’s base.
And Republican senators, though generally ideologically opposed to further regulation, understand that they embrace Dimon’s industry at their peril. Witness the fate of former Senator Robert Bennett of Utah or Senator Richard Lugar of Indiana, both of whom were soundly defeated in their states’ Republican primaries for, among other alleged misdeeds, supporting the Bush Administration’s Troubled Asset Relief Program (TARP) bailout of the nation’s largest banks.
Indeed, recent polling confirms the view that defending Wall Street remains a political nonstarter. Seventy-one percent of American adults believe the federal government has not been aggressive enough in pursuing possible criminal behavior by major Wall Street bankers, according to a Rasmussen Reports poll last month. That’s up from 64 percent last year.
Americans are also expressing their displeasure with Wall Street via their own investment decisions. An April Gallup poll found that only 53 percent of American adults say that they have any money invested in the stock market right now either in an individual stock, a stock mutual fund or a self-directed 401-K or IRA down from 67 percent 10 years ago.
Any hope, then, that the sentiments expressed by the Occupy Wall Street movement represented only a fringe element of public opinion are misplaced.
Wall Street has a reputational problem, and, until it effectively communicates its side of the story to the public, financial firms will continue to face heightened regulatory and congressional scrutiny and inordinate public attention for any misstep, however unwarranted.
Rather than complaining about unfair treatment, Wall Street leaders must show gratitude for the assistance the taxpayers provided during the depths of the financial crisis and take the steps necessary to ensure that such help is never needed again.
They also should take care to avoid being drawn into an unwinnable defense of the TARP program. Financial industry leaders should instead emphasize that TARP funds have, in most cases, been repaid in full at a handsome profit to the Treasury.
Most importantly, they should give credit for the rescue to the American people rather than a fatally unpopular government program a small but important rhetorical nuance.
They must also demonstrate that they are contributing to the economic recovery by providing needed capital to small businesses and entrepreneurs.
While many on Wall Street, including Dimon, are already doing at least some of these things, financial industry leaders need to emphasize them at every opportunity rather than retreat into silence, defensiveness or denial about their role in the financial crisis and the ensuing recession.
Jamie Dimon’s hearing on June 13 may indeed be more about the perception of wrongdoing than reality. But the lukewarm reception that he received on Capitol Hill whether deserved or not should serve as a wake-up call to him and other financial industry leaders that the task of restoring the public’s and their elected officials’ trust is far from complete.
Rustin Silverstein, an attorney, is managing director for crisis and legal communications at Hamilton Place Strategies in Washington.