The Senate’s muckraker
I’ll miss Carl Levin when he leaves the Senate after the next election — and you will, too.
At 78, Levin has represented Michigan in the U.S. Senate for 34 years. He has certainly earned the right to retire on his own terms. But as a longtime Democratic member of the Senate Permanent Subcommittee on Investigations — and as its chairman since 2007 — Levin has done more than anyone to expose the scams, the conflicts, the wrongdoing and the sheer idiocy of the financial industry from the run-up to the financial crisis to the present day. Every time Levin’s subcommittee holds a hearing, it should shame Attorney General Eric “Too Big to Jail” Holder Jr.
The subcommittee’s most recent expose took place Friday, when it held a hearing to explore the infamous “London Whale” trades that cost JPMorgan Chase $6 billion last year. Months earlier, the Senate Banking Committee, whose members lean on the big banks for major campaign contributions, held its own inquiry into the disastrous trades. There, JPMorgan’s chief executive, Jamie Dimon, was treated more like a visiting dignitary than a committee witness. Sen. Charles Schumer of New York, unctuously describing Dimon as “a financial expert,” asked him to gauge the “danger of this kind of thing happening at other institutions not as well-capitalized as JPMorgan.” Pathetic.
Levin and John McCain, the permanent subcommittee’s ranking minority member, didn’t even bother to invite Dimon. “We wanted to speak to the people who had the most information,” Levin told me. Thus, the subcommittee’s witnesses included Ina Drew, who led the division that oversaw the London traders, and Douglas Braunstein, who was the bank’s chief financial officer. The combination of Levin’s tough questions and a 300-page report by the subcommittee’s investigators was brutal. The bank, and Dimon, took a major reputational hit.
For instance, Levin established that JPMorgan knew more about the mounting losses than it let on during the now-notorious conference call in April 2012, when Dimon described the trades as “a tempest in a teapot.” The report included examples of the utter contempt for which the bank held its regulators at the Office of the Comptroller of the Currency. The OCC, meanwhile, never understood the risks involved. Indeed, under Levin’s relentless questioning, bank witnesses essentially conceded that their explanation for the losses — that the London trades were part of a hedge that had gone wrong — was not a particularly truthful statement. What the trades were supposed to be hedging was never adequately explained.
(“Our executives said what they believed to be true based on the facts they had at the time,” said a JPMorgan spokesman in a statement. “In retrospect, the information they had was wrong, and they apologized for this.”)
The JPMorgan hearing was only the latest in the subcommittee’s muckraking efforts. Previous hearings — on the mortgage shenanigans at Washington Mutual, the egregious conflicts of the credit-rating agencies, and Goldman Sachs’ efforts to dump its toxic assets on unsuspecting clients — were every bit as illuminating, and as devastating. They often exposed behavior that was at least potentially criminal.
But when I asked Levin about the purpose of the hearings, he did not mention criminal prosecutions, perhaps just as well given our supine Justice Department. “All of our hearings are held with some legislative purpose in mind,” he said. For instance, the Goldman hearing led the authors of the Dodd-Frank financial reform law to include language intended to prevent investment banks from hiding that they were on the opposite side of trades being pushed on their clients.
One goal of Friday’s hearing, Levin told me, was to “stiffen the spine of regulators. Rule-makers are struggling with what to allow in terms of hedging under the Volcker Rule,” he said. (The Volcker Rule is intended to prevent banks from trading for their own accounts.) “This should help them.”
Of course, the OCC has bigger problems than that — as the hearing implicitly underscored. It is a classic captured regulator. As American Banker pointed out recently, the Promontory Financial Group, a prominent banking consulting firm founded by Eugene Ludwig, a former comptroller of the currency, recently hired the OCC’s general counsel, Julie Williams. And where did the OCC find its new general counsel, Amy Friend? From the Promontory Financial Group!
But I digress.
Toward the end of my interview with Levin, he let slip a tantalizing tidbit. Sometime in the next few months, the permanent subcommittee plans to call the Internal Revenue Service to task for allowing the new spate of 501(c)(4)s — aka the super PACs — to avoid paying taxes. “Tax-exempt 501(c)(4)s are not supposed to be engaged in politics,” he said. “It is against the law to do so.” Then he added, with a certain undeniable relish, “We’re going to go after them.”
Joe Nocera is a columnist for The New York Times.