Wednesday, June 13, 2012

CQ Roll Call Daily Briefing: Dimon on the Soles of Their Shoes

CQ Roll Call Daily Briefing

Wednesday, June 13, 2012

Today In Washington

THE SENATE: Convened at 9:30 with plans to vote on, and rebuff, the first two amendments to the farm bill. One would gut federal sugar subsidies, and the other would turn the federal food stamp program (now known as SNAP) to the states. That’s as far as debate on the five-year, $969 billion food policy overhaul will get this week — unless Republicans win their demands to offer several nothing-to-do-with-agriculture amendments; top on their list is a bid to stop aid to Pakistan as punishment for its imprisonment of physician Shakil Afridi for helping the CIA find Osama bin Laden last year.

Senators will also mark time before an initial test vote on legislation to revamp federal flood insurance. And, as a gesture to Hispanic voters, Reid is ready to make a fruitless effort to secure a confirmation vote for Mari Carmen Aponte, who wants another turn as ambassador to El Salvador. She’s a Puerto Rican attorney who's well plugged in with Democrats, but GOP conservatives are worried that her boyfriend in the 1990s was an alleged Cuban spy.

THE HOUSE: In recess this week.

THE WHITE HOUSE: Obama and Biden are spending much of the day with Shimon Peres, with an hourlong meeting in the Oval at 3:20 — where the escalating crisis in Syria is bound to be a top topic — and dinner and entertainment in the East Room, where the Israeli president will pick up his Presidential Medal of Freedom. (Both the Clintons will also be on hand.) In between, the president will raise some money at the W Hotel.

IN THE ROUGH: Chairman Tim Johnson set aside his customary equanimity and reserve this morning and forcefully led the Democrats on Senate Banking in their lambasting of Jamie Dimon.

The senator derided the J.P. Morgan Chase chief for allowing “an out-of-control trading strategy with little to no risk controls that cost the company billions of dollars.”  Beyond that, Johnson signaled his doubts about the veracity of the sworn testimony Dimon was about to deliver — that the hedging tactics his firm employed, and which lost at least $2 billion in ultimately federally insured money this spring, were entirely a defense against too much risk. “How can a bank take on ‘far too much risk’ if the point of the trades was to reduce risk?” the chairman said as the hearing began (after a dozen protesters, some shouting “Jamie Dimon is a crook,” were ousted). “Or was the goal really to make money? Should any hedge result in billions of dollars of net gains or losses, or should it be focused solely on reducing a bank’s risks?  As the saying goes, you can’t have your cake and eat it too.”

The bank’s CEO told the committee that “it’s likely that there will be clawbacks,” or reductions in pay and bonuses, for some of the executives responsible for the loss, first revealed exactly two months ago. And he signaled that he viewed such internal punishments as sufficient — and that he and his Washington lobbying team would continue to fight against federal rules designed to foreclose the use of such hedging strategies. As required by the Dodd-Frank financial regulatory overhaul of 2010, several agencies are in the final states of deliberating how to implement the law’s so-called Volcker rule, which is supposed to bar banks from trading entirely for their own profit. Dimon’s position is that no justifiable version of a final rule could have applied the trading that led to J.P. Morgan’s losses — because the trading in credit derivatives at issue were supposed to offer a counterweight to other financial risks, not generate below-the-line money for the bank.

And, because J.P. Morgan’s spectacularly poor efforts on portfolio hedging did not cause any economic calamity outside the firm, and have not been knowingly replicated by any other banks, Dimon’s position is likely to be upheld by the regulators no matter how badly he’s pilloried in the Dirksen Building today.

SYRIA AND SEQUESTRATION: The rapidly escalating civil strife in Syria is further complicating an already unusually complex debate over defense priorities in the face of a threatened across-the-board spending cut with potential to hobble the nation’s military reach.

Clinton’s accusation yesterday — that Russia is shipping attack helicopters to Syria (and lying about it) so that Assad has added aerial firepower for his crackdown on the civilians and militias opposing him — will surely fuel intensified election year pressure from many in Congress for an assertive American response, although the calls of some military hawks (Senate Armed Services Republicans John McCain and Kelly Ayotte, most outspokenly) either for intervening or for arming the opposition look to be readily trumped by those pushing a less confrontational approach: establishing safe zones on the Turkish border where Syrians could flee their oppressors. But any sort of meaningful intervention would almost certainly cost in the tens of billions of dollars — easy to declare as a one-time “overseas contingency operation” exempt from budget strictures in the past, but not so easy to do in the current budget climate, one in which Senate Armed Services’ Democratic chairman, Carl Levin, now says the Pentagon should embrace doing with $100 billion less in the next decade as a trade-off for sidestepping a much more dramatic $490 billion sequestration.

Complicating the Syria situation much more is the intensifying displeasure on the Hill about the Army’s decision to purchase Russian-made Mi-17 helicopters as one of the Pentagon’s main contributions to support of Afghanistan’s military — on the theory that’s what the Afghan pilots know how to fly from back in the 1980s. The deal will provide not a penny to American defense contractors but will net Moscow’s military procurement system $900 million in the next several years — money that (on the theory that all cash is fungible) could then be spent to provide those choppers to Syria. The arrangement is also destined to complicate the business community’s efforts to advance legislation this year lifting Cold War-era trade restrictions on Russia. (House Ways and Means announced today that it would open hearings on that bill next Wednesday.)

Colin Powell, meanwhile, said on "CBS This Morning" that he opposed direct U.S. military involvement in what is “really a civil war” in Syria — in part because “I don’t sense any energy to do that” in either Congress or among the American public. The former secretary of State and Joint Chiefs chairman suggested that, in an era of widespread internal strife in countries around the world and budget scarcity at home, “I don’t know that there is much the United States can do except work with the international community.”

TRAIL TIPS: (Arizona) Ron Barber will be sworn in next week as the newest House member (and the 191st Democrat) while the two parties continue to disagree comprehensively about the meaning of his 6-percentage-point special-election victory yesterday. Democrats say the results should be read as a repudiation of conservative Republican fiscal policies and a sign the party will pick up both open seats in Arizona this fall. Republicans say the circumstances of the contest were unique and, with the emotional sway of the Gabby Giffords assassination attempt presumably fading, they can win in November. Their only serious chance for doing so, however, will come with a different nominee: Martha McSally, a retired Air Force colonel and fighter pilot who made global headlines fighting for women’s rights in Saudi Arabia. (By next week, look for tea party favorite Jesse Kelly to announce that he’s going back to his dad’s construction business for a while and will not seek to be the GOP candidate for a third straight time in the Tucson-centric district — where he came within 4,200 votes of defeating Giffords in 2010 but lost this time by 13,000, and would be running in the fall in post-redistricting territory that’s more Democratic.)

(Virginia)  Hours after George Allen’s lopsided primary win — he took yesterday’s Republican Senate nomination with 65 percent against three rivals, with former Virginia Tea Party Patriots head Jamie Radtke second at just 23 percent — the former senator and governor is getting a televised boost starting today from American Crossroads, the conservative group masterminded by Karl Rove. It has put ads on the air today accusing Tim Kaine of “selling policies he knows hurt Virginia” in order to buttress Obama while serving as both governor and Democratic national chairman. Crossroads and its allied super PAC, Crossroads GPS, unveiled the ads this morning as part of a $4.6 million campaign in six hotly contested Senate states. (Different ads are lambasting Bob Kerrey in Nebraska, Shelley Berkley in Nevada, Heidi Heitkamp in North Dakota, Claire McCaskill in Missouri and Sherrod Brown in Ohio.)

(New York) The toughest election of Charlie Rangel’s half-century in politics is less than two weeks away, and a pair of well-funded outside groups are starting to weigh in — albeit on behalf of different challengers. A group called Campaign for Our Future (the brainchild of New York marketing firm Protagonist) plans to drop 100,000 “Sorry, Charlie” fliers in Harlem this week; the broadsides argue, in both Spanish and English versions, that the absence of a formal Obama endorsement is a clear sign the Democratic hierarchy is looking to replace him — with former White House aide Clyde Williams. The Texas-based anti-incumbent Campaign for Primary Accountability super PAC, meanwhile, is planning to spend significantly on behalf of Rangel’s principal opponent, state Sen. Adriano Espaillat. The more the anti-Rangel vote is divided, of course, the likelier it is that the censured former Ways and Means chairman will get a 22nd term.

HAPPY BIRTHDAY: Manhattan’s Jerry Nadler (65) and his non-voting House Democratic colleague, Washington’s Eleanor Norton (75).

— David Hawkings, editor

Become a Facebook fan at facebook.com/DavidHawkingsDC. Or follow me on Twitter @davidhawkings.

More congressional campaign coverage is on Roll Call’s At the Races politics blog.

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