Sen. Carl Levin, you need to smart like him.

I watched and listened to the hearings on the London fail whale hearings today, and here are some lessons I learned.

Lesson 1: For listeners: these things are really tedious, and you can’t rewind streaming video. It’s important to have a good twitter feed going so you don’t lose your place, and also so that you don’t lose your mind as the set-up questions go forward. It helps to have the report handy so you can figure out what the set-up is about.

Lesson 2. For witnesses: a) it’s important to have a row of lawyers behind you to make you feel safe. You hired them to teach you how to cope with your ugly reality, and they deserve to see how well you were paying attention and whether you learned anything.

b) “That wasn’t my job” is a very important line. When asked if the regulator was provided with relevant documents and information, you say TWMJ. When asked how data entry was done on a $350 billion portfolio, you say TWMJ, and add, I was stunned when I learned months later that data entry was done by hand from spreadsheets that contained bad macros. See, e.g. testimony of Ina Drew, the woman fall guy who was Chief Investment Officer when the whale trades piled up and crashed.

c) “I don’t recall”. Try to reserve that for really unpleasant situations, like when the question is did you say something specific to someone who isn’t here. I don’t have good examples for that, because, you know, I just don’t remember that specifically.

d) Always be technically accurate. It’s best to have those lawyers read your actual statements carefully, and then explain exactly what you were trying to convey, and you just wish your words were better chosen, but as Mammon is your witness, you believed it at the moment you said it. Douglas Braunstein, Current Vice Chairman of JPM is a perfect example. According to the very long report, in an earnings call shortly after news of the fail whale trades, Braunstein said that the positions in the London book were “fully transparent to regulators”, who “get information on those positions on a regular and recurring basis as part of our normalized reporting.” What he meant was that the results of operations of the London book were included in some daily information and some positions were disclosed sometimes. Close enough cried a chorus of lawyers. It didn’t play well on TV, as Braunstein’s eyeblink rate moved into the red zone.

e) Don’t say really stupid things. Braunstein thinks that the way you calculate risk can be changed mid-year with no disclosure as long as all the JPM people agree, because it complies with Generally Accepted Accounting Principles. Senator Levin made a note, and asked OCC head Thomas Curry whether that complied with GAAP. No, but I’ll get you a report, said Curry. When a bureaucrat takes that strong a position on the fly, you said something really stupid, violating this rule.

f).) Don’t say things that are contradicted by records you gave the investigator. The London book was a long-term hedge position, in which all the securities were bought in March. Really? The London book was meant to hedge against deterioration of the financial conditions of borrowers. That makes people think you have a short position on credit. After you say that, it’s really hard to explain why the balance in the account was long credit.

g.) If you made mistakes, admit them. The OCC made a bunch of mistakes and the investigation revealed them. Although JPM refused to provide some documents and concealed a bunch of other stuff, they still had a shot at finding this problem, but they weren’t adequately suspicious. They admit this and have changed some internal practice which they hope will fix the problem. They readily admitted to several other failures.

h) When caught, try “I misunderstood”. Levin asked Michael Cavanaugh, Co-Chief Executive Officer – Corporate & Investment Bank at JPM whether it was a coincidence that changing the method of calculating a credit risk ratio concealed losses. Oh yes said Cavanaugh, just a coincidence. Levin follows up for several minute. Well, yes, said Cavanagh, it was to conceal losses. I misunderstood.

Lesson 3. For would-be staff of the Senate Permanent Subcommittee on Investigations.


a) You need to have more stamina than 78 year old Senator Carl Levin. You probably don’t. Try working out more.

b) You need to be as smart as Carl Levin. Good luck with that. You can make it up by emulating his stamina and going through piles of documents and learning how to ask smart questions and then shut up and make the witness answer. Two or three times, Levin stopped himself and asked a pointed question. He followed up by asking the same question again and again until the witness folded, and provided the last fall-back answer, the one closest to the truth.

Lesson 4. Jamie Dimon has a bad temper. He didn’t want people giving information to OCC and he yelled about it. Much better to talk through gritted teeth like Ina Drew when you tell OCC that they are intrusive and useless idiots and their suits are off the rack at Fred’s Big and Tall

Conclusion. My favorite tweet of the day was from @EpicureanDealmaker, an investment banker: “Come on, folks. You really expect Braunstein to incriminate himself for the benefit of every ambulance-chasing plaintiff lawyer out there?” What difference does that make? They have a get out of jail free card at DOJ.