“Those who cannot remember the past are condemned to repeat it.”
– George Santayana

On March 14, a 301-page, bipartisan U.S. Senate report provided damning evidence of breakdowns at the nation’s largest bank, JP Morgan Chase.

These breakdowns, according to the report, led to its $6.2 billion so-called London Whale trading loss on a $151 billion proprietary position.

The report makes clear that proprietary derivative trading still represents a significant threat to our financial system.

I believe it should galvanize support for new curbs on Wall Street trading.

One day after the report’s release, at a hearing held by the Senate permanent subcommittee on investigations, senators and the bank’s regulator, the Office of Comptroller of the Currency, accused JPMorgan executives of believing the bank was “too big to fail” and was beyond the reach of regulators.

The report documented that the bank’s executives repeatedly withheld negative information from regulators and from their investors.

The trades “created a runaway train that barreled through every risk barrier,” said Sen. Carl Levin, the head of the Senate permanent subcommittee on investigations. “Values (on trading books) were manipulated to hide losses; risk limits were ignored; the public was misinformed and oversight was dodged.”

Sen. John McCain, the senior Republican on the panel, accused JPMorgan Chase of lying about its $6 billion trading losses.

The report found that the pushback extended to the highest levels of the bank, including chairman and chief executive officer Jamie Dimon; Ina Drew, who served as chief investment officer; and then-chief financial officer Doug Braunstein.

The outsized losses undermine Dimon’s reputation as an astute manager of risk. Senate investigators harshly criticized him for having:

Signed off on changes to an internal alarm system (the value-at-risk model) that underestimated losses by 50 percent.

Withheld information about losses from the Office of the Comptroller of the Currency because the bank’s trading problems were growing.

Played down the significance of credit-derivatives trading activity in the bank. During an earnings call in April 2012, he described it as “a tempest in a teapot.”

The subcommittee reported that Drew balked at the regulator’s demands for more information, resisting them as “unnecessary and intrusive.”

The report also found that Braunstein, now the bank’s vice chairman, made a series of misleading comments to regulators and investors, including stating that losses from the whale trade amounted to only $1.6 billion when he was aware the bank’s internal documents revealed a loss of $2.3 billion.

Braunstein misled analysts in April 2012 when he stated that the position “is consistent” with a proposed version of the Volcker Rule. The subcommittee dismissed Braunstein’s conclusion as false.

The catastrophic London whale trade underscores the danger that we could fail to heed Santayana and repeat the errors that led to the 2007-2008 financial crises.

As Levin said, “The American people have already suffered one devastating economic assault rooted largely in Wall Street excess, and they cannot afford another.”

He also said, in his opening statement, that “Firing a few traders and their bosses won’t be enough to stanch Wall Street’s insatiable appetite for risky derivative bets or to stop the excesses. More control is needed.”

He is partially right. I would go further.

If Dimon, Braunstein and the bank’s board of directors were pressured into resigning, that would send a signal that we will no longer tolerate Wall Street’s reckless gambling because it undermines our global financial system and economic security.

The country should support Levin, who called for greater oversight of Wall Street, and finalize the so-called Volcker Rule, which would prevent banks from making giant bets with money guaranteed by American taxpayers.

“When Wall Street plays with fire,” Levin said, “American families get burned.

“The task of federal regulators, and of this Congress, is to take away the matches. The whale trades demonstrate that task is far from complete.”

Originally published in the Sarasota Herald-Tribune