so when we filed the 10-q on may 10, we corrected. we made announcements to correct the prior announcement and we put the old model back abecause we thought it was more accurate than the new model. we made that clear to our shareholders as best we could. >> can you tell how the old model failed to predict the losses in this case? >> i'll have to give you more detail later, but both these models backtested and it tested better than the new model, i believe. it would have been more accurate in the last few years, but with the model, the future is not the past. things change. high yield versus investment grade, and the old model was better at predicting some of the things that happened in april and may than the new model. >> some of the banking regulators through their

participation on the basal committee are considering a move from the var to an expected shortfall. would a move to this expected shortfall provide regulators and investors more regulation than a bank should experience? >> i don't know because i haven't calculated that. var is one measure. we also look at a lot of stress tests. i do think it's important that people stress test properly. managements can't rely on models to run businesses. they are one input. in addition to that, there is judgment, knowledge, experience, and the general fear you've known when you survive for 50 or 60 years how easily things can go wrong. >> also in your testimony you indicated that one of the reasons the chief investment office started adding positions in the synthetic credit portfolio was to reduce the risk in anticipation of basal requirements. can you explain why these

particular positions would be problematic under basal. >> if i remember krebtcorrectly basal positions are about the first quarter at 20 billion. i think it was at 60 billion. we have the intent of bringing that down over time. >> why didn't other units at the bank experience similar reduction in risk? >> there were other parts of the company that we looked at the new basal 3 and asked them to start to reduce ineffective basal 3. we still have customers. sometimes it's driven more by the examiner than basal decisions. >> thank you, mr. chairman. >> senator bennett. >> thank you, mr. chairman. mr. dimon, it's good to see you. thank you for being here today. i'm the last.

i suppose there is a second round, and being last is no fun because everybody else has already asked the questions before. let me try, though. first of all, i appreciate very much your response to senator cole's observations about the difficulty that borrowers are having with responsiveness from some of the largest banks. i'll take you up on your offer on behalf of colorado and say to anybody listening to this hearing, who may be listening to it, if they would make the same generous offer, i think all of us would appreciate on behalf of the people that we represent. i wanted to, in your written testimony, and you said it again today, i think you said that while the cio's primary purposes measure long term interest rate and kucurrent exposure, it also looks at the original intent. i worpd why those two functi--

functions are in the same place. i know you hedge all across your lines of business, but i just wonder why this one was in the same place. >> it didn't have to be, but in general, that unit worried about exposure of consolidated exposure. >> you're watching the senate banking committee from earlier today. a few minutes left, and you can see it again tonight at 8:00 on c-span. we're going to leave now to hear remarks from treasury secretary timothy geithner. live coverage now on cspan 3. >> i remind everybody to turn off all of your devices and be just on vibrate. we are delighted that we have secretary geithner here and at a couldn't be more timely moment, the headlines today, threat

spreads, they theorize over ha d handling of the debt committee. we want to talk to you about the crisis in the eurozone, the fact that we see rates rising dramatically today in italy which certainly signals there is some fear in the markets about contagion spreading from greece to spain to italy, and italy, of course, would be the big concern. we've got an election in greece on sunday, and you're going to the g-20 meeting, obviously not to discuss this, but a lot of lead players will be there. your possibility of contagion. only today we learned that it's a lot that even the best bankers

don't know about risk in their banks. for all the assurance the u.s. is now immune, are we really? >> good questions. obviously, it's still a very challenging moment for the global economy and for the world. we have europe's ongoing crisis. you're seeing growth slow a bit in most of the other major economies in the world, and we have our familiar challenges here. europe is in the next stage of another major escalation in their strategy to make it work and contain this crisis and build a stronger europe. what they're talking about are -- at least in the near term are three really important sets of policy changes. the first is what they call banking union, which is a commitment to a more integrated framework for supervision, for deposit insurance and broader backstop of the finances in europe. this is really important. it's important because, of

course, no economies can function or grow without a functioning financial system, and it's important because of the pressures you're seeing from greece and elsewhere. and what spain did over the weekend to commit to a much more dramatic recapitalization in its banking system is a good country signal, an illustration of their commitment to move towards broader banking union, and that's very important. the second thing they're talking about is a set of measures -- and maybe this is familiar to awful you -- to try to make sure they have a framework in place to support the countries that are undertaking these reforms. what these firewalls are designed to do is to make sure that interest rates in spain and italy and the rest of those countries are at moderate enough levels that they can grow. so it's very important that the second piece of this is that there is a credible, financial backstop in place supporting the countries that are reforming. the reforms are going to take

time, and they will not work without the ability of these countries to borrow at affordable rates. and then the third thing they're talking about in the near term is a little bit of shift towards growth on the basic framework of economic strategy. they're talking about they have a very large infrastructure bank in europe, they're talking about mobilizing a larger scale of resour resourcefulness and allocating those where growth is weakest, and they're talking about fiscal consolidation to give countries that are forming more time to get there, a little more consistent with the weaker growth in europe. so those sorts of things, financial union for the financial system, a stronger backstop to the reforming countries, and these moderate steps towards growth are important and would be a good next step in terms of the

escalation. but, you know, this is a very challenging crisis for them, still. they recognize they'll have to do a bunch more to sort of restore a bit of calm and to convince people they're committed to make this work. i think the world is going to have a chance this monday and tuesday in mexico at the g20 meeting to hear from them where they plan to go next. >> do you ultimately see the eurozone staying together, or do you think one or more countries will drop out? >> you know, from talking to them and listening to them over these past two and a half years of crisis, my view is they've considered this very carefully and they've decided that it's in their interest to hold it together. and what they say to us proo privately is they will do whatever is necessary to hold it together. among the many concerns people have looking at europe and these perceptions, they worry, does

europe have the ability economically and financially to make it work? and i think they do. do they have the will? >> what do you mean politically? >> do they have the will to make it work? ? he wrote, never under estimate the plig co ligs. huge strategic, political imperative for those in the union. what they say to us is we'll do whatever we need to do to hold this together. there is another misperception out there that people worry about are they actually deferring their problems or confronting them? are they doing things to help make the economics more viable? some people fear that the range of actions they've done, even by the central bank, and that's unfair of them and not true.

they are doing some very difficult. lower the costs, later make themselves for competitive to reduce their long-term fiscal deficits, and they have to do that no matter what. this is something they can manage. i think they made the choice, that fateful choice, that they're going to do whatever it takes to make europe work, and they're doing very tough reforms across europe that are absolutely essential for this thing to be more viable over time. >> we are already feeling at least the psychological impact here. and there are five more jobs reports fwebetween now and elecn day, the one only days before november 6. what is your outlook for any real improvement barring some shocks, european and otherwise,

that would change it, but given the current situation, how much improvement can we expect? >> i think most people look -- most forecasters look at the american economy today and they still say that they think the economy is going to grow at a roughly 2% rate over the next 18 months or so. you know, some people say it should be 2 to 3, some people are 1.5 to 2.5, but that's the sort of outlook they say, and that's recognizing the pressures we see ahead from europe and elsewhere. and, of course, that's not -- that growth is not strong enough to make a lot more progress getting more americans back to work and bringing the unemployment rate faster. and that's why it's so important that we do what we really can do uniquely in the united states, which is to put in place more things now that would make growth stronger. we have the unique capacity now,

because we're judged a relatively safe place for the savings of the world, we're in a unique capacity now to combine some growth-improving investments and infrastructure, more teachers, tax investment for business, things like that, along with long-term fiscal reforms. if we could do those things now, we would be in a stronger place to withstand the uncertainty you're going to face from europe over a projected period of time. >> there are now 42 senators who have signed up and said that they are prepared to revisit ball simpson. is it time, even if he cannot move a grand bargain between now and election day, but time for the president to readdress that as many business leaders are saying, and give some stronger signal that he would be willing to embrace those tough choices, to give the markets a better sense of confidence going forward? >> let me say what i think would

be most helpful right now. again, the most helpful things you could see from washington in the near term would be a willingness to legislate, things that would strengthen growth now. a commitment to extend what are called the middle class tax cuts that affect 98% of american taxpayers. no reason those should be put in jeopardy as we face the challenges at the end of the year. take a risk . those have no a value to take a risk on those things, and make better savings to bring our deficit down over a period of time. >> if that's not going to happen, why not take ball simpson and take that framework by name and have the president send this very strong signal?

>> well, we believe, and the way i usually say it is this debate about what's the right path of fiscal sustainability, it really began with ball simpson and that's where it's going to end. the framework the president laid out, although it differs in small steps from the basic framework, is very close to the basic design. that's the neighborhood in which we plan to govern. we think that's the only path to resolution politically and only makes sense economically and i think that's where it's going to end up. again, what that requires is tax reforms that raise a modest amount of revenue tied to spending and savings across the government but still preserving some rooms that matter, and i think it would be helpful to confidence to have both sides say, and we've done it, that we're willing to negotiate a framework that moves us in that

direction. this is where this has to go. there is no plausible way to get will political we form. it marries the tax reforms to reduce the growth on long term health care. >> should there be a reduction on the health care? >> i think our view on this is we need to take advantage of the sentence created by the skw sequester and these aspiring tax cuts to confront and take on these things that divide us now in these long-term fiscal reforms so we can go ahead and govern and face the many problems the country faces. and for people to say we're going to put that off, i think,

would be damaging to confidence . you know, this is a place where people spend time worrying about the economy to know whether washington can work again. to hear washington say, we're going to defer, i don't see how that help bs build. >> the fed reported that as of 2010, the recession was so much deeper than anyone had expected or reported that the median middle income americans lost 39 to 40% of their wealth. this is a devastating loss of a generation of wealth for middle income americans. how do you as a policymaker take that in and translate the effect on average american families.

>> i think it tells us what we already know and what americans understand is that the crisis was much deeper, and the damage to confidence and to wealth and to people's basic sense of security much greater than even people could sort of see in the numbers at the time. remember, the economy was shrinking at an annual rate of 9% in the fourth quarter of '08 and the stock market and house prices had fallen very dramatically at that time. those measures of wealth and income started to move up really quite early in the first half of '09. so the value of people's pension savings started to go up again beginning in the second quarter of '09 and income growth, new income growth started to recover again over that period of time. but it was a deep, traumatic, whole scars across the economy still, and we have a long way to go to dig out of that, repair that damage, absolutely. but most of that damage was

done, that damage to wealth in the feds' report, you can see what happened to equity prices and home prices, and that damage, those things started to improve and reverse, or at least start to stabilize when the president's policies and the feds' policies started to get more traction. and they got traction very quickly. if you look back over that period of time, very remarkable. you went from an economy falling at an annual rate of 9% per year and we had positive growth in the summer of '09. so in a six-month period, you went from an economy that was really falling off the cliff to an economy growing. now, growth has not been as strong as any of us would have liked, in part because of europe and in part because of the head winds of fiscal contractions at the state and local level and partly because of digging out of the excessive debt that helped build the crisis, but i think in some ways that story is a story of how effective and how quickly you saw the economy start to

stabilize and recover because we were -- we did move very forcefully. we went in very hard and very fast and we did the hard, very difficult things very, very dif. didn't solve a lot of problems, still a lot of challenges ahead. if you look at europe the last two years, is a justification for that basic lesson of crisis management. >> if it's a given that americans, the average american does not understand private equity, does not understand wall street, doesn't understand the banking system very well, except to worry about it a lot now, what is your response after the testimony today by jamie dimon that, in fact, the best banker, the best-known and certainly the banker with the best record on wall street for handling risk did not know the size of these bets, and did not know all the risks entailed? and that federal reserve and office of control of the currency regulators embedded in

new york and london at jpmorgan chase were unaware. what does it tell us about the regulatory system, and the inherent risks? >> i think it's a good reminder of three really important things. one is that this task of risk management is inher rently uncertain. because nobody knows the future. and what makes this is a challenge is, you cannot confidently predict how any position is going to behave on the basis of the last three weeks or years or months. and that is what causes financial crises, and that's what makes everything about managing risk complicated in this context. and it's good to know that, because you need to have a lot of humility about the basic uncertainty we live with about our capacity to predict those things. second thing related to that is therefore the best defense against that particular inherent, unavoidable problem is to make sure these firms run with less leverage, more capital, more conservative funding against the risks they take. and there is no rule, and there

is no reform and there is no supervisor that can define their objective as preventing these firms from taking risk or making mistakes. the only test and the most important test of reform is whether you make the system strong enough, that those mistakes don't matter. and the best way to do that is to make sure firms hold -- which we have done, hold much more capital against risk, so the losses they make are small to absorb those losses and the rest of the system has similarly strong shock absorbers. in & this was a pretty good test, because these losses, pretty significant risk management failure baso owe was manageable, given the basic capital position of that institution. but it's another example of why we all have a big stake in these reforms that are still being designed and implemented, and we

need to let them get some traction in place, because if we preemptively allow them to be weakened, relax those basic constraints, then we'll be much more vulnerable to these mistakes of individual firms causing broader damage. so i completely agree that it's a good reminder of the inherent uncertainty you live with, and that's, again, related to the reality that we cannot confidently predict the future. and the best way to deal with that reality is to recognize that, and to force these firms to hold much greater cushions to protect them from their ignorance and ours. >> the argument being made on the hill by jamie dimon was that there has to be inherent risk in banking. that's what the business is. but that said, did you think, looking at it from the outside, that they did anything wrong? >> oh, no. i mean, i would say that i'm -- one strength of what they've said in response to this stuff, they were direct and clear and crisp in admitting the scale of the error.

and in trying to get very quickly to what produced that. and to be very quick in trying to figure out how to put in place a frame work that would make that less likely in the future. and that's a good thing. but, you know, again, the job of -- the job of reform, the job of oversight, the job of supervision, is to force them to hold more capital against risk, do as much as we can to make sure they understand those risks and limit them to a tolerable amount so when they make mistakes, they can't cause damage to the rest of us. you began with a related question, which is how comfortable should we feel about the strength of the u.s. financial system in this more uncertain world now. and i think this is a good test of that in many ways. we've had several tests like this over the last three years. these -- the core of the u.s. financial system we forced to raise $3 billion in common equity since the peak of our crisis. they have much less risk than they did. they're funded much more

conservatively. they have reduced their exposures to the most obvious sources of risk in the world dramatically over that period of time. so i believe we're in a much of stronger position than we were any time over the last three, six months, eight months, nine months, two years, three years, to withstand the effects of what's happening in europe. but europe is a large part of the global economy. and its challenges are hurting growth here and elsewhere in the world. and so we have a big stake in helping them deal with this more effectively. and, again, we'll spend a lot of time next week trying to do that. >> why do you think wall street is putting its money in mitt romney's camp by $37 million plus to $4 contributed and contributors to president obama's election campaign in '08 have now switched sides? >> well, i think it's -- i can't really speculate on motives, but i suspect it's because they believe that they are more likely to get a more favorable

hearing in terms of relaxing these reforms. if the republicans have a stronger hand in washington. i think it's straight forward. >> just remind you -- >> is that fair, do you think? >> well, from your perspective. mitt romney was asked during a debate back in october -- october 11th. >> i don't think they'll be successful, by the way, because i think that -- i think the core reforms, we're going to fight to preserve them. and we're going to fight to keep them. and there is an overwhelming and compelling case to do so, pause, again, we're still living with the scarce and damage caused by those basic errors. >> and in your analysis, you've just contributed more money to the mitt romney campaign, but -- what romney said in october of 2011 was when asked what he would do if there were another financial crisis -- >> because i think anybody responsible governing the country would have a huge stake in preserving these core reforms. why would they want to leave the country vulnerable to another

crisis? >> point taken. and just to finish up what he said in answer to how he would handle a financial crisis, i can tell you this. that i'm not going to have to call up timothy geithner and say, how is does the economy work, because i spent my whole life in the economy. >> who is that? who said that? >> mitt romney. >> you want me to respond to that? >> what about the messaging in this campaign? i mean, the president came out -- >> i'm not the right person to ask about messaging. that's not really my thing. >> in terms of the president's comment, we know what he meant in response to the jobs report the week earlier, but when he said that the private economy is the -- the private sector is doing just fine, how do you explain to the american people, you know, what he meant, what's at stake? we are in the middle of a very closely fought campaign. >> i think he's tried to say

from the beginning, it's a very tough economy still. huge amount of damage left over. long way to go to repair that damage. growth not as strong as we would like. and what we try to do is to put out as clearly as we can, as powerful and creative a set of proposals for helping resolve that as possible. and to legislate as many as we can. and we've tried to choose ones that have had a tradition of broad, bipartisan support in the hopes that would ease the prospects of legislation. and that's what we're going to keep doing. and, of course, we can't just focus on growth now. we have got to worry about growth longer-term. so we believe, as i think many people believe, those things would be best confine combined with a balanced long term plan to restore fiscal sustainability. and that's why you have to think about these two things together. but we're having -- you know, we're having a debate about, and

an important debate, about how to solve the fiscal problem but what's the way to solve broad based growth now. and we're trying to meet the test. which is to lay out what we're for. >> you see, you just disproved your own point. because you are right on the message. so -- >> that was a good message. >> given what you've said in the past about wanting to just serve for the first term in this very, very tough job, have you rethought whether if the president is re-elected you would stay in some role in the administration? >> no. i have not rethought that. thank you for asking, though. >> well, you've had so much fun in the first three years. well now we come to that -- the time when the audience joins in. and just to remind everyone, you know the drill. please stand, state your name, your affiliation. keep questions concise. wait for the microphones to reach you.