the question of portfolio hedging depends a lot on what you mean by portfolio hedging. if you're, quote/unquote, hedging some macro risk that is not related as the statute requires it to be to individual or aggregated positions and the risks that come from those, then it is not permissible under the statute, but, of course, in the end, the regulators, with our coordination, will have to work through exactly the technical issues of what that means, they put out a proposed rule, lots and lots, 18,000 or so comments came in. they are working through that right now, but i think the question's not whether it's portfolio hedging or not, because the statute doesn't talk about portfolio hedging. it talks about whether it's associated with individual or aggregate positions that the firm has taken and put on their books. >> and if you would as you go through, i assume that there's an order to have a political response to what's just happened during this political season. we could end up making regulations on hedging that make some of the highly complex organizations, if we're goi

clearly, i think there's a value of aggregate hedging in terms of portfolio, hedging each individual trade. but you would have had at least perhaps a little clearer guidance? >> that's the intention of these additional provisions of the regulation and then, of course, the ongoing supervisory to make sure that the information that is received is scanned and reviewed properly. >> let me move to a different subject because my time is moving out. again both to governor tarullo and mr. wolin. senator corker and i tried to put a rule in place of these living rulewills. as we move down that path, have you had the tools you need to evaluate these -- the back and forth on the creation of living wills and to what standard are you going to hold the institutions in a sense this living will will demonstrate how they would unwind themselves? are you looking at that in kind of a blue skies environment? are you looking at it in the potential real environment that we may have with a breakup of the euro? i would like to just get your comments on that. >> senator, the statute itself establishes a stand

and so really, you know, when you reduce a hedge or hedge a hedge, isn't that really gambling? >> i don't believe so, no. >> so this transaction that you said morphed, what did it morph into? >> it morphed into something that i can't justify. it was too risky for our company. >> that is the real concern here. too risky for your

or not a hedge at all i don't think it's a hedge at all i mean senator menendez said something pretty funny he paraphrase shakespeare you know to hedge or not to hedge i don't think in the sixteenth century this phrase would have been so sonorous or had such resonance but the question is was this a hedge and so jamie dimon was saying this was not this was a hedge right but in another way he said we were looking to make revenue on it when you have a hedge you look to make money you look to not lose money so you should be roughly equal it should come out at zero if you do it right but they were actually making a bet and he said that in his own words so now i think that's really interesting because we can just dismiss the whole hedge thing it was a unicorn hedge it doesn't really exist doesn't exist put it to bed once and for all exactly it was just a bad and senator menendez said you said it morphed did it morph into russian roulette again taking that issue of risk so you're actually making a bet are you acknowledge in the risk because when you and i talk about risk we hear the word ris

if you are hedging something related to that, then it's permitted. something other than that, then it's note. the question of portfolio depends on what you mean. if you are hedging some macro risk that is not related as the statute requires it to be to individual or aggregated positions and the risks that come from those, it is not permissible under the statute. in the end the regulators will have to work through exactly the technical issues. 18,000 or so they are working through that right now. the question is not really whether it's portfolio hedging or not, but it doesn't talk about the portfolio. whether it's associated with individual or aggregate positions that the firm has taken and put on their books. >> if you would as you go through, i assume there is an order to have a political response to what just happened in this political season. we could end up making regulations on hedging that make some of the highly complex organizations if we are going to keep them like they are even more risky. is that correct? >> i think the goal here is to all

or hedged a hedge, is that not really gambling? >> i don't believe so. >> this transaction that you said more fact, what did it change into, russian roulette? " it changed into something i cannot justify, too risky for our company. >> that is the real concern, too risky for your company, which is one of the nation's finest, largest well-capitalized banks. if it is too risky for your company, with stops it in the future from being where you wouldn't lose maybe $50 billion, create a size that ultimately creates a risk on the banks and takes that into a run and become the collective responsibility of every? every >> that is what we are trying to prevent. i have heard you talk about the fortress balance sheet. i'm glad to hear you say to senator schumer that we should take comfort that banks are more collateralized. but one way to think about this is i wonder your regret calling the efforts to require banks to hold more money "an american" and putting the nail in our coffin? -- unamerican. you will do against us when we were trying to

on hedging on hedging in the headstrong community in the proprietary trading desks of banks like j.p. morgan in your exposing a bit of a whistle blower type role but as this and dear due to your fellow headstrong community just are they wearing the planet ponzi baseball cap available on your website are you part of the are you now a pariah and i see you walking around with gold krugerrands i mean this is this is safety is this is ok to say what are you are you paper currency i think is problematic but it's not becoming a pariah and it's not anything like that the reason why the book was written to begin with the title is a catchy title it's a shocking title but it makes a point it makes a very important point the point is if anybody it's the most descriptive term in the world for what's going on in finance and i think in some a story that needs to be told when i entered these markets which was over thirty years ago to give you some perspective you know we did normalize trades different types of trades and transactions. when larry summers i don't know if you know who he is but we spea

fund community will be doing in reacting to different scenarios by their hedging and asymmetric hedging or are you engaged in some fundamental economic activity that benefit society in some way well that's right you're talking about proprietary trading i mean there's a difference between trying to hedge a portfolio as a hedge fund manager are you adding anything to society. well i think that some of the environmental aspects that i've invested money in and funds in to outside of your normal day to that job another book learned was always able to be had a benefit to society because you're describing this job of hedging on hedging on edging in the headstrong community in the proprietary trading desks of banks like j.p. morgan in your exposing a bit of a whistle blower type role but as this and dear due to your fellow headstrong community just are they wearing the planet ponzi baseball cap available on your website are you part of the are you now a pariah and i see you walking around with gold krugerrands i mean this is this is safety. this is what are you going to paper currency i think i

clearly, i think, there's a value on aggregate hedging. instead of hedging each individual trade, but you would have had a little clearer guidance? >> i think that's the intention of these additional provisions in the regulation, and then, of course, the ongoing supervisory challenge is to make sure the information that is received is scanned and reviewed properly. >> let me move to a different subject, because my time's running out. both again, governor tarullo, one thing we worked on is these living wills, and as we move down that path, i'd like both your comments in terms of have you had the tools you need to kind of evaluate these back and forth on creation living wills and to what standard are you going to hold the institution in a sense this living will will demonstrate how they would unwind themselves, are you looking at it in a blue skies environment, the potential environment we may have with a break up of the euro, love to just get some comments on that. >> senator, the statute itself establishes the standard for evaluating the p

clearly, there is a value in the hedging. instead of hedging each individual trade. but you would have at least a little clearer guidance. >> i think that is the intention of these additional provisions and the regulation. and then of course, the ongoing supervisory challenge is to make sure that the information that is received is scanned and reviewed properly. >> let me move to another subject. my time is running out. one of the new tools we have tried to put in place that we worked on is these living wills. as we move down that path, both of your comments in terms of, have you had the tools you need to kind of evaluate these back and forth wills -- and what standards are you going to hold the institution? a living will will demonstrate -- looking of that and a blue skies environment? we looking at it in a real environment you may have with a breakup of the road? but we get comments on that. >> the statute of soft establishes a standard for evaluating plans. the standard is the bankers code. the requirement is that you need to make a suggestion as to whether the pl

is there any way to ensure against this type of loss where a trader is forced to hedge the hedge and cover losses that led to more losses. is it possible to ensure that legitimate hedges never morph into something else? it's not possible to ensure we'll never make a mistake. anyone who has ever been in business makes mistakes and hopefully they're small and few and far between and hopefully this is not life-threatening. we in this one area we failed to have the granular limits and the review we should have, and we believe it's not true for the rest of the company. we try to be very, very disciplined and we fixed this problem the second we found it. and were the risk limit rules raised while the position was on the books? >> no. sometimes limits were hit and it asks you for details and where they were hit people did what they were supposed to do. >> so do they raise them? >> they do get raised sometimes, yes. >> and why were they raised again. >> i don't know if they were raised. >> so you don't know whether they were raised or not. >> and was the loss-making position increased in siz

hedge. that's a fancy word for saying by lowering the risk by -- >> charlie: explain that. >> if a bank has a loan to a small business in a community, it might be that that small businessperson might default on the loan. >> charlie: right. >> at the same time the bank might want to take out another financial instrument called a swap that in case that small business defaults they protect against that. that's called a hedge. another form is if you have a mortgage. in case -- i don't think charlie rose is going to default on his mortgage, but if you were to default on your mortgage, well, to be buying insurance. a hedge is insurance against that. >> charlie: right. >> and markets move up and markets move down. >> charlie: these things have value themselves. >> right. from my experience on wall street, you want the insurance, the insurance, so to speak, to be reasonably related or correlated to the position. if you buy a bunch of mortgages, and you want to hedge it, if the mortgages make money,

funds existing hedge funds. i think there's basically perhaps there's two different proposals i think that be in groups which have sort of campaigning groups which which not publicly but certainly in private conversations have advocated the idea of setting up their own hedge funds. and trying to raise enough money for those to sort of fight for certain causes because in reality you're needed to be large enough to actually have any impact on the markets. it's the sort of second area would be trying to harness existing hedge fund community. by sort of leaking information to them providing information with it's about a certain company and then getting them to short that company. in order to sell it for again. obvious problem you have with this is you know one. perhaps alienates your fund raising base if you're an n.g.o.s but also you perhaps run into big problems with the regulators in the sense that you could be going into the territory of market manipulation so i don't think that area has been quite worked out ye

i think there is a value in aggregate hedging. instead of hedging each individual trade, you would have had at least a little clearer guidance. >> i think that's the intention of these additional provisions in the regulation. the ongoing supervisory challenge is to make sure that the information that is received is scan and reviewed properly. >> moving to a different subject, one of the new tools we tried to put in place and worked on is these living wills. as we move down that path, i would like both of your comments in terms of have you had the tools you need to evaluate these back and forth on the creation of living wills and to what standard are you going to hold the institutions? the living will will demonstrate on how they would unwind themselves? are you looking at that in a blue skies environment and the potential real environment we may have? with a break up of the seweuro? let's get comments on that. >> the statute itself establishes the standard that is the bankruptcy code. the environment that you have to make adjustme

i considered this a hedge. it was protected the downside risk of the company and in fact, the biggest risk of the company. the biggest risk, there are two major risks that jpmorgan faced. dramatically rising interest rates and a global type of credit crisis. those are the two biggest risks we face. so the hedge was intended to improve our safety and soundness, not to make it worse. >> was what went wrong, was it the way the hedge was contrived? or was it events beyond your control? >> i think the way it was contrived between january, february and march, it changed into something i cannot publicly defend. >> lessons learned, what have you as the ceo of jpmorgan, which is our largest bank, what have you learned from this problem, this debacle? >> i think that no matter how good you are, how competent people are, never, ever get complacent in risk. challenge everything, make sure people on risk committees are always asking questions, that sharing information, and that you have very, very granular limits when you'r

and it's the sort of second area would be trying to harness the existing hedge fund community. by sort of leaking information to them providing information with about a certain company and then getting them to sort that company. in order to sort of for her again. obvious problem you have with this is you know one you you perhaps alienates your fund raising base if you're an engineer but also you perhaps run into big problems with the regulators in the sense that you could be going to the territorial market manipulation so i don't think that area has been quite worked out yet. on the other hand i do think hedge funds all a lot more prepared to listen to external views than the average big institutional investor is so there's something to be had there i don't quite know what it is yet well yeah brett as a former series seven licensed stockbroker myself i can assure you that leaking information asymmetrically as it were would qualify as a violation of the securities acts but i still think that there is room for mobile as mobilizing activists to work with a hedge fund and the idea

or hedge a hedge, isn't that really gambling? >> i don't believe so, no. >> so this transaction that you said morphed, what did it morph into? russian roulette? >> into something i just can't justify that was too risky for our company. >> that is the real concern here. too risky for your company, which is one of the nation's finest largest well capitalized banks, if it's too risky for your company, what stops it from being in the future too risky where you lose not $2 billion to $4 billion but $50 billion, create a size that ultimately creates a risk on the bank that takes that bank into the possibility of a run and then ultimately becomes the collective responsibility of each and every american? that's what we're trying to prevent here. so i've heard you talk about the fortress balance sheet and i'm glad to hear you say to senator schumer that we should take comfort that banks are more collateralized but in saying so, one way to think about this is i wonder what your views do you regret calling the efforts to require banks to ho

it was supposed to be a hedge. so somebody should align the rule with the practice and say, if the rule had been in effect, would it have precipitated the kinds of risk management, identification of strategy and documentation that would have been adequate to bring the attention to both the firm and the supervisors to a, a potentially risky strategy. i think as i sit here today, i think that is the case, but i would certainly want someone ton go through it more carefully. >> mr. chairman, thank you. i would like to associate at least complement my colleague from pennsylvania mr. toomey in his what i thought was a very logical presentation and in my view enlightening. >> thank you mr. chairman for holding this hearing. this not what i was going to talk about but i appreciate senator moran's comments and say that i think all of us believe and want to have as efficient a capital market at possible, profitable capital market a secure capital market in this country, but i just want to be clear, because i sat here three y

they had a large macrocircumstance they had to hedge. they attempted to hedge it. they tried to cut that position back. the market knew where their positions were. rather than take that off, put it on others to ameliorate the loss. it got out of hand. i thought what jamie dimon did today went very well. he said i'm not as interested in models as judgment and history and knowledge and what it takes when you've been put in a position of fear and trades go against you. >> dennis, he also said chief investment officer trader didn't understand the risks they were taking. he said the models they had in retrospect were not good. is it good enough to come forward and say i can rely on those factors if fundamentally nobody understood the derivatives position to which, dennis, they were adding. >> he talked about the fact he had models. what models is he using? do they believe in models presented. we were human beings making rational and irrational decisions with rational and irrational information coming at us. models sometimes break down. i found nothing here surprising ot

in other words, hedge the hedge the hedge the hedge i guess.ther way that protects them a little bit so -- but you have to remember in excess they're bets on corporate credit and hurt with the world worried of spain and greece and the united states. >> neil, what is the future for jamie dimon and jp morgan's reputation as the best in breed? >> i think it's still intact but certainly i think as greg pointed throughout's a lot of question that is are yet to be resolved and this is really i think what happened today, a question of people seeing in this what they want to see. the republicans are going to say that overregulation and the volcker rule and all are real problem and the democrats are going to say, a-ha, this is an example that these banks are too big to manage and nobody can get control on them so i don't think it's going to have a huge impact on the overall, the overarching debate hear of what to do with the banks. >> when he was asked about regulation, mr. dimon said he was not necessarily against regulation. he just wanted well-define