Business

OVERNIGHT MONEY: A whale of a trade

by Vicki Needham, Peter Schroeder and Bernie Becker - 03/14/13 10:49 PM ET

FRIDAY’S BIG STORY:

A whale of a story: It’ll be just like the not-so-good old days on Friday when the Senate Permanent Subcommittee on Investigations digs back into some iffy Wall Street behavior.

Top officials from JPMorgan, both current and former, will be on hand to try to explain exactly how the nation’s biggest bank lost at least $6.2 billion on a complex derivatives trade gone awry, as will regulators from the Office of the Comptroller of the Currency that failed to sniff out the trades until the red ink was spilling in buckets.

{mosads}The botched “London Whale” trades coming out of the bank’s Chief Investment Office grabbed a slew of headlines last summer, when JPMorgan disclosed that a series of bad bets was driving multibillion-dollar losses on its once-dubbed “fortress” balance sheet.

JPMorgan’s outspoken chief executive Jamie Dimon made a series of appearances on Capitol Hill to defend the bank and decry the trades, which he called indefensible.

Now, the controversy is rearing its head yet again, as the Senate’s investigatory team has rolled out a 300-page report detailing exactly why JPMorgan lost so much money so quickly.

The report’s findings dole out plenty of blame at a range of JPMorgan functions, accusing bank officials of dodging regulators as warning bells were going off and ultimately misleading investors about exactly how deep a whole the bank’s Chief Investment Office had dug for itself.

The report, also casts aspersions at the bank’s primary regulator, the Office of the Comptroller of the Currency. While the report claims that JPMorgan did not immediately provide all relevant information to the regulator, it also found that the OCC failed to realize exactly what they were facing with the bank, and should have been more proactive in addressing it.

{mosads}Sen. Carl Levin (M-Mich.), who spent much of the financial crisis aftermath grilling Wall Street traders about what went wrong and who was responsible, will do more of the same tomorrow. On tap to testify are a number of traders intimately involved in the trade, including Ina Drew, the former chief investment officer who stepped down in the London Whale’s wake. Also on tap will be top bank executives (except Dimon, who was not invited to testify but could if a future hearing demands it) and top regulators wit the OCC.

WHAT ELSE WE’RE WATCHING

Got SKILLS?: House Republicans are expected to pass a measure on Friday that would streamline some three dozen federal job programs into one block grant.

The measure — the Supporting Knowledge and Investing in Lifelong Skills, or SKILLS, Act — is part of the Majority Leader Eric Cantor’s (R-Va.) push to ensure that the House GOP talks about more than just spending cuts.

Republicans say the SKILLS Act, part of Cantor’s “Making Life Work” agenda, builds on President Obama’s call to consolidate jobs programs.

But the Obama administration has said it “strongly opposes” the GOP bill, and House Democrats have called it little more than a public relations stunt.

The White House says the Republican measure, while it has some good features, would cut off jobs programs from those who need it the most.

BUDGET UPDATE

Long four years: The Senate Budget Committee is poised, at some point Thursday evening to approve — on a party-line vote — a budget proposal authored by panel Chairwoman Patty Murray (D-Wash.).

The measure, which will head to the floor if it gets the expected thumbs-up, would provide $1.85 trillion in deficit reduction over 10 years and generate $975 billion in revenues by eliminating corporate and individual tax breaks for wealthier taxpayers.

Still, Republicans argued that Democrats really only cut the deficit by several hundred billion by turning off the sequester — probably around $800 billion. But Democrats said they are proposing a package of tax hikes and spending cuts to cover the nearly $1 trillion cost of sequestration.

The budget also spends $100 billion in economic stimulus for infrastructure spending and job training.

The budget doesn’t balance, a sore point for Republicans who tried to push through amendments that would require a balanced budget in 10 years. Those amendments failed.

Murray argued that when $2.4 trillion in deficit reduction from the last Congress are counted, plus the estimated $1.85 trillion, that represents $4 trillion in overall cuts that were called for by Obama fiscal commission chairmen Sen. Alan Simpson (R-Wyo.) and former White House Chief of Staff Erskine Bowles.

The $975 billion in spending cuts include $240 billion in savings from the end of the Afghanistan war and $242 billion in reduced interest payments, according to a source.

Republicans have criticized Democrats in the past for counting these as spending cuts, and Ryan made a point in his budget of producing a different baseline that did not count CBO’s projected savings from war and disaster spending.

The Murray budget will include $493 billion in other spending cuts, including $275 billion in health savings that do not cut entitlement benefits, a source said.

Senate Budget Chairwoman Patty Murray’s staff quickly rebuked the number, saying it is misleading and false and that the budget calls for $975 billion in revenue raised by closing loopholes and ending wasteful deductions that benefit the wealthiest taxpayers and biggest corporations.

The full $975 billion is raised through reconciliation instructions to the Finance Committee. Of that $975 billion, $480 billion pays for sequestration replacement, and $100 billion pays for the jobs and investment plan.

The House Budget Committee late Wednesday approved the latest budget from Chairman Paul Ryan (R-Wis.) on a party-line 22-17 vote.

All committee Republicans voted for the fiscal 2014 plan, which now heads to the full House for floor consideration next week.

Ryan’s budget achieves balance in 2023 with $4.6 trillion in budget cuts over 10 years.

Some conservatives in the House GOP conference could still oppose the Ryan plan over criticisms that it relies too heavily on tax revenue and for counting deficit reduction from the president’s healthcare reform law.

To reach balance, the budget relies on $600 billion in new tax revenues from the January “fiscal cliff” deal and hundreds of billions of dollars in additional revenues being raised from rosier CBO economic growth forecasts.

— Tax hikes tied to jobless rate stoke lively discussion

—Senate Republicans want budget balanced in 10 years

— Senate Budget Dems, GOP spar over deficit reduction

— Sen. Reid likes idea of passing budget every two years instead of annually

Whip Count: Check out where lawmakers stand on the House and Senate budgets

LOOSE CHANGE

Rain or Shine?: A new report says that the Postal Service should think about expanding its work with private companies, Bloomberg reports.

Still, further rolling back the agency’s operations wouldn’t totally solve all of USPS’s problems, found the study, led by David Walker, a former Government Accountability Office chief. The Postal Service lost close to $16 billion in fiscal 2012.

ECONOMIC INDICATORS

Consumer Price Index (CPI): The Labor Department releases its February report measuring the prices of a fixed market basket of goods and services purchased by consumers. CPI is the most widely cited inflation indicator and it is used to calculate cost-of-living adjustments for government programs.

Industrial Production-Capacity Utilization: The Federal Reserve will release its February report showing the physical output of the nation’s factories, mines and utilities. The monthly report also provides a measure of capacity utilization.

Michigan Sentiment: Thomson Reuters/University of Michigan will release its measure of consumer sentiment for March.

WHAT YOU MIGHT HAVE MISSED

— White House sees ‘enormous obstacles’ to reaching deal on deficit reduction

— Obama asks House Dems to make concessions for big deficit deal

— In meeting with Senate GOP, president says he’s not setting a trap on deficit

— Pelosi open to looking at Obama proposal to cut Social Security

— Speaker Boehner: ‘So far, so good’ on Senate’s continuing resolution bill

— Cuts to court system ‘simply unsustainable,’ Justice Kennedy warns

— Consumer bureau sets sights on student loan servicers

— Corporate coalition pressing to limit taxation of offshore profits

— Lew heading to China

— Congressional Democrats oppose Japan’s entry into trade deal