Jamie Dimon was invited up to the Senate Banking Committee for tea and biscuits by his well bought senators (with the exception of Jeff Merkley).

Here is what he had to say about the two plus billion dollar trading loss at JPM.

We believe now that a series of events led to the difficulties in the synthetic credit portfolio. Among them:

CIO’s strategy for reducing the synthetic credit portfolio was poorly conceived and vetted. The strategy was not carefully analyzed or subjected to rigorous stress testing within CIO and was not reviewed outside CIO.

In hindsight, CIO’s traders did not have the requisite understanding of the risks they took. When the positions began to experience losses in March and early April, they incorrectly concluded that those losses were the result of anomalous and temporary market movements, and therefore were likely to reverse themselves.

The risk limits for the synthetic credit portfolio should have been specific to the portfolio and much more granular, i.e., only allowing lower limits on each specific risk being taken.

Personnel in key control roles in CIO were in transition and risk control functions were generally ineffective in challenging the judgment of CIO’s trading personnel. Risk committee structures and processes in CIO were not as formal or robust as they should have been.

CIO, particularly the synthetic credit portfolio, should have gotten more scrutiny from both senior management and the firmwide risk control function.

Charles Pierce explains what he was really saying:

Translation from the original Ass-Coverish:

1) The people who worked for me didn’t know what they were doing.

2) The people who worked for me didn’t know what to do when things went bad because they didn’t know what they were doing in the first place.

3) The people who worked for me didn’t know how to manage the things that went bad because they didn’t know what they were doing in the first place.

4) We were replacing some of the people who didn’t know what they were doing in the first place with some new people who didn’t know what they were doing in the first place, either.

And, 5) Jesus Christ On My Private Jet, I hired me some meatheads.

In his book The Collapse Of Complex Societies Joseph Tainter suggests that complex institutions collapse because they become too complex.  Is this what is happening to the world financial system? Finance Addict thinks so.

Have we reached the point where our financial markets are so complex that we no longer understand how they really work? And if so, how can we manage what we don’t understand? And I say “we” because the world’s largest, most complex finance houses now have the explicit political support of the G20, and thus the de facto political support of 2/3 of all the world’s citizens.

So we have too big to fail banks that are also too big to manage and a financial system that’s too complex to be understood.  We are really screwed!