JP Morgan Chase

Who will take J.P. Morgan to task?

July 12, 2012: 2:09 PM ET

Many of the frontline safeguards for our capitalist system are as weak now as they were a decade ago. Even worse, we seem tired of addressing what still needs to be fixed.

J.P. Morgan CEO Jamie Dimon

J.P. Morgan CEO Jamie Dimon

FORTUNE – For the last couple of weeks, it has been Barclays (BCS) CEO Bob Diamond's moment in the sun (or interrogation lights) -- until he rode off into the sunset, that is. But it will be J.P. Morgan (JPM) CEO Jamie Dimon's turn to take the spotlight on Friday for two hours of quarterly earnings announcements and questions.

The SEC and plenty others will be watching Dimon carefully. Disclosure is one of the bedrocks of our capitalist system, but J.P. Morgan's recent massive trading loss disclosures are putting our faith in the system to the test. Dimon reported $2 billion in losses in May, which contrasted starkly with the $6 billion figure Congressman Spencer Bachus told other members of Congress in Dimon's presence in June. And the loss could actually be as high as $9 billion according to media reports.

Part of what is happening feels like Enron all over again. Not just because of J.P. Morgan's refusal to turn over emails in an energy pricing manipulation investigation, or that there are so many ongoing investigations into the company's behavior -- including the possibility of Libor manipulation investigations -- but because many of the frontline safeguards for our capitalist system are as weak now as they were a decade ago. Worse, we seem tired, somehow, and even less willing now to focus our attention and really get a hold of what is going on.

It's not that we don't remember the past. We remember our history all right, but, at the same time, we are not fully aware; we seem stuck and unable to take action to change our course.

MORE: Healing our nation of corporate lemmings

Given the opportunity, however, we should take a moment to observe the July 13 7:30 am call. In addition to seeing what Dimon has to say, I'll be looking to see whether the analysts are as subservient as the senators were during their June 13 session with Dimon -- or whether the analysts will pull up their suspenders and ask questions like earnest members of the House of Commons might ask the UK prime minister.

Intuitive analysts who can spot a scent and follow it would be welcome indeed. On April 6, the Financial Times and Bloomberg reported that J.P. Morgan "had amassed a big position in an index of credit default swaps, sufficient in size to move the markets," and that it was "distorting prices." J.P. Morgan CFO Doug Braunstein on the now infamous April 13 call said the chief investment office (CIO) invested "in high-grade, low-risk securities." But only one analyst, Bank of America's Guy Moszkowski, raised a question in response: "On the CIO question, which obviously you've addressed and has gotten so much attention in the press this week, can I just ask one further question…?" he began.  In response to his questions, all Dimon had to do was say there was nothing to worry about and the matter was dropped. A spokesperson for J.P. Morgan declined to comment on the CIO update.

Behind the scenes in 2010, there had been warnings about the CIO, according to Bloomberg and Wall Street Journal reports. In March, the CIO risk limits had been hit, and in early April, the bank had notified regulators of the situation, Dimon later testified.

Dimon backtracked from his April 13 statements on May 10 and announced the $2 billion in losses, noting there had been smaller, less substantial losses in the first quarter.

Fortune's Stephen Gandel has speculated that Dimon could kitchen sink the second quarter, as some new CEOs are inclined to do. If he writes off all he can, delays one-time gains, adjusts pricing, or sets up large reserves, he could trash the quarter but set himself up to look like a hero later on.  Or, Gandel suggests, he could do the opposite to minimize the loss. That is a familiar tactic called smoothing. More

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