Forget Jamie Dimon — Congress needs to look in the mirror

“Jamie Dimon gets kid-glove treatment from Senators,” the front-page headline in Politico screamed after the JPMorgan Chase CEO testified and was questioned by the Senate Banking Committee late last week.

Fast forward to this week. Politico’s Kate Nocera and other Beltway scolds are warning the House Financial Services Committee not to give Dimon such “kid glove” treatment when he testifies in the other chamber Tuesday.

But the real story from last week’s testimony was not the lack of scrutiny for Dimon. There were plenty of tough, but still polite, questions for him. What really made the pro-big government elites foam at the mouth was that, for once, government spending and regulation did not get the kid gloves.

Thanks to questions from South Carolina Republican Sen. Jim DeMint, and others, who shifted the subject to big-picture topics and flawed government policies such as the Dodd-Frank financial “reform,” the hearing is actually a model for Tuesday’s event and for future economic hearings.

DeMint ignited the wrath of the liberal punditocracy by daring to compare the recently reported $2 billion trading loss at Dimon’s otherwise profitable firm to the billions – or trillions – that Congress squanders all the time.

He opened his questioning by remarking to Dimon, “We can hardly sit in judgment of you losing $2 billion; we lose twice that [amount] here in Washington every day and plan to continue to do so.”

DeMint’s speaking truth to the real power – the power of big government – earned him even more than the usual scorn he gets from powerful members of the media establishment.

Soon after, DeMint was questioned by no less a political philosopher that Jon Stewart on “The Daily Show” in one of his preachy tirades, “Does Senator DeMint think that spending money is the same as losing money?”

Similarly, an Atlantic Wire blogger tut-tutted that DeMint was “apparently equating government spending with bank loses [sic].”

Have Stewart and company never heard of the Bridge to Nowhere, General Services Administration travel expenses, or the entire Department of Education? Most Americans wouldn’t think “losing money” is too strong a description for some of billion-dollar boondoggles.

And then there are the regulatory “losses” that impose costs that discourage new jobs and new business, and also sometimes reduce bank safety and soundness. The $1 billion dollar expenditure unearthed at the hearing but overlooked by most of the media was Dimon’s statement to Sen. Mike Johanns (R-Neb.) that Dodd-Frank costs JPMC alone $1 billion a year.

Wouldn’t at least a portion of that billion be better used in the form of more loans or even shoring up bank reserves than complying with the paperwork of the law’s more than 2,500 pages? How does the law’s transfer of around $8 billion a year from banks and consumers to wealthy retailers – through Senate Majority Whip Dick Durbin’s amendment putting price controls on the interchange fees merchants pay to process debit cards – contribute to preventing the next financial crisis?

But in Washington, of course, there’s a billion dollars and then there’s a billion dollars. In only one instance, according to the Beltway elites, are we supposed to care how a couple billion dollars is lost.

Just as the dominant media nags and scolds minimize government waste and the costs of regulations such as Dodd-Frank on the private sector, they frequently magnify losses in the private sector. During his questioning of Dimon, DeMint set the facts on this straight as well.

“It’s comforting to know that even with a $2 billion loss in a trade last year, your company still had a $19 billion profit,” DeMint pointed out. He was citing the net profit of Dimon’s firm for 2011.

American Enterprise Institute fellow Peter Wallison, who served on the Financial Crisis Inquiry Commission created by Congress, made a similar point in the Daily Caller: “Banking is a very risky business; only news reporters could think otherwise. A $2 billion loss sounds like a lot, but it’s 1/1000th the size of JPMC’s balance sheet.”

Dimon acknowledged that changes in risk modeling and a lack of managerial oversight along with simple human error made the loss bigger than he initially expected. But the trades were part of an otherwise successful hedging strategy necessary to counter the ordinary risks of banking.

As Sen. Bob Corker (R-Tenn) pointed out during the hearing, “The biggest risk a bank takes is making loans,” and these loans couldn’t be made without hedging. As Wallison noted, hedging is exempt from Dodd-Frank’s “Volcker Rule” restricting banks from proprietary trading, and if the final rule from regulatory agencies were to ban such hedging, it would do much more harm than good.

But there is no such thing as a perfect hedge that always helps a firm turn a profit. That JPMC lost money is a sign that market discipline still holds some relevance in the post-meltdown, bailout-era financial system. We have a profit and loss system, as Milton Friedman always emphasized when politicians would panic about a certain firm’s troubles.

Should a single private firm’s loss even be the subject of a Congressional hearing? Banking Committee Ranking Member Richard Shelby (R-Ala.) pondered that question in his opening statement, but concluded that when taxpayer money and financial stability are at risk, Congress has a responsibility to investigate.

Shelby is correct, but the hearing’s purpose should not be simply to bash the leaders of that particular firm, but for Congress to also look itself in the mirror. In accomplishing this, albeit unintentionally, thanks to lawmakers like DeMint who broke from the media’s script, the Senate hearing on JPMC was successful.

The House should follow its lead when Dimon testifies there today.