The London Independent comes out with the largest estimate I’ve seen of losses on JPMorgan’s Fail Whale trades: $7 billion.

The crisis at JP Morgan escalated yesterday as it emerged its trading losses in London could rise to as much as $7bn (£4.5bn) and the US bank cancelled a share buyback. Fears were growing that the losses could spiral from an initial $2bn, which was declared on 10 May, as JP Morgan struggles to unwind the massive bets made by the so-called “London Whale” trader Bruno Iksil.

The $7 billion number comes from “rival traders,” who probably aren’t completely unbiased on this. Still, it was rival traders that inflicted these losses in the first place, by taking the other side of Bruno Iskil’s bets. So I don’t doubt that, as one trader says, “The markets know pretty much what JP Morgan has and in what sizes.”

Moreover, as I said yesterday, JPMorgan Chase’s suspension of share buybacks looms really large here. They are clearly not suspending that $15 billion purchase just because they suddenly decided to be prudent on capital requirements, or because they just figured out how much reserves they have to hold under Basel III, which was put together in September of 2010. The only things that have significantly changed at JPMC between the March buyback announcement and the May suspension are the Fail Whale trades. So it’s almost certain that this is just a much bigger deal than the $2 billion number most media outlets are still going with.

But not to worry, we’re about to get a thorough investigation by the Senate Banking Committee. Do you know who will be running those Banking Committee investigations? Former JPMorgan Chase lobbyists, of course!

Luckily for Dimon, the professional staff in charge of managing the banking committee will be quite familiar to him and his team of lobbyists. That’s because the staff director for the Senate Banking Committee is none other than a former J.P. Morgan lobbyist, Dwight Fettig.

In 2009, Fettig was a registered lobbyist for J.P. Morgan. His disclosures show that he was hired to work on “financial services regulatory reform” and the “Restoring American Financial Stability Act of 2009″ on behalf of the investment bank. Now, as staff director for the Senate Banking Committee, he will be overseeing the hearings on J.P. Morgan’s risky proprietary trading [...]

According to disclosures filed with the ethics committee, Fettig made $448,225 a year as a lobbyist before moving back through the revolving door. Before he was a lobbyist for Freddie Mac, J.P. Morgan, and other financial industry interests, Fettig served as a Legislative Director for Senator Johnson. Though he is making less money now as a civil servant, his privileged position at the helm of Wall Street policy in the Senate will make him even more valuable to K Street if he chooses to leave.

Best political system in the world, bay-bee!