“Fannie Mae Made Me Do It”: JPMorgan Chase Is Too Big To Whine
A new injustice plagues the land, at least according to people who take the side of JPMorgan Chase & Co. and its chief executive officer, Jamie Dimon, after the bank’s tentative agreement to pay a record $13 billion to end civil claims related to its sales of mortgage bonds. The bank and its leader are now — it is claimed — subject to Politically Motivated Prosecution.
This is pointless whining, for three reasons.
First, when pressed, advocates for big banks readily concede that “no one is above the law.” What else can they say in a democracy? When Attorney General Eric Holder and his criminal division chief at the time, Lanny Breuer, suggested last year that very large companies were too big to prosecute, there was even some feeling of embarrassment in the big bank camp -– as well as a great deal of pressure on Holder to walk back his congressional testimony on this point.
Now that charges have been brought and a settlement is almost signed, Dimon’s allies can’t stop complaining.
So no one is above the law, but no charges should be brought? Dimon’s camp wants regulation and law enforcement by lip service, which would just be an invitation to further lawless behavior.
Second, JPMorgan is the largest U.S. bank, and one of the most powerful politically. Dimon met with the attorney general to discuss the charges in September. (He spoke again with Holder at the end of last week.) Most people don’t get such an opportunity — in fact, the Justice Department can’t remember the last time a CEO had this kind of access.
The Supreme Court isn’t known to be anti-business. If there is anything unreasonable or unjustified in the charges, JPMorgan should fight them all the way up.
To suggest that JPMorgan has no legal recourse is to completely misrepresent the way the legal and political systems work. JPMorgan makes big political donations and has powerful protectors in Congress. The bank employs some of the best lawyers, too.
Third, JPMorgan bears responsibility in two ways: the actions by companies it bought (Washington Mutual Inc. and Bear Stearns Cos.) and the actions by JPMorgan itself.
If buying a company could absolve that entity and its employees of all sins, imagine the merger wave we would have.
As Peter Eavis wrote in the New York Times, JPMorgan’s executives knew what they were buying, and expected the kind of legal problems that materialized. After the Washington Mutual deal closed, Dimon said, “There are always uncertainties in deals,” and “our eyes are not closed on this one.”
Assets at both Bear Stearns and Washington Mutual were — justifiably — sharply marked down upon acquisition, presumably to reflect mortgage-related issues.
Blaming the government is a way of saying crisis management by merger isn’t a good idea; creating the largest U.S. bank in this fashion wasn’t such a smart idea for anyone. But at the time, Dimon was keen to make a deal, including one with Federal Reserve financing, in the case of Bear Stearns.
Banking is a regulated industry. But we all observe rules and regulations in our lives. If someone breaks the law, does that mean it is solely the fault of the legislator or the regulator? This is very strange logic.
And “Fannie Mae made me do it,” sounds like a line from Monty Python. But that’s exactly what some of Dimon’s supporters are saying.
More broadly, the list of JPMorgan’s own wrongdoings grows longer and includes illegal foreclosure practices. Nina Strochlic at the Daily Beast calculates that since 2011 the bank has been fined $8 billion (before the latest settlement) in almost a dozen separate instances of illegal and improper behavior. For more background, I recommend Josh Rosner’s recent analysis.
Did Dimon and his colleagues break the law on purpose? Presumably not; otherwise, the board of directors surely would have made a change by now.
Are the allegations of a pattern of illegal behavior by JPMorgan just a politically motivated prosecution, a vast left-wing conspiracy? Anyone making such a claim is just being silly and lacks credibility.
The most plausible explanation is that JPMorgan has become so large and so sprawling that management has lost control. Dimon’s attention to detail and risk management were once legendary. It is impossible to look at him now without also remembering that he carries the London Whale derivatives fiasco on his shoulders. This impression was reinforced last week when JPMorgan admitted to a form of market manipulation in connection with the London Whale (this was a separate settlement with the U.S. Commodity Futures Trading Commission).
At a debate in New York last week, a proponent of big banks argued that the resolution of the London Whale episode showed that the system works.
Was he referring to the system in which our largest bank repeatedly breaks the law, is slapped on the wrist and whines about it?
JPMorgan has lost control of its legal risks. What other risks will it mismanage next?
By: Simon Johnson, Featured Post, The National Memo, October 21, 2013
“Armed Robbery Is No Petty Crime “: The $13 Billion JPMorgan Settlement Is A Good Start, Now Someone Should Go To Jail
JPMorgan Chase, the star of mega-banks, is up against the wall at the Justice Department, trying to settle its myriad crimes for $13 billion. That’s real money, even for a trillion-dollar bank. So this is progress. After years of scandalous indifference, the Obama administration appears to have found its backbone.
Better late than never, grumpy citizens can say. But that doesn’t settle the matter. Four years ago, Senator Ted Kaufman of Delaware crisply described the more fundamental problem posed by the wantonly reckless behemoths of Wall Street.
“People know that if they rob a bank they will go to jail,” Kaufman said. “Bankers should know that if they rob people they will go to jail too.” Can we hear an amen on that? Not yet. But the complaint Kaufman voiced repeatedly is now on the table. “At the end of the day,” the senator warned, “This is a test of whether we have one justice system in this country or two. If we do not treat a Wall Street firm that defrauded investors of millions of dollars the same way we treat someone who stole $500 from a cash register, then how can we expect our citizens to have any faith in the rule of law?” (See my piece from April 2011, “How Wall Street Crooks Get Out of Jail Free.”)
Attorney General Eric Holder was stung, his reputation severely damaged. His lieutenants in the criminal division explained repeatedly that while the megacrimes seemed obvious, it is fiendishly difficult to locate the people in a huge, complex financial organization who can be successfully prosecuted as criminals. The popular anger did not go away, however, because in JPMorgan’s case the outrages only got larger and more obvious.
So here we are four years later and leading newspapers report that Justice is on the brink of a record-setting settlement—$13 billion. Jamie Dimon, JPMorgan CEO and formerly the president’s favorite banker, has personally negotiated the terms with the attorney general. The Morgan bank started with an offer of $1 billion and quickly raised it to $4 billion. Holder’s office kept saying, no, not enough. According to The New York Times, seven federal agencies are investigating the bank, plus state banking regulators and a couple of foreign governments.
The offenses include an all-star list of duped victims—of mortgage fraud against home-buyers, investor fraud against people and pension funds that purchased the rotten mortgage securities and defrauded the federal agencies (Fannie Mae and Freddie Mac) that bought the mortgage bonds and applied federal guarantees to them. Nevertheless, if there is no identifiable “criminal” who can be sent to jail, the case could be treated as merely another bureaucratic crime and adjudicated with lots of cash, a very familiar exercise in this era of high-flying capitalist buccaneers and bandits.
But here is the exciting and suspenseful element in this story. Eric Holder and his prosecutors have so far refused to settle on such amicable terms. Federal prosecutors in Sacramento believe they have established the personal linkage—who ordered the dirty deals, who carried them out—that could support criminal indictments of individuals or against the corporate “person” known as JPMorgan Chase. That would be truly unprecedented—a “game changer” in Wall Street/Washington parlance—and with threatening potential for the defendant bank.
In the negotiations, Holder has refused to give Dimon what he seems to want most—an agreement to drop the criminal charge and settle for bigger money instead. That might weaken the storm of private lawsuits already filed by the victims of JPMorgan’s fraudulent profiteering. The star banker kept raising his bid. The AG kept saying no way. Americans should stay tuned and maybe send fan mail to the Justice Department, urging the prosecutors to hang tough.
But you can’t send a bank to jail, can you? No, but you could place it under court supervision and empower a federal judge to order and supervise internal reforms in the megabank, perhaps even downsizing. Does that sound too harsh? If the feds can do this to a corrupt labor union like the Teamsters, why not to an outlaw bank like JPMorgan?
By: William Greider, The Nation, October 21, 2013
“J.P. Morgan, The Man And The Bank”: Bassackwards Justice, Fining Banks Is Not A Crime-Stopper
J.P Morgan was recently socked in the wallet by financial regulators, who levied a fine of nearly a billion bucks against the Wall Street baron for massive illegalities.
Well, not a fine against John Pierpont Morgan, the man. This 19th century robber baron was born to a great banking fortune and, by hook and crook, leveraged it to become the “King of American Finance.” During the Gilded Age, Morgan cornered U.S. financial markets, gained monopoly ownership of railroads, amassed a vast supply of the nation’s gold and used his investment power to create U.S. Steel and take control of that market.
From his earliest days in high finance, Morgan was a hustler who often traded on the shady side. In the Civil War, for example, his family bought his way out of military duty, but he saw another way to serve. Himself, that is. Morgan bought defective rifles for $3.50 each and sold them to a general in the Union Army for $22 each. The rifles blew off soldiers’ thumbs, but Morgan pleaded ignorance, and government investigators graciously absolved the young, wealthy, well-connected financier of any fault.
That seems to have set a pattern for his lifetime of antitrust violations, union busting and other over-the-edge profiteering practices. He drew numerous official charges — but of course, he never did any jail time.
Moving the clock forward, we come to JPMorgan Chase, today’s financial powerhouse bearing J.P.’s name. The bank also inherited his pattern of committing multiple illegalities — and walking away scot-free. Oh sure, the bank was hit with that billion-dollar fine, but that’s hardly devastating to a behemoth that hauled in $6.5 billion in just the previous three months. Besides, note that not a single one of the top bankers who committed gross wrongdoing was charged or even fired — much less sent to jail. Fining banks is not a crime-stopper, for banks don’t commit crimes. Bankers do. And they won’t ever stop if they don’t have to pay for their crimes.
In fact, someone should make a movie about JPM’s honchos and title it Bankers Gone Wild! Not long ago, America’s biggest Wall Street empire was hailed as a paragon of financial integrity. But today it’s a house of crime, currently under investigation for management illegalities by seven federal agencies, several states and two foreign nations.
But there’s an additional “crime” taking place, hidden within that billion-dollar fine that regulators levied on the bank for top-level mismanagement, which caused shareholders to lose a whopping $6 billion in a trade scandal last year. Media reports say the bank agreed to pay the fine to settle those charges, but when it’s reported that “the bank” will pony up a billion dollars, who exactly is that?
Not the bankers who committed the illegalities, but Chase’s shareholders. Wow, how’s that for a raw deal? The money the bankers lost belonged to shareholders, yet they’re being socked for another billion to cover the bankers’ fine. Imagine if you got burglarized, then were fined for being burglarized! As one law professor said, “It’s not just adding insult to injury, it’s adding injury to injury.”
Federal regulators say it’s easier to get bankers to settle a case if they can hand the fine to shareholders, who don’t even get a say in the decision. But going after the bankers, they claim, would require a jury trial — and jurors might not convict.
Huh? What kind of bassackwards justice is that? Besides, it’s ridiculous to think that jurors wouldn’t jump at the chance to convict Wall Street banksters. That’s a jury I’d like to serve on. Wouldn’t you? Nail a couple of them, and that’d chill all of their wild finagling.
By: Jim Hightower, The National Memo, October 20, 2013
“The Engine Of American Inequality”: The Consequences Of A Free Wheeling, Unchecked Financial Industry
The past three decades have been a period of explosive growth for Wall Street and the financial industry. Meanwhile, a tiny slice of the population has claimed an ever-bigger share of this country’s economic rewards. The highest-earning one percent of Americans collected roughly 20 percent of total income last year; the top .01 percent – not enough people to fill a football stadium – had 5.5 percent of the income.
Could there be a connection here? Could our booming financial sector, which now generates an astonishing 30 percent of all corporate profits (more than double the figure of thirty years ago), help explain America’s rapid ascent to the highest level of economic inequality since the eve of the Great Depression, and the highest of any of the world’s rich nations? A growing number of economists and other authorities think the first trend may have more than a little something to do with the second.
The economic and political establishments long ago settled on a theory of rising inequality: technology and globalization, they told us, were carving a rift through the American labor force between those with and without the right kind of education and know-how. This idea was criticized from the start for ignoring a formidable corporate campaign to rewrite the rules of the U.S. economy at workers’ expense, and over time it has increasingly failed to account for the reality of who is getting ahead and who is falling behind.
In his 1991 book “The Work of Nations,” former (then future) Labor Secretary Robert Reich embraced a version of the “skills-gap” story. But in his recent film “Inequality for All,” Reich has more to say about discrepancies of power than of skill.
The longer this trend continues, in fact, the more it resembles the Occupy Movement’s picture of a soaring 1 percent and a lagging 99 percent. Out of every dollar of income growth between 1976 and 2007, the richest one percent of U.S. households collected 58 cents; and after taking a big hit in the financial crisis, they were soon back on track, capturing an extraordinary 95 percent of all the income gains between 2009 and 2012. To put it more plainly, since the beginning of the current economic “recovery,” the top 1 percent (who make upwards of $400,000 a year in household income) are pretty much the only ones who have recovered.
Within that small subset of Americans, executives, traders, fund managers and others associated with the financial sector loom large, comprising about a seventh of the one-percenters and accounting for about one fourth of their income gains over the past thirty-plus years. That’s not counting the many lawyers and consultants with financial sector clientele, or the growing number of executives of nonfinancial companies who seem to make most of their money these days through stock options and short-term financial plays. Together, corporate executives and financial sector employees account for well over half the post-1980 income growth of the top 1 percent and more than two-thirds of the even more remarkable gains of the top 0.1 percent.
Pinpointing the causes of an economic trend is a hard business. But there is global as well as historical evidence for a link between financial sector expansion and rising inequality. Studies of rich and relatively poor nations alike suggest that inequality goes up when societies tie their fortunes to a free-wheeling financial industry and the easy flow of global capital. There is also substantial research to suggest that much of the financial sector’s recent growth has come by extracting wealth from other areas of the economy, not by spurring innovation and opportunity for the society at large.
Several recent studies trace the industry’s pay-and-profit surge mostly to its success in the political and regulatory arenas. See, for example, this paper by Thomas Philippon and Ariell Reshef of New York University and the University of Virginia, who attribute between 30 and 50 percent of the financial sector’s recent gains to economic “rents.” That’s basically a polite way of describing the ability of many of today’s financial heavyweights to use their market clout, their inside knowledge and various explicit and implicit taxpayer subsidies to make money out of thin air.
Banking and finance were not always a road to fabulous riches in this country. As recently as the early 1980s – and throughout much of the 20th century – there was almost no pay differential between financial and non-financial professionals. Today, by contrast, financial workers make about 1.83 times as much as other white-collar workers. You’d have to go back to the Roaring Twenties, at the tail end of America’s original Gilded Age, to find another period when financial sector incomes and profits reached such conspicuous heights. That should tell us something.
In any case, these are pivotal questions for the country – and unavoidable questions for those seeking a path toward what President Obama has been calling a “middle-out” rather than a top-down economy. Broad prosperity, the president says, calls for greater public investment in education, infrastructure and other long-term needs, and for higher taxes on the wealthy to help pay for such things. That may be a worthy agenda. It has certainly proved to be a politically difficult agenda. But in a country that has let its financial sector become an engine of inequality, more will be required.
If we believe in our founding ideal of America as a land where children should start off on roughly the same footing regardless of history or ancestry, we will all have to screw up our courage and refocus on (among other challenges) the unfinished work of making sure we have a financial economy that serves the real economy, not the other way around.
By: Jim Lardner, U. S. News and World Report, October 11, 2013
“Plutocrats Feeling Persecuted”: Angry That They Don’t Receive Universal Deference
Robert Benmosche, the chief executive of the American International Group, said something stupid the other day. And we should be glad, because his comments help highlight an important but rarely discussed cost of extreme income inequality — namely, the rise of a small but powerful group of what can only be called sociopaths.
For those who don’t recall, A.I.G. is a giant insurance company that played a crucial role in creating the global economic crisis, exploiting loopholes in financial regulation to sell vast numbers of debt guarantees that it had no way to honor. Five years ago, U.S. authorities, fearing that A.I.G.’s collapse might destabilize the whole financial system, stepped in with a huge bailout. But even the policy makers felt ill used — for example, Ben Bernanke, the chairman of the Federal Reserve, later testified that no other episode in the crisis made him so angry.
And it got worse. For a time, A.I.G. was essentially a ward of the federal government, which owned the bulk of its stock, yet it continued paying large executive bonuses. There was, understandably, much public furor.
So here’s what Mr. Benmosche did in an interview with The Wall Street Journal: He compared the uproar over bonuses to lynchings in the Deep South — the real kind, involving murder — and declared that the bonus backlash was “just as bad and just as wrong.”
You may find it incredible that anyone would, even for an instant, consider this comparison appropriate. But there have actually been a series of stories like this. In 2010, for example, there was a comparable outburst from Stephen Schwarzman, the chairman of the Blackstone Group, one of the world’s largest private-equity firms. Speaking about proposals to close the carried-interest loophole — which allows executives at firms like Blackstone to pay only 15 percent taxes on much of their income — Mr. Schwarzman declared, “It’s a war; it’s like when Hitler invaded Poland in 1939.”
And you know that such publicly reported statements don’t come out of nowhere. Stuff like this is surely what the Masters of the Universe say to each other all the time, to nods of agreement and approval. It’s just that sometimes they forget that they’re not supposed to say such things where the rabble might learn about it.
Also, notice what both men were defending: namely, their privileges. Mr. Schwarzman was outraged at the notion that he might be required to pay taxes just like the little people; Mr. Benmosche was, in effect, declaring that A.I.G. was entitled to public bailouts and that its executives shouldn’t be expected to make any sacrifice in return.
This is important. Sometimes the wealthy talk as if they were characters in “Atlas Shrugged,” demanding nothing more from society than that the moochers leave them alone. But these men were speaking for, not against, redistribution — redistribution from the 99 percent to people like them. This isn’t libertarianism; it’s a demand for special treatment. It’s not Ayn Rand; it’s ancien régime.
Sometimes, in fact, members of the 0.01 percent are explicit about their sense of entitlement. It was kind of refreshing, in a way, when Charles Munger, the billionaire vice chairman of Berkshire Hathaway, declared that we should “thank God” for the bailout of Wall Street, but that ordinary Americans in financial distress should just “suck it in and cope.” Incidentally, in another interview — conducted at his seaside villa in Dubrovnik, Croatia — Mr. Benmosche declared that the retirement age should go up to 70 or even 80.
The thing is, by and large, the wealthy have gotten their wish. Wall Street was bailed out, while workers and homeowners weren’t. Our so-called recovery has done nothing much for ordinary workers, but incomes at the top have soared, with almost all the gains from 2009 to 2012 going to the top 1 percent, and almost a third going to the top 0.01 percent — that is, people with incomes over $10 million.
So why the anger? Why the whining? And bear in mind that claims that the wealthy are being persecuted aren’t just coming from a few loudmouths. They’ve been all over the op-ed pages and were, in fact, a central theme of the Romney campaign last year.
Well, I have a theory. When you have that much money, what is it you’re trying to buy by making even more? You already have the multiple big houses, the servants, the private jet. What you really want now is adulation; you want the world to bow before your success. And so the thought that people in the media, in Congress and even in the White House are saying critical things about people like you drives you wild.
It is, of course, incredibly petty. But money brings power, and thanks to surging inequality, these petty people have a lot of money. So their whining, their anger that they don’t receive universal deference, can have real political consequences. Fear the wrath of the .01 percent!
By: Paul Krugman, Op-Ed Columnist, The New York Times, September 26, 2013
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