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“Bad Incentives Haven’t Gone Away”: You Still Need To Care About Sky-High Wall Street CEO Pay

According to a new regulatory filing, Bank of America CEO Brian Moynihan received a compensation package for 2013 worth $14 million, a $2 million increase over 2012. This places Moynihan third on the list of big bank CEOs, behind Goldman Sachs chief Lloyd Blankfein, who made $23 million last year and JPMorgan Chase’s Jamie Dimon, who made $20 million. Moynihan’s top underlings also received multi-million dollar compensation packages of their own.

With these numbers, it seems that Wall Street’s biggest banks are trying to put the financial crisis of 2008 firmly in the rear view mirror. (Never mind that many of them, most prominently JPMorgan, are still paying out hefty fines, penalties and settlements due to their actions in the lead up to that crisis.) Nothing more to see here! Back to business as usual! All’s well that ends profitably!

Over at the New York Times’ Dealbook this week, Ohio State University professor Steven Davidoff even lamented the outsized attention still garnered by CEO pay at Wall Street firms, when, for instance, tech CEOs sometimes make much more. “This double standard for finance and technology doesn’t make sense,” he wrote, adding that “perhaps it is time to call a truce on the Wall Street bias in looking at executive compensation.”

But there’s a good reason for the focus on Wall Street pay. For tech firms, misaligned incentives aren’t likely to crash the economy. For Wall Street, however, short-term risk-taking in pursuit of bigger bonuses can cause systemic problems, as several studies have shown. That’s why the Dodd-Frank financial reform law included new regulations meant to tie executive compensation at banks to longer-term performance (and it didn’t hurt that reining in Wall Street pay makes for good politics).

Sure, Davidoff is right that sky-high CEO pay deserves a broader look across the board. After all, it’s a big driver of income inequality. As the Economic Policy Institute has found, “Executives, and workers in finance, accounted for 58 percent of the expansion of income for the top 1 percent and 67 percent of the increase in income for the top 0.1 percent from 1979 to 2005.” Not only that, but taxpayers are subsidizing these big pay packages thanks to a loophole allowing corporations to write off CEO pay that is “performance based.” (Rep. Lloyd Doggett, D-Texas, has introduced legislation to fix that particular problem, but given what the Republican-held House is interested in these days, I wouldn’t expect it to come up for a vote anytime soon.)

But the fact remains that Wall Street pay is unique due to its ability to cause harm to the wider economy. The simple solutions for reining in pay that would work in other industries – such as higher taxes, more transparency and stronger unions – don’t reduce that risk. And the fixes in Dodd-Frank, while helpful, haven’t done enough, as professor J. Robert Brown Jr., an expert in corporate law, wrote recently:

Executive compensation is not adequately bounded by legal standards under state law. Efforts to address these concerns by Congress have been useful but remain incomplete. The system as it currently exists does not ensure that compensation will be based upon actual performance or that the approach will not encourage excessive risk taking.

Now, Wall Street will tell you up, down and all around that its new pay packages are not like those of yesteryear. And maybe that’s even the case for now. But as 2008 fades further and further into memory, it’s worth remembering just how the economy was brought to the brink and what still hasn’t been done to fix those problems. Without firm rules, there’s nothing stopping Wall Street from slipping right back to the same old bad habits when it thinks everyone has lost interest.

 

By: Pat Garofalo, U. S. News and World Report, February 20, 2014

February 24, 2014 Posted by | Economic Inequality, Executive Compensation, Wall Street | , , , , , | Leave a comment

“The Lies That Will Kill America”: Pundits Run To The Defense Of A Massive Bank And Other Tales Of The Lapdog Media

Here in Manhattan the other day, you couldn’t miss it — the big bold headline across the front page of the tabloid New York Post,  screaming one of those sick, slick lies that are a trademark of Rupert Murdoch’s right wing media empire. There was Uncle Sam, brandishing a revolver and wearing a burglar’s mask. “UNCLE SCAM,” the headline shouted. “U.S. robs bank of $13 billion.”

Say what?  Pure whitewash, and Murdoch’s minions know it. That $13 billion dollars is the settlement JPMorgan Chase, the country’s biggest bank, is negotiating with the government to settle its own rip-off of American homeowners and investors — those shady practices that five years ago helped trigger the financial meltdown, including manipulating mortgages and sending millions of Americans into bankruptcy or foreclosure.  If anybody’s been robbed it’s not JPMorgan Chase, which can absorb the loss and probably take a tax write-off for at least part of it. No, it’s the American public. In addition to financial heartache we still have been denied the satisfaction of seeing jail time for any of the banksters who put our feet in cement and pushed us off the cliff.

This isn’t the only scandal JPMorgan Chase is juggling. A $6 billion settlement with institutional investors is in the works and criminal charges may still be filed in California.  The bank is under investigation on so many fronts it’s hard to keep them sorted out – everything from deceptive sales in its credit card unit to Bernie Madoff’s Ponzi scheme to the criminal manipulation of energy markets and bribing Chinese officials by offering jobs to their kids.

Nor is JPMorgan Chase the only culprit under scrutiny.  Bank of America was found guilty just this week of civil fraud, and a gaggle of other banks is being investigated by the government for mortgage fraud.  No wonder the camp followers at Fox News, the Wall Street Journal, CNBC and other cheerleaders have ganged up to whitewash the banks.  If justice is somehow served, this could be the biggest egg yet across the smug face of unfettered, unchecked, unaccountable capitalism.

One face in particular: Jamie Dimon, the chairman and CEO of JPMorgan Chase. One of Murdoch’s Fox Business News hosts, Charlie Gasparino, claims the Feds are on a witch hunt against Dimon for criticizing President Obama, whose administration, we are told, “is brutally determined and efficient when it comes to squashing those who oppose their policies.”  But hold on: Dimon is a Democrat, said to be Obama’s favorite banker, with so much entree he’s been doing his own negotiating with the attorney general of the United States.

But that’s crony capitalism for you, bipartisan to a fault. Rupert Murdoch has been defending Dimon in his media for a long time. Last spring, when it looked like there might be a stockholders revolt against Dimon, Murdoch was one of many bigwigs who rushed to his defense. He tweeted that JPMorgan would be “up a creek” without Dimon. “One of the smartest, toughest guys around,” Murdoch insisted. Whether Murdoch’s exaltation had an effect or not, Dimon was handily reelected.

Over the last few days, The Wall Street Journal, both Bible and supplicant of high finance as well one of Murdoch’s more reputable publications –at least in its reporting –  echoed the “UNCLE SCAM” indignation of the more lowbrowPost. The government just wants “to appease their left wing populist allies,” its editorial writers raged, with a “political shakedown and wealth-redistribution scheme.” Perhaps, the paper suggested, the White House will distribute some of the JPMorgan Chase penalty to consumers and advocacy groups and “have the checks arrive in swing Congressional districts right before the 2014 election.” We can hear the closet Bolsheviks panting for their handouts now and getting ready to use their phony ID’s to stuff the box on Election Day with multiple illegal ballots .

Such fantasies are all part of the Murdoch News Corp pattern, an unending flow of falsehood and phony populism that in reality serves only the wealthy elite. Fox News is its ministry of misinformation, the fake jewel of the News Corp crown, a 24/7 purveyor of flimflam and the occasional selective truth. Look at the pounding they’ve given Obama’s healthcare reform right from the very start, whether the non-existent death panels or claims that it would cause the highest tax increase in history.

While it’s true that the startup of Obamacare has been plagued by its website nightmare and other problems, Fox News consistently has failed to mention Republican roadblocks that prevented the program from getting proper funding or the fact that so many states ruled by Republican governors and legislatures – more than 30 — have deliberately failed to set up the insurance marketplaces critical to making the new system work. Just the other day, Eric Stern atSalon.com fact-checked a segment on Sean Hannity’s show. “Average Americans are feeling the pain of Obamacare and the healthcare overhaul train wreck,” Hannity declared, “and six of them are here tonight to tell us their stories.”

Eric Stern tracked down each of the Hannity Six and found that while their questions about health reform may have been valid, the answers they received from Hannity or had decided for themselves were not. “I don’t doubt that these six individuals believe that Obamacare is a disaster,” Stern reported. “But none of them had even visited the insurance exchange.”

And there you have the problem: ideology and self-interest trump the facts or even caring about the facts, whether it’s banking, Obamacare or global warming. Ninety seven percent of climate scientists say that climate change is happening and that humans have made it so, but only four in ten Americans realize it’s true. According to a new study in the journal Public Understanding of Science, written by a team that includes Yale University’s Anthony Leiserowitz, the more that people listen to conservative media like Fox News or Limbaugh, the less sure they are that global warming is real. And even worse, the less they trust science.

Such ignorance will kill democracy as surely as the big money that funds and encourages the media outlets, parties and individuals who spew the lies and hate. The ground is all too fertile for those who will only believe whatever best fits their resentment or particular brand of paranoia. It is, as an old song lyric goes, “the self-deception that believes the lie.” The truth will set us free; the lie will make prisoners of us all.

 

By: Bill Moyers and Michael Winship, Salon, Originally Published in Bill Moyers Blog, October 25, 2013

October 26, 2013 Posted by | Big Banks, Democracy, Media | , , , , , , | 1 Comment

“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

October 25, 2013 Posted by | Big Banks, Financial Institutions | , , , , , , , | 1 Comment

“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

October 23, 2013 Posted by | Big Banks, Financial Institutions, Wall Street | , , , , , | Leave a comment

“The Wall Street That Cried Wolf”: Banks Complain About Onerous New Regulations While Reaping Record Profits

The headlines have been nothing short of dazzling: “Bank of America profits soar“; “Citigroup’s profits surge“;  “Bank boom continues: Goldman Sachs profit doubles.” In fact, the six biggest Wall Street banks – Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, Wells Fargo and Morgan Stanley  – all beat their profit expectations in the most recent quarter, according to results announced over the last week. JP Morgan Chase is even on pace to make $25 billion (yes, billion with a b) this year.

If you’re thinking that these numbers don’t at all square with the ominous warnings of bank executives and lobbyists, who have been saying non-stop that new regulations meant to safeguard the financial system and prevent a repeat of the 2008 financial crisis are going to irreparably harm their ability to do business, you’re right. But that hasn’t stopped the banks’ griping.

The latest iteration of this argument played out after regulators recently announced new rules regarding bank capital – the financial cushion banks must keep on hand to guard against a downturn. Failed presidential candidate turned bank lobbyist Tim Pawlenty, for instance, said that the new rules “will make it harder for banks to lend and keep the economic recovery going.” JP Morgan Chase CEO Jamie Dimon, who has been scaremongering for years about various regulations, warned that the new rules would put U.S. banks at a competitive disadvantage with foreign lenders.

But this same dynamic has been playing out since the Dodd-Frank financial reform law was signed by President Obama in 2010. Banks and their allies complain about onerous new regulations, while at the same time reaping record profits.

And as the New Yorker’s John Cassidy explained, those profits are due to many of the same practices that helped cause the 2008 debacle in the first place: “an emphasis on trading rather than lending, a high degree of leverage, and implicit subsidies from the taxpayer.” That would seem to make the case that new regulations, rather than going too far, have not gone far enough.

Perhaps that’s why banks haven’t been crowing about their new avalanche of profits, and Dimon is even warning about an upcoming profit squeeze. As the Financial Times’ U.S. banking editor Tom Braithwaite explains:

In the next 12 months the Fed will hit the banks with a new flurry of measures. … Those are coming, they are serious and the banks fear them. There is an outside chance that lawmakers will go even further, such as by restoring the split between investment banking and commercial banking known as Glass-Steagall. There is still plenty to play for in deciding how painful the next round of regulations will be.

But, with every earnings season, warnings of calamity look more and more hollow.

One of the major knocks against Dodd-Frank – beyond the obvious one that it left the biggest banks even bigger than they were before the financial crisis – is that it left too much discretion to regulators to write new rules. Corporations and trade organizations familiar with how the agency rule-writing process works are almost inevitably going to have the upper hand in such a system.  And there are still so many rules left to be written – some 60 percent, according to the law firm Davis Polk – that Wall Street will have ample opportunity to water the law down to meaninglessness.

But it’s hard to keep saying with a straight face that new regulations will spell doom for the industry when the new rules that are in place so far, which were accompanied by similarly dire warnings, have done nothing to even dent Wall Street’s bottom line. In fact, the huge pile of profits may be the best thing that could have happened for those trying to bring a modicum of sanity back to Wall Street regulation.

 

By: Pat Garofalo, U. S. News and World Report, July 18, 2013

July 19, 2013 Posted by | Big Banks, Financial Institutions | , , , , , , | Leave a comment

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