The “biggest fine in history” that is soon to be levied on JPMorgan Chase, the notorious usury and fraud organization, will not be as big as the headlines claim.
Alan Pyke and
David Dayen have made that clear. The tentative deal includes a fine of a mere $9 billion, with the bank on the hook for another $4 billion in “relief for struggling homeowners,” which often includes actions banks would’ve undertaken anyway.
But it is a big fine. It is decidedly bigger than JPMorgan wanted it to be, which we know because CEO Jamie Dimon recently traveled to Washington to ask that it be smaller. Most important, it will not indemnify JPMorgan from
ongoing and potential future criminal investigations, which is good, because there should be criminal investigations into crimes, even when banks commit them. Because of prior fines, and because the firm is lawyering up and spending a small (for them) fortune on “compliance,” JPMorgan just announced its first quarterly loss in nearly a decade.
It is still not remotely enough, and, more important, there isn’t a dollar sign that would be “enough.” Or, to put it another way, any dollar sign that would approach “enough” would actually destroy the banking industry entirely. (See, for example,
Yves Smith citing
Andrew Haldane, who argues that the levy needed to recoup the costs of financial crises “would be in excess of $1.5 trillion per year,” which would bankrupt the entire international finance industry.)
Obviously “bankrupt the international finance industry and run banks as civic-directed utilities” is an outcome I’d be perfectly fine with, but it’s not one the Justice Department is prepared or able to bring about at the moment. Still, penalties large enough to look good in headlines but small enough not to cause actual damage to megabanks with the power to destroy the world economy aren’t going to address what should be the No. 1 priority of securities law enforcement, which is to stop criminal and fraudulent behavior from happening to begin with. As much as I’d love to see some misbehaving bankers sent to banker jail, sending them to banker jail isn’t the goal in and of itself. Preventing future crises and fraud is.
Like all bleeding-heart soft-on-crime liberals, I believe the criminal justice system should be more concerned with rehabilitation than punishment. I don’t want to see bankers in jail merely to see them suffer. I’d much rather see bankers required to perform community service — pro bono accounting and financial advising for struggling families, helping to settle the homeless in bank-owned properties, that sort of thing — than merely sitting in Rikers. But part of the point of punishment is deterrence, and everyone should be deterred from becoming a banker. No one should want to be the next Jamie Dimon. That’s the only way to ensure that there aren’t any more Jamie Dimons. And actually breaking up JPMorgan Chase is the way to ensure that there won’t be another JPMorgan Chase.
In the Wall Street bubble, and in the business and finance press and much of elite Washington, every call to prosecute banks is seen as a call for revenge. This is the take of Charlie Gasparino, the former CNBC showman and current Fox Business host, who
recently wrote a piece in the New York Post arguing that the feds are shaking down Jamie Dimon for the crime of criticizing the president. The Obama administration, Gasparino tells us, is “brutally determined and efficient when it comes to squashing those who oppose their policies,” which is why Gasparino had to smuggle this column out of his prison cell, whereupon samizdat copies were published and disseminated among the Resistance.
First, Gasparino dismisses all the crimes and misdeeds as either the fault of now-dead banks acquired by JPMorgan or simple “mismanagement.” (But I thought Dimon was the best manager on Wall Street?)
Then, he explains the real reason JPMorgan is getting penalized so heavily:
For a while, Dimon (a longtime Democrat) was a rarity in Corporate America in that he refused to be cowed by the Washington political class and keep his mouth shut in the face of the absurdity this administration was administering to businesses in the form of taxes, regulation and now a new health-care system where even something as vital as designing a workable Web site to sign up new recruits doesn’t work.
Gasparino is not remotely alone in his view that JPMorgan is the target of an unfair witch hunt.
CNBC has Jamie Dimon defenders on every day to express sympathy for poor JPMorgan Chase and criticize its cruel tormenters. “This number is absolutely preposterous,” said one guy. “For JPMorgan writing a check of this amount, they should have closure on criminal investigation,” said another. Jamie Dimon even went on himself, to say that he is “so damn proud of this company.”
Bank Secrecy Act violations;
Money laundering for drug cartels;
Violations of sanction orders against Cuba, Iran, Sudan, and former Liberian strongman Charles Taylor;
Violations related to the Vatican Bank scandal (get on this, Pope Francis!);
Violations of the Commodities Exchange Act;
Failure to segregate customer funds (including one CFTC case where the bank failed to segregate $725 million of its own money from a $9.6 billion account) in the U.S. and U.K.;
Knowingly executing fictitious trades where the customer, with full knowledge of the bank, was on both sides of the deal;
Various SEC enforcement actions for misrepresentations of CDOs and mortgage-backed securities;
The AG settlement on foreclosure fraud;
The OCC settlement on foreclosure fraud;
Violations of the Servicemembers Civil Relief Act;
Illegal flood insurance commissions;
Fraudulent sale of unregistered securities;
Auto-finance ripoffs;
Illegal increases of overdraft penalties;
Violations of federal ERISA laws as well as those of the state of New York;
Municipal bond market manipulations and acts of bid-rigging, including violations of the Sherman Anti-Trust Act;
Filing of unverified affidavits for credit card debt collections (“as a result of internal control failures that sound eerily similar to the industry’s mortgage servicing failures and foreclosure abuses”);
Energy market manipulation that triggered FERC lawsuits;
“Artificial market making” at Japanese affiliates;
Shifting trading losses on a currency trade to a customer account;
Fraudulent sales of derivatives to the city of Milan, Italy;
Obstruction of justice (including refusing the release of documents in the Bernie Madoff case as well as the case of Peregrine Financial).
What people who seek to punish Jamie Dimon and JPMorgan actually want is for banks to stop doing all of that stuff. If this “massive” fine doesn’t make that happen, then it was not remotely large enough.
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