JPMorgan 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 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).
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?
(Simon Johnson is a Bloomberg View columnist. Follow him on Twitter.)