Back in 2008, when a lot of financial institutions were on shaky footing, JPMorgan Chase was living the good life. The bank cashed in on its stability, as the government propped it (and other banks) up with taxpayer dollars and held its hand through arrangements to gobble up Washington Mutual and Bear Stearns.
CEO Jamie Dimon was one of the most respected bankers on Wall Street, dubbed “Obama’s Favorite Banker” because of his friendly relations with the president. By early 2011, chatter had it that Dimon was a strong candidate for Treasury secretary.
But that’s all history now. 2013 brought an onslaught of endless investigations and scandals for Dimon and JPMorgan. By year’s end, news outlets reported the stunning $20 billion in fines the bank paid to settle cases in 2013 alone, some of which may not wrap up for many years. Counting back to 2009, the penalties number $30 billion.
The London Whale. JPMorgan was happily bumping along as “the bank that had done things right,” and overtook Bank of America as the biggest U.S. bank in late 2011. Its legal troubles began in April 2012, when the Wall Street Journal first reported the looming “London Whale” scandal.
To make a long story short, a London trader named Bruno Iksil in early 2012 made a series of high-risk trades as part of a failed hedging strategy. (In theory, hedging is supposed to offset the risk to one investment through other investments or trades.) Iksil made such outrageous gambles that other traders began complaining that he was skewing the market.
At first, Dimon was defiant and stood behind the trades, claiming they were “sound.” By May 2012, however, this sham had fallen apart, and Dimon admitted a loss estimated at $2 billion. Only two months later, that number had grown to $5.8 billion. In the end, estimates put the loss at $6.2 billion.
In June 2012, Dimon sat down for a mostly softball question-and-answer session with a Senate panel. Several Senators fawned over him, while others showed that they had no idea what the hell was going on.
As a result of the scandal, in January 2013, JPMorgan’s board of directors slashed Dimon’s compensation for 2012 in half — to a mere $11.5 million. In September 2013, various U.S. and British agencies fined the financial institution a combined $920 million for failing to have effective risk controls and misleading regulators and the public about losses.
Dimon has said of the London Whale scandal, “In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored.” This quote describes just as well all the scandals that followed.
Scandal after scandal. Long-standing misconduct caught up with JPMorgan with two big settlements at the end of 2013 and start of 2014. The deals included record fines, but no prosecutions of the company or its executives.
Before the 2008 housing meltdown, JPMorgan and its eventual acquisition Washington Mutual had packaged and sold defective mortgages in massive numbers — in essence, betting on the housing market’s failure while helping to cause it. Investors lost billions. JPMorgan agreed to pay the government $13 billion in penalties.
The bank also entered into a “deferred prosecution agreement” and paid a $2.5 billion fine for failing for two decades to report activity by client Bernie Madoff that was part of his massive Ponzi scheme. JPMorgan admitted wrongdoing (two felony violations of the Bank Secrecy Act), but was allowed two years to implement better controls. A prosecution could still happen down the road.
“Little” settlements continue to mount up — $300 million here, $500 million there — for everything from shady banking practices ($309 million) to manipulating energy markets in California and the Midwest ($410 million).
A wrist slap, not a “shakedown.” When news of the $13 billion settlement surfaced, the Wall Street Journal, CNBC, and right-wing news outlets panned it, calling it a “shakedown” of JPMorgan and castigating the government for unfairly “making an example” of Dimon. Right-wingers went off their rails, criticizing the Obama administration for “punishing profits.”
The truth is, the deal was neither justice nor a shakedown. The settlement was the largest of its kind. But according to William Black, an associate professor of economics and law at the University of Missouri at Kansas City and a former bank regulator, the amount of damage JPMorgan inflicted on investors was $100 billion. He says, “If those damages were caused by fraud as opposed to mere negligence, the U.S. legal system often makes the fraudster pay punitive damages of at least twice that amount. A normal recovery would be in the range of $200 billion.”
The fines certainly weren’t enough to make JPMorgan think twice about its next steps. In late January of this year, the board of directors announced that it was bumping Dimon’s pay back up to $20 million for 2013 — to reward his impressive stewardship during tough times!
But while Dimon will feel no pain, many thousands of his employees have been or will be laid off. In February, JPMorgan announced plans to shed a total of 5,000 jobs this year, on top of 7,500 last year. There was no hand-wringing from Dimon, who responded to criticism by saying, “That’s life!” The company also said most employees wouldn’t receive raises due to the hefty fines — even though JPMorgan’s assets are worth $2.415 trillion.
This is upsetting, but not surprising. This has been the de facto operating culture of corporate America, banks or otherwise, since the Great Recession began.
Where’s the outrage? Dimon and JPMorgan have received heavy criticism from financial news outlets. Forbes, the New York Times, Reuters and Matt Taibbi, formerly of Rolling Stone, have done some hard-hitting reporting on the financial sector.
What’s missing, however, are visible expressions of outrage from working-class people, who are the ones with something at stake as the bank continues to gamble in the same way that caused the financial crisis and subsequent global recession. Certainly, the ins and outs of the financial scandals are confusing — but there is nothing unclear about the company increasing CEO pay by millions while shedding thousands of jobs to compensate for upper-level fraud and mismanagement!
There is some movement on the issue. A nonprofit financial watchdog called Better Markets has filed a lawsuit against the Justice Department over the mortgage settlement. Dennis Kelleher, the group’s head, said, “The Justice Department cannot act as prosecutor, jury and judge and extract $13 billion in exchange for blanket civil immunity to the largest, richest, most politically connected bank on Wall Street.”
Some politicians have also expressed outrage. But it can hardly be expected that the same millionaires’ Congress that worked hand in hand with the banks in 2009 to deliver them a provision-free bailout would actually “get tough” and deliver a blow to the biggest bank in the country — let alone write proper legislation to keep it regulated. JPMorgan got off, and continues to get off, easy.
Artist and designer Melissa Hurst, Web content manager for socialism.com, worked for Washington Mutual during its takeover by JPMorgan Chase.
To listen to this and other articles from this issue, click here.