As white-collar criminologists we joke about "the vice president in charge of going to jail." DOJ, for example, is prosecuting two minnows involving the London Whale frauds. (Notice that the article strips away any reference to the frauds and simply notes a "$6 billion trading loss.") The minnows' unpardonable crime is that they lost money and reduced Jamie Dimon's bonus and that they did so at an inconvenient time when Dimon's lobbyists were about to gut the "Volcker rule" barring proprietary trading. The inconvenient fact is that Dimon has turned JPMorgan into the largest proprietary trading operation in history (in violation of the everything the Volcker rule was intended to accomplish) and the London Whale's losses demonstrated that Volcker was right and Dimon was wrong.
But did you notice the key word: "former?" It appears that DOJ isn't even willing to prosecute currently employed minnows in connection with the sales of tens of billions of dollars of fraudulent loans through fraudulent reps and warranties. If the article is accurate, DOJ is only investigating "former employees." Any meme that aims to make Holder heroic is bound to collapse in farce.
Consider what these deals that stop investigations mean, particularly because they have been the norm in response to this crisis. Dimon's goals in priority order are: (1) avoid prosecution, (2) keep his wealth, (3) keep his job, and (4) prevent any investigation that makes public the facts of JPMorgan's, and its senior officers' frauds. Dimon and his peers are desperate to avoid what happened when we investigated prosecuted the elite S&L frauds. Every civil action, enforcement action, and prosecution put facts in the public record that journalists could freely cite without fear of being sued for libel or slander. Those facts demonstrated widespread fraud by elites. As the public came to understand these facts their view of the nature of the S&L debacle, which had been crafted by the CEOs, business reporters, and economists as the same "outsize risk taking" meme that is dominant today changed. The public realized that the control frauds used accounting fraud as their "weapon of choice" to produce a "sure thing" and avoid having to win a risky gamble. The political contributions that the S&L control frauds used to curry political allies to counter-attack us as regulators for daring to re-regulate the industry and hold them accountable for their crimes became an embarrassment for their politicians. Elected officials rushed to donate to charity political contributions they had received from fraudulent S&Ls. The elite frauds' greatest strength, their political influence, became a liability.
As regulators, we knew we had won when Representative Frank Annunzio, one of the most vociferous allies of the worst frauds began wearing a button that was six inches in diameter and read: "Jail the S&L Crooks!" It was totally cynical on his part, of course, but it proved how much our investigations and efforts to hold the elite frauds accountable had changed the political dynamics. We didn't simply reduce the effectiveness of what had been the elite frauds' greatest strength -- we turned their political contributions into a crippling liability. This all came at a price. Many of us still bear the scar tissue, but we would all do it again.
Dimon and his peers are not stupid. They realize that even the NYT reporters will turn on them with a vengeance if competent investigations are ever conducted and the findings made public about the hundreds of fraudulent lenders whose literally millions of frauds drove the crisis. The CEOs' paramount strategic objective is to prevent real investigations staffed by vigorous financial regulators working with FBI agents that lead to hundreds of grand jury investigations of elite bankers and civil suits, enforcement actions, and prosecutions that make public the facts about the elite frauds that drove the crisis. The elite bankers and their political lackeys' greatest fear is that the public will learn the facts about the fraud epidemics that drove the crisis. One testament to this fear is indirectly, and unintentionally, revealed by the NYT article.
"But some public interest groups continue to question why no top Wall Street executives have been charged criminally for the risky acts that triggered the crisis. The government also prefers to settle with big companies rather indict them, fearing that criminal charges could unnerve the broader economy."
Why doesn't the NYT "question why no top Wall Street executives have been charged criminally for the [criminal, not "risky"] acts that triggered the crisis? One would think that this is precisely the kind of question that a great paper would ask even if it was the dominant home town industry's elite leaders that were most culpable. Recall that the fact that, for example, the FHFA in its capacity as conservator for Fannie and Freddie lacks the legal authority to prosecute does not reduce the significance of the fact that its investigations demonstrated endemic fraud in sales of fraudulent mortgages to Fannie and Freddie through fraudulent reps and warranties. Fraud is criminal even if Holder is too spineless to prosecute it. The NYT refuses to play it straight, which is why it uses the phrase "risky acts" rather than the word that (far from vigorous) government investigators have repeatedly used to describe their findings -- "fraudulent." Again, it implicitly asserts as if it were undisputed fact that the crisis was driven by "risky [non-criminal] acts. " The NYT article is so cravenly bowdlerized that it never uses the word "fraud." I do not think the reporters would dare to expunge the word that is essential to understand the central public policy issue relevant to the article if Holder and his flacks were using the "f" word and expressing moral outrage that America's largest bank was a criminal enterprise that committed tens of thousands of frauds over the course of at least a decade.
But the NYT far outperforms its standards for sycophancy in this passage:
"Mr. Dimon has called the lawsuit unfair, arguing that JPMorgan should not be penalized for buying Bear Stearns.
Yet JPMorgan's board, faced with regulatory problems, one more vexing than the next, is eager to strike a conciliatory stance. Toward that end, the bank's board approved the payment of about $1 billion in fines to government authorities so it could resolve investigations into the trading loss in London and an inquiry into the bank's credit card products."
I've explained why it is not "unfair" to sue JPMorgan for Bear's frauds. What is "unfair" is that the article provides no response of Dimon's claim of unfairness.
It is the portrayal of "JPMorgan's board," however, as "conciliatory" that raises the article into an altered state of transcendent sycophancy. In any sane world the banking regulators would have demanded the resignation of JPMorgan's board years ago for their failure to exercise their fiduciary duties. On their watch, JPMorgan has become one of the largest and most destructive criminal enterprises in history and the Board has praised and protected Dimon rather than firing him and replacing him with a CEO who would create "an ethical tone at the top."
JPMorgan is getting away with tens of thousands of frauds that made its senior officers wealthy and helped drive the financial crisis without any prosecutions of the corporation or its senior officers. Its board should be praying to whatever gods they worship in thanksgiving that Holder is the spineless Attorney General willing to sell the modern indulgences that give senior Wall Street officers and their banks immunity from prosecution and allow them to keep the wealth they gained from their frauds. The NYT has achieved epic levels of unintentional self-parody with its claim that it is JPMorgan's board that is "conciliatory" in being willing to use the shareholders' money to pay over $9 billion in additional legal and investigative fees and $9 billion in fines as the purchase price of the indulgence to ensure that none of the culpable senior officers are held accountable for their crimes or are stripped of their fraudulent proceeds.
Could someone remind me whether the $18+ billion in shareholder money spent to protect the senior officers from accountability is being paid to meet the bank's fiduciary duty of loyalty or its fiduciary duty of care to its officers? I'm having some difficulty formulating my question because I am so ancient that my obviously faulty memory was that it was the officers and board members who owed fiduciary duties to the bank and its shareholders. Dimon and the board members he selects and dominates demonstrate through their actions that they believe that the bank exists to enrich them.
The article commiserates with JPMorgan's board because it is purportedly faced with "vexing" "regulatory problems" about a "trading loss" and an "inquiry into the bank's credit card products." Yes, how "vexing" it must be for the poor board. It would probably be even more "vexing" if the board were to eschew euphemisms and instead describe its real "problems" which are not "regulatory" but the serial commission of massive frauds. JPMorgan's fraud "problems" were created by JPMorgan either directly or through purchases of two notorious control frauds (Bear and WaMu) that it knowingly made without indemnification and with the approval of JPMorgan's board. JPMorgan's problems are recurrent frauds led or induced through perverse compensation systems created by JPMorgan's (and Bear's and WaMu's) senior officers.
JPMorgan officers violated multiple laws in covering up the London Whale's trading losses. The other nine areas of massive felonies (that according to an earlier Wall Street Journal story are also part of the deal) are also "problems" not because of regulations but because of laws and standards of ethics. These ten (and growing) areas of criminality would have led any functional board -- years ago -- to fire Dimon and institute an immediate top to bottom scrub to find the problems, fix them, "claw back" the officers' compensation, fire the leaders of the frauds, remove the perverse compensation systems, prevent insane acquisitions of control frauds like Bear and WaMu, make criminal referrals against the officers and employees who committed the frauds, and vigorously aid the prosecution of those officers and employees. JPMorgan's board has repeatedly failed to take these actions. It cannot even bring itself to vote to remove Dimon as Chairman and appoint an independent Chairman who would reduce Dimon's disastrous domination of JPMorgan.
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