Inside Financial Services

Worse Than Unfair

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People complaining that JPMorgan Chase’s rumored $13 billion mortgage settlement with the Justice Department is wildly unfair don’t know the half of it. The deal is unfair, of course: the feds are strong-arming Morgan into paying a huge amount of money to atone for lending abuses at Bear Stearns and Washington Mutual, two institutions Morgan bought in hurry-up deals at the federal government’s urging in 2008. On the one hand, yes, when you buy a company’s assets you’re buying its liabilities, too. I understand that. But on the other, normally transactions like the Bear and WaMu deals involve something more thorough than 24 hours’ worth of due diligence, as those two deals did, and the fate of the financial system isn’t hanging in the balance if they don’t happen.

So on reflection, perhaps the Justice Department might lighten up a little. But what’s more troubling about any settlement Morgan might reach with the DOJ is that it would show once and for all the havoc the feds can wreak on a company-any company-once its harassing power becomes unconstrained and irrational enough. What, after all, will Morgan be getting in return for its $13 billion? Global protection from further litigation? It isn’t even getting out from under a criminal probe in California! And if the bank admits wrongdoing as part of the package, as DOJ is said to insist, Morgan will actually be inviting more lawsuits, from aggrieved shareholders and the trial lawyers who’ve lined them up, say. Neither are state attorneys general and industry regulators, once they see the amount of money involved, apt to be shy about poking around to find other areas of purported areas of abuse at Morgan.

One can only wonder why Jamie Dimon is even considering the deal in the first place. Which is the truly scary part. Jamie is of course no fool; the only rational explanation for why he’s mulling such an expensive, one-sided settlement is that he realizes that the DOJ probe has nothing to do anymore with justice or righting past wrongs. It has degenerated into simple mindless corporate abuse. Jamie just wants it to end, by surrendering on whatever terms he can get. I half wonder why he and his management team don’t simply walk out the door. He certainly has the justification. (Just imagine if Jamie Dimon resigned and all his options vested because of change of control-to the federal government!)

What a travesty. I mentioned before that the government’s level of harassment in this case isn’t just mindless, but downright irrational. Here’s why. Last week in the Wall Street Journal, Richard J. Parsons made the crucial (and obvious) point that in the next financial crisis (and yes, there will be one) regulators will have lost a crucial tool they’ve used regularly in the past to resolve failing institutions: the assisted sale of a sick bank to a healthy institution. Next time, when bank managements and their boards recall the abuse J.P.Morgan received at the hands of the federal government following its assisted buyouts of Bear Stearns and Washington Mutual, there will be no way on heaven or earth that any institution will lift a finger to help the federal government resolve a failing institution. So in return for its idiotic bloodlust, the DOJ is ensuring that the next crisis will be a little bit worse than it might otherwise have been. Nice work, Eric Holder.

What do you think? Let me know!

15 Responses to “Worse Than Unfair”

  1. galdc

    While I totally agree with both thesis, that the government will NEVER again be able to turn to any company for help in an emergency and that Dimon would be justified just walking away, there is the lingering issue of whether or not there is some damning document which the management does not want revealed. If so, maybe that’s why you settle with the DOJ and hope that nothing more damaging is revealed. Otherwise, I agree that the settlement is illogical and out of character.

  2. B.B.

    Check out JPM today. Gap down on news the DOJ settlement is falling apart. This admin. has turned us into a true banana republic. Basically you have to cozy up to gov’t and kiss the ring or you’re toast. Last week Obama was in NYC to visit a school. That night he went to a fundraiser hosted by . . . wait for it . . . AmEx’s own Ken Chenault. You think Holder will ever go after AmEx, even if AmEx does something wrong? Fat chance.

  3. grover13

    Oh, woe is poor JPMorgan….who has earned over $65 billion in net income in the past three years, in an economic environment completely manipulated by the goverment so that banking institutions like JPM can make money hand over fist without even trying. Darn that Eric Holder and his idiotic bloodlust.

    I see it a different way, Mr. Brown. I agree that government here is trying to clawback some money, and trying to send a message. Maybe it’s just to take a cut of the profits that government-driven stimulus is more responsible for than Dimon’s business acumen. Maybe it’s to send a warning not to repeat their past mistakes. I personally think it might be payback for banks fighting so hard to poke so many holes into Dodd-Frank that renders it virtually impotent….leaving the banks free to lever up on derivitives, gamble with depositors money and repeat the mistakes of the financial crisis. Maybe to send the message, “OK, if you don’t want safeguards that- in exchange for lowering systemic risk may reduce your profits a bit- then we’ll just take some off the top.”

    In any event, your characterization of banks being “unlikely to help the federal government in the future” is laugh-out-loud stupid. It was the GOVERNMENT that saved the BANKS. After the Bear and WaMu firesales, Lehman was driven to the brink by a complete loss of confidence in ALL financial institutions. Lehman was simply in the worst shape, and the first to falter. You are kidding yourself if you think that the remaining banks- while “healthier”- would have avoided the same fate. Banking is a business of confidence…..and at that particular point in time, confidence did not exist. It was ZERO. All banks had ceased to lend to each other, and were preparing margin calls en masse. Had the government not supported the sales of the sickest, and stepped in with TARP (or something else similar), the banks would have toppled like dominoes, one after the other.

    For an “insider” like yourself

  4. fraudster

    I hate it when I have to agree with you, especially 100%.

  5. rivvir

    “…DOJ is ensuring that the next crisis will be a little bit worse than it might otherwise have been.” Best answer i could think of to counter you on that is, let’s not have a next crisis. In real life though, of course we’ll have one, plus. No matter. I tend to agree with you on this, but i think that’s because i don’t know enough about what occurred back then. I do know through coincidentally reading just this morning that dimon went for wamu on his own before dealing with the feds. He offered $8 a share and got turned down by the then ceo. Maybe the wamu deal wasn’t all that much as you think his being helpful to the feds but him having been a little too greedy as well. If that’s true then maybe he also got greedy if/when bear was offered to him and not forced on him.

  6. contrariwise

    grover13, the notion that it is government that should get the credit for creating this wonderful environment for the banks and that it was government that saved them assumes that it was NOT government that also created the bubble environment and the moral hazard that lead to the crisis in the first place and that is laugh out loud stupid.

  7. Ian Arnof

    I see it very differently (positively) and a much better approach than more regulation, but can’t explain in an email.

    I keep up with you thru Bob Huret and glad to hear it’s going well. Ian

  8. grover13


    Government did indeed enable the banks to create the crisis, most notably in the repealing of Glass-Stegal, the SEC increasing the allowed leverage for banks from 12-1 to 40-1, and Greenspan’s easy money. No doubt there. They deregulated the system to the point of blowing it up. And I’m not saying that the current environment is “wonderful”….only that the easy money policies of today are indeed the driver of bank profits, as is they intent (right or wrong as that may be).

    But now they are trying (in vain) to put Pandora back in her box….and the banks are fighting them at every step. It seems all the banks remember from the aughts are the bonuses they took home from 2002-2006, and have completely purged 2007-2009 from their memory.

  9. rivvir

    Grover, i’m basically with you except for “They deregulated the system to the point of blowing it up.” You change that to “the point of allowing it to be blown up,” ok. Gvt deregulation didn’t blow it up. The private entities which took advantage of the deregulation blew it up. They always will where allowed. That’s the history of our country, that’s the history of our people. Take advantage of what’s allowed and/or not adequately surveilled. I have to plead guilty to that myself.

  10. WallStreetCritic

    I could not disagree more with your belief that Morgan is being treated unfairly. Morgan has a litany of transgressions so it is indeed time they pay the price for their actions. Dimon is agreeing to this because he knows full well they are guilty. These big banks have had their way long enough, which would be fine if it was to the overall public’s benefit, but we all know it is only for the benefit of the financial industry and the hell with everybody else.

  11. John

    If this was a church, I’d say AMEN to your thoughts. You let Holder off too lightly.

  12. Pat O'Brien

    A damning document that JPM doesn’t want revealed? You have to be kidding. You don’t think the Administration would love to pillory them for that?

    Grover, the SEC has nothing at all to do with bank leverage. They do not regulate banks.

  13. grover13

    rivvir- that’s a fair assessment. It also supports the notion that deregulation will also enable excessive risk taking. That Greenspan’s “the banks will regulate themselves” theory is and always will be pure folly. So the basic premise remains: Do we regulate to the point where we constrain profits and bonuses, in the name of a smoother ride….or do we deregulate to the point where “free markets” boom-and-bust themselves every 5 years or so? Under which evnvironment does America better prosper? I’d argue the former.

  14. DAVID


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