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!