Yves here. Gretchen Morgenson gives an accessible presentation of why no one should feel sorry for the fact that JP Morgan is set to pay a roughly $13 billion settlement of a raft of mortgage-related liability. And she also dispatches the myth that the Department of Justice took a tough stance. I’m still gobsmacked that Holder let Jamie Dimon plead his case in person.
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Yet another settlement without admission of wrongdoing, which would’ve hurt far more than any amount of money they might’ve paid. Dimon’s still firmly seated, it seems?
That fine is not a true penalty. First, JP Morgan can deduct these fees from their taxable income. Therefore, taxpayers will pay 30 to 40% of this fine. Second, JP Morgan is a bank. If it wanted to raise money to pay this fine, all Morgan has to do is access the Fed discount window to buy treasury bonds and use the interest revenue to pay the $15 billion fine. Third, let us not forget the TARP bailout money. JP Morgan is simply going to pay the taxpayers back with the taxpayers’ own money. Fourth, JP Morgan could simply use the tens of trillions of dollars of cash-for-trash given to JP Morgan by the Fed.
Fines are not true penalties for banks, millionaires, or billionaires. The only true form of punishment is to prosecute and jail those to break the Exchange Act of 1934.
*who break the Exchange Act of 1934.
Hallelujah!
Chief Realtor for JPM in Florida wrote a confessional.
He apologized for the lies And toxis morgtages.
He said Top Mgmt knew what he waas doing.
P r i s o n
John D. Rockefeller declared that J. P. Morgan “wasn’t even a rich man” when Morgan died.
Louis Brandeis, however, understood the power of his nemesis J. P. Morgan. By 1911, J. P. Morgan controlled an estimated 40 percent of the capital raised in America.
“The goose that lays golden eggs has been considered a most valuable possession. But even more profitable is the privilege of taking the golden eggs laid by somebody else’s goose. The investment bankers and their associates now enjoy that privilege. They control the people through the people’s own money.” – Louis Brandeis, Other People’s Money and How the Bankers Use It
For Brandeis, the main objection to “our financial oligarchy” was not primarily economic, it was moral. It was a threat to political liberty and democracy. “We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.”
In Harper’s Weekly, Brandeis called out the banks. “We must break the Money Trust or the Money Trust will break us.”
http://www.law.louisville.edu/library/collections/brandeis/node/191
Brandeis’s insistence that financial institutions meet moral standards as well as economic ones is more urgent than ever.
For Brandeis, the main objection to “our financial oligarchy” was not primarily economic, it was moral. It was a threat to political liberty and democracy. “We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.”
So the question is “Where are “our” modern day Honorable Judge Louis Brandeis’s today. We need them more than ever!
they have been bowled-over or silenced by the money=morality that has overcome our entire society.
greed is good, remember? it is a sign that you are doing the correct actions: generating surplus, increasing productivity and efficiency. running a machine for making money (corp./bank) well indicates how sagacious you are. standing at the top of this great chain of being proves how righteous you are.
it isn’t that we lack the judges. we lack the old time religion which undergirded them.
Yves has recounted the long-term, systemic problems with legal education being bought and paid for by corporate interests. The result is a judiciary that has been indoctrinated into a neoliberal view of the world, and of economics. (Yves covered this eloquently in ECONned, in case you missed that bit. Well worth reading, as it explains a great deal about how we got into the mess in which we find ourselves.)
Prof. Bill Black has also been a guest poster at NC on this topic of corrupted legal education indoctrinating judges. Black has made a very compelling case that too much money has been driving too many law school chair endowments and curricula. The pro-corporate legal decisions are the logical result of all this money ‘invested’ in law school endowments.
We’ve sunk to a point where ‘if something makes money, it is automatically ‘good’. In other words, it’s as if our legal and political systems can no longer distinguish between pimping and industrious innovation.
Judge Brandeis was able to distinguish between the two, but today the only name that comes to my mind is Judge Rakoff.
judge pamela campbell in st petersburg florida is 100x the judge brandeis ever was. she does not seek publicity but is target number 1 of the bankster lawyers. In fact the st petersburg judiciary is the reason the banksters bribed governor dread scott into coming up with these technically unconstitutional “retired” “senior” judges to try to “rocket docket” people out of their homes. Judge Campbell regularly told bankster lawyers what was wrong with their paperwork even when the homeowners were not there to fight. The bankster lawyers have tried to complain and force her off the bench. The Florida legislature has improperly “DEFUNDED” the entire judiciary in florida and replaced courthouse funding with the increased fees paid for by bankster lawyers filing suits to take homes. But governor dread scott couldnt care less, happy to see drug rehab programs get defunded so that people who might want to turn a new leaf are turned away and turn to the streets and crime for survival…
ah yes…biff rules the world.
I wouldn’t hold your breath hoping a new, more moral version of capitalism. Such hopes are as toxic as the thing itself, and can only lead to the like of Mr & Mrs “I feel your pain,” and our current Hopey-changey crew.
Very informative, and Morgenson does some great work.
But she’s wrong when she implies that there’s any hope that investors will one day come to their senses and demand financial institutions that engage in constructive rather than destructive activities. What they have always demanded and will continue to demand is activities that produce the best returns with utter indifference as to whether they’re beneficial or harmful.
It just so happens that we’re in a late phase of U.S. capitalism where the destructive stuff pays off more than the constructive (while China, for instance, is in the opposite phase).
The only solution appears to lie not with the investor class but with the people whose lives are being destroyed. And, as Ian Welsh so ably points out, we need to get to the stage at which these people are so motivated as to literally (and irrationally) put their lives on the line to demand better.
“people are so motivated as to literally (and irrationally) put their lives on the line to demand better.” That was my point here, although perhaps too subtly made.
What the hell is the point of imposing fines on these big banks when they will simply continue to look for ways of increasing the volume of their lending by blowing asset bubbles? The long term net effect of which is to undermine demand in the Real Economy for goods and services and burst the bubble. It’s time the “bewildered herd” woke up to the fact that there’s Productive Lending” and “Leech Lending” and broke up the power of these big banks to corrupt governments to sanction the latter!
So, a bribe to make it go away, which will be paid by the US taxpayer (that’s us), the bank’s customers (that’s us), and the shareholders (that’s our pension funds and 401K’s).
Jail time.
Just wondering, what does DOJ do with that $13 billion?
As anonymous pointed out, part of the penalty will be tax deductible, so the government won’t be getting $13 billion. See:
http://www.nakedcapitalism.com/2013/10/so-how-big-a-deal-is-the-pending-13-billion-jp-morgan-settlement.html>
JP Morgan Chase is also trying to get the FDIC to pay $3.5 billion of this. So far, the FDIC appears to be resisting this, but who knows what the Obama administration’s lickspittles of the ultra-rich will end up doing.
Sorry, I messed up the link.
http://www.nakedcapitalism.com/2013/10/so-how-big-a-deal-is-the-pending-13-billion-jp-morgan-settlement.html
DUMBASS DEMOCRACY
{Brandeis’s insistence that financial institutions meet moral standards as well as economic ones is more urgent than ever.}
The above is a noble sentiment, but as with much practical wisdom it is up against a stronger force, called pragmatism.
It is amazingly difficult to change the status-quo in any country. The odds are stacked against any real and fundamental regulatory change. Vested interest prevail … after all, the K-street people must justify their superb salaries.
And Congress has been pro-business since the Reagan years that brought town upper-income taxation down from the stratosphere of 90% to 30% nowadays (after deductions).
Which created our Trickle-up Economy, the Plutocrat Class and an abiding will to maintain the status-quo of Income Disparity – of which Uncle Sam is the world’s worst guilty party.
There is a way to bring about wholesale reform, but that would require a maximum effort to elect progressive politicians in Congress into majority positions. But, for that to happen it would require a Progressive Agenda that the American electorate could believe in.
HISTORY LESSON
So, let’s look at the facts. Our bumbling governance has produced the following recent history that has become not only a national but an international embarrassment:
*Obama elected in 2008, and was gifted directly the worst economic downturn since the 1930s by the LeadHead Administration.
*Reacting to the recession, a Dem Congress passes in 2009 a Stimulus Spending bill (ARRA) worth $831B that caps an exploding unemployment rate at 10%. Remember, depression-era unemployment reached 20/25%. Are the American people grateful? Nope.
*In 2010, with consummate indifference, 52% of the electorate spectated the mid-terms like couch-potatoes in front of the BoobTube. Only 38% voted the T-Party (T for Troglodyte) into control of the HofR.
*The T-Party (funded/coddled by the Koch Bros) embarks upon an asinine tactic called “Austerity”, thus stonewalling all Stimulus Spending that would put Americans back to work. Unemployment starts its grueling descent from 10%. The purpose of the tactic is to prepare the 2012 elections within an atmosphere of high-unemployment. (And the American unemployed be damned.)
*The tactic fails miserably and Obama is not defeated. However, only 52% of the American registered electorate bothered to vote. (Too tired obviously from high unemployment and “pissed off with the system”.) American voters re-elect Obama with both fiscal hands tied behind his back because the Dems no longer control the HofR, from which all spending bills typically issue.
*But since the T-Party retains control of the HofR, it steadfastly continues to stonewall any Stimulus Spending. In fact, they try to undo Obama’s major political success in giving America a less-than-perfect Health Care coverage. That fails too, after a hair-splitting decision of the Supreme Court.
*So, the T-Party next has the lousy idea of a Debt Default, a notion so patently idiotic that it baffles the world. After all, a default would destroy the dollar as a Reserve Country, which benefits enormously American exports and therefore jobs.
MY POINT?
The above relates the sort of Dumbass Democracy that Americans have today. And why?
Because they voted T-Party dimwits into control of the Congressional Legislative Process and kept them in control.
Had progressives instead been elected to control Congress, the outcome today would be very, very different.
Methinks …
Did progressives give voters any reason to vote for progressives when progressives made clear their acceptance of Forced Mandate Obama with its forced rejection of Single Payer or Individual Free Choice Medicare Buy-In?
Did progressives do anything to reject Senator Collins’s
subversion of the stimulus with her neo-Bushbama tax cuts? Well? Did they?
1. Unemployment was in no way capped at 10% and in fact hasn’t gotten down to that yet.
2. Obama did not close Guantanamo or get us out of Iraq and Afghanistan. Quite the contrary.
3. Obama took single-payer off the table at the start.
4. No prosecutions of financial criminals, and an immediate return to “business as usual”.
5. Half-assed stimulus programs instead of real revitalization programs.
6. Etc., etc., etc.
And you find the disillusionment surprising?
The only reason the republicans won the house in 2010 was because people like me that voted out all the democrats that voted for the bailouts. Yes, anger was that great and remains so. IMO the banks should not have been bailed out and if they weren’t we’d now be in full recovery. Dodd/Frank is a scam at over 2,300 pages. Glass-Stegal was about 40 pages long and everyone knew what it was for and it’s implementation was immediate. During that period we rushed to correct what was wrong and make sure the people got justice, in this period we rushed to bail out the evil-doers while millions that need relief right now languish in growing poverty with no bright light at the end of the tunnel. We the people are the enemy, it’s obvious when we have the NSA, including American citizens in the NDAA and the stealty stealing of our God given rights daily. A financial war is being waged on we the people by the financial terrorists that brought down the worlds economy with the help of the Military-Industrial complex and Washington is full of bad actors including the President. Please sir, can we have some more bread for that BS you’re giving us so we make a sandwich?
The complaints by large segments of the propaganda organs/PR vehicles about the JP Morgan settlement are lines in the sand by a clear community of interest. They are saying they will vigorously and loudly oppose any further attempts to hold TBTF banks accountable beyond these rather light civil penalties. And I think that is all we will see.
For a long time I’ve said that there is not even a theoretical possibility of reform and that is still the case today. Capitalism, which has been able to reform itself, in part, by being led kicking and screaming by a vigorous progressive movement, is now invulnerable to reform. As I have said that is because the progressives are largely inert in today’s politics for a variety of reasons I’ve mentioned before.
But, this domination by criminal capitalists is inherently unstable because if these people can break the law with impunity then why can’t all of us do so? This attitude will, in my view, slowly spread to all levels of society and create very jagged and disharmoious situations glaringly obvious.
Banger,
Historical reality confirms that “capitalism” has never “reformed itself”. It was depression, from 1880’s till today that accomplished “reform”. Remember Wall Street banksters asked FDR (after being caught at “The Plot to Seize The White House”-Jules Archer, history of Marine General Smedley Butler-whistleblower) to
nationalize the banks in response to their own inabilities.
It takes disaster to accomplish “capitalistic reform”..at least, that is American history;
http://www.thriftbooks.com/viewdetails.aspx?isbn=0195170601
Hi Yves, you’re not the only one who’s gobsmacked by Holder’s meeting with Dimon. It’s redolent of obstruction of justice, but I think we’ll have to wait a long time before anyone attempts to prosecute Attorney General Eric Holder for this crime.
Hi Vatch: I think this directly relates to Ford pardoning Nixon. Since that time the President has been above the law and those that he decides are above the law are also exonerated. Bush and Cheney should have been prosecuted for war crimes, but they weren’t, in violation of the Geneva Convention. That makes Obama complicit with their crimes and also a war criminal. How far from that does one have to go to violate international laws with impunity? Not far. Lawlessness in the WH is growing like an infection.
BTW, I love the interview Yves – thanks.
Thank Pelosi too. “Impeachment is off the table.”
Department of (Justice??): Eric here. Don’t you worry none Jimbo, nobody going to jail; Just pay this little bitty fine and go forth and sin no more. And Barry and I remind you: It’s all deductable!
In other related news, Eric’s flatfoot crew has found a patsy for the Bunco America – CountryWide problem. She had a very minor role, but the preparations for making barbeque and sausage are proceding forthwith. Meanwhile Boss Hog Mozillo gets to keep the 120 million in stock and 22 million in pay, with nary a squeak from good buddies Barry and Eric.
The blatant corruption would be unbelievable in a science fiction story, but here resembles a nightmarish “3 Stooges” film where an off-camera voice (Eric?) keeps yelling “Order In The Court!
And this is by HolderBama’s freely and deliberately chosen free choice, not by any sort of permagov coercion. Just as Obama’s deliberate granting of total impunity to the criminal financialists was by Obama’s freely chosen free choice . . . and Obama’s first big audition for the huge after-office private sector rewards he hopes to recieve.
Great interview and nice to see her getting some airtime. I think that Gretchen Morgenson along with Matt Taibbi of Rolling Stone and Martin Wolf of the Financial Times have done some of the best reporting over the last several years.
I think she has the right ideas with ‘constructive’ finance and complacency of the ‘owners’ of corporations. Someone who said he is interested in the right ideas is Russell Brand. I’d love to see him interview Gretchen Morgenson. I think other great interviewees would be Stephanie Kelton and Randy Wray. I think Russell would help them give their ideas a bit more zing and exposure to a larger audience.
I thought it was great to see his recent video go viral…
GM did lose me at the end with her notion that bank stockholders might reform bank behavior because they prefer to be in the business of helping people. No, only the threat of financial loss by way of government or mass direct action will have such salutory effect on stockholder preference.
Most people missed Gretchen, July, 2004, when she pointed out Wall Street-oil
co. manipulations to advance political purposes of George W Bush administration.
Towit-she pointed out, July, 2004, Wall Street “speculation”: Goldman Sachs owned a world leading 13.8% of total world “oil futures”. July, 2004, Goldman sold off 1/3 of their “oil futures”. All other “investment banks” blinked, but WHY?
Because they controlled a combined 48%+, total world oil futures. Goldman et al had been trading these futures back and forth at or near expiration dates, to raise oil prices-gas had gone from $1.00 per gallon, end of Clinton administration, to $4.00 per gallon, 2004.
But what did this have to do with “W” administration?
Goldman stated they would be buying back in, in blended fuels and biodiesel, but rather than, in August, 2004, they sold off another 1/3, panicked the others, who all sold off by Sept-Oct. 2004, just in time for “W” reelection.
Prices came down to around $2.00 per gallon, by November, 2004.
DEregulated Wall Street, in action.
And now Gold-Sacks has a brand new office building here in Salt Lake City, stuffed with themselves and law firms. And I swear getting into that building is about like getting into Langley. I have to call it paranoia, because I don’t see anyone out to get them.
Unfortunately. Have they got Holder by the short ‘n curly … ?
Wouldn’t surprise anyone. Where do you think he’s going after his present stint is done?
TOO PERDITION
GM makes some very plausible accusations of the banks and their shoddy credit-worthiness checks on mortgage/credit loans.
But, let’s not forget, that bank oversight is the proper duty and responsibility of the Fed.
Why was the Fed lackadaisical about what was happening in the field, on Main Street? The Fed doesn’t have bank auditors? (Yer kiddin me …)
Oversight of the securitization process that occurred by Investment Banks in New York was the responsibility of the SEC. The investment banksters were selling the Toxic Waste onto all-and-sundry with Triple-A ratings they connived to obtain with their “friends” at the Rating Agencies.
The SEC was not investigating this part of the scam? What in heaven’s name was Geithner doing whilst head of the SEC in NYC?
The SubPrime Mess, the Toxic Waste, both of which produced directly the Credit Mechanism Seizure in the fall of 2008, and the ensuing Great Recession of 2009 (which was the worst since the Great Depression), are certainly the lowest-point in the post-war history of the American Finance Industry.
And who went to jail for this rip-off? Some have, like Keating and Madoff and few others. But this fraud was Much Larger in proportions, since it involved millions of American families who were suckered into Predatory Loans. Or, more generally, the American tax-payer who had to bail-out banks that were supposedly TBTF.
And where do we finally point the finger of blame. If Obama did not pursue the banksters for fraud in his first term and is now doing so (with a light hand) in his second-term there has to be a reason.
And the reason may be this: American presidents are most free politically in their policy-options only in their second term. Because in their first-term they always must have an eye on the funding for a repeat performance. Most certainly, they do not want to clog the Money Fountain.
It is the way Electoral Funding has corrupted our leadership where we must be most concerned. Also the manner in which we elect not only presidents but the gerrymandering that solidifies politicians into their Congressional seats as well.
There is no more pertinent reason why Congress is a playground for self-made millionaires who do not know what else to do with their lives. Do you think this kind of politician care how much costs the cross-town bus that you must take to get to your job? Or the meals your children are getting in their schools funded by US Treasury?
The entire electoral process must be revised, the money excised and the one-person-one-vote rule restored. Or Uncle Sam continues down his slippery-slope to perdition.
MY POINT?
And how must that happen? There is only one way, and its a Very Long Haul. By electing more Progressive Politicians to Congress. After thirty-years of Ayn Randian politics in LaLaLand on the Potomac, we need some progressive maintenance work to be applied.
The policy-pipes are clogged with the worst sort of fecal political effluent …
“$140B, derived from cash flows on the WMB asserts acquired by JPMC or a total of $140+5.5 = $145.58.”
http://www.kccllc.net/documents/0812229/0812229100603000000000011.pdf
About the author Sankarshan Acharyafrom from Amazon books; http://www.amazon.com/s/ref=ntt_athr_dp_sr_1?_encoding=UTF8&sort=relevancerank&search-alias=books&field-author=Sankarshan%20Acharya
“…JPMC has stated its 2009 Earnings: $100.434 Billons
JPMC has reported its 2009 EBIT: $64.390B
JPMC has reported 2009 Tax: $4.415
JPMC’s 2009 Cash flow (for Debt & Equity) = EBIT-Tax = $59.975B
JPMC’s 2009 Cash flow as a percent of earnings = 59.975/100.434= .6
JPMC’s CEO states in his March 26,2010 memo to shareholders about $30B of earnings from WMI assets it received through FDIC Receiver in 2009. JPMC can be asked to reconfirm this figure.
JPMC’s incremental cash flows from the acquired WMI assets is approximately = .6 x 30 = 18B. This assumes that the cash flow attributable to debt and equity is the same fraction (0.6) of earnings for JPMC as for the acquired WMl assets.
A conservative estimate of the cost of capital in a low interest rate environment is about 0.05. It should be a risk adjusted weighted cost of capital for debt and equity. But since the equity stake in the acquired WMI assets is nil, debt dominates the cost of capital estimate in fair valuation.
The fair consolidated value of acquired WMI assets is equal to $l8B/.05 = $360B using the Gordon formula given in finance text books for cash flows with no growth.
The acquired WMI debt and deposits is about $220B including senior WMB bonds. The value accruing to WMI parent company from the assets transferred to JPMC is thus equal to $360-220=$140B.
This makes the acquired WMI parent company’s asset worth 360-220 = $140B. In addition WMI parent company has a cash deposit of $48 in WMB, tax refunds of $5.6B, and trust preferred securities valued at $4B or a total of $13.5B that belongs to WMI parent company. The value of assets of WMI parent company is thus $140+13.5 = $153.5B. Out of this value, $13.5 is the pure liquidation value of WMI parent company’s assets. The parent company’s debt obligation is reported as $8B.
Thus, on liquidation basis, the parent holding company’s equity holders (common and preferred) have $13.5-8 = $5.58. On financial valuation basis, WMI parent company’s equity holders have, in addition, $140B, derived from cash flows on the WMB asserts acquired by JPMC or a total of $140+5.5 = $145.58. The legally admissible value of parent company equity of WMI would be still higher if some of the subsidiaries of WMI were insolvent at the time of seizure. The Debtors’ Joint Plan of Organization is thus outlandish with no economic basis…”