This week, the SEC settled with JP Morgan Chase. And we, the taxpayers -- more aptly known as their oxygen supply -- have nothing much to show for it.
The bank agreed to fork over a paltry $153.6 million to the government to settle civil charges that "...it misled investors in a complex mortgage-bond" deal. Its sin was a failure to disclose to these investors that a hedge fund helped to construct the portfolio it sold, and that it "stood to profit" if the debt instruments cratered.
The deal was for over a billion dollars. But the settlement was so tiny that JP Morgan's reserves were able to absorb it, and there will be no impact on second-quarter earnings.
Goldman Sachs made a similar settlement with the SEC for their ill-fated "Abacus" fund. Their penalty was $550 million. And like JP Morgan, Goldman neither "admitted nor denied wrong-doing" although Lloyd Blankfein admitted to "making mistakes."
In announcing the settlement, JP Morgan was positively -- and understandably -- chirpy about the salutary outcome, noting proudly that they "weren't charged with intentional or reckless misconduct."
The deal in question was called Squared CDO 2007-1. Investors lost it all, the hedge fund made a "windfall," and JP Morgan pocketed around $19 million for its efforts in gift-wrapping the garbage in a shiny box.
The SEC's behavior has been spineless. Both Goldman's and JP Morgan's actions rose to -- and met -- the level of "wrong-doing" and they were let off the hook by a compliant bunch of regulators who desperately needed to teach a lesson, not give a hall pass.
How could withholding information about the fact that JP Morgan worked with a hedge fund to package their junk not be intentional? Or -- put even more convincingly -- how could this have happened unintentionally? What about it wasn't reckless -- given both the bank's awareness of the content of the CDO, and the consequences of its actions?
The American people need strong, gutsy regulators. (I write this as the Obama administration continues to have a backbone of custard in the congressional fight over the appointment of Elizabeth Warren to run the new Consumer Protection Agency.)
Far more than JP Morgan's lousy $153 million, we need to see those responsible for the financial crisis get more than a slap on the wrist. Some should face criminal charges, and a Prada perp walk. And the institutions themselves should be forced to admit -- as part of any settlement -- that more than mistakes were made. Intentional misconduct -- much of it reckless -- was an everyday fact of life.
Wall Street's systemic corruption has never been adequately recognized, punished and resolved. The Financial Inquiry Commission was tougher in its language than the enforcement response. Big deal, small comfort -- someone can point to strong words on a page. But such fulminations, published years later and largely ignored beyond a single news cycle -- are useless husks. And the contrast between those words and business-as-usual on Wall Street is another tranche (to use one of their favorite words) of frustration.
Without the public declaration that the SEC failed to insist upon, Goldman, JP Morgan and others will forever be able to hide behind the protective, weasely cover of "we didn't admit any wrong-doing -- and the government agreed."
That's bad for America, bad for history, and bad for the culture of Wall Street. Jamie Dimon recently scolded Ben Bernanke for the increased capital requirements that Dodd-Frank is putting on banks, claiming they are suppressing lending, and arguing against the 3% increase (from 7% to 10%) for so-called SiFis (Systemtically Important Financial Institutions.)
Do you think that if JP Morgan and Goldman Sachs had not been permitted to deny wrong-doing, these institutions would be so shameless in advocating against modest increases in their capital requirements? Their freedom to complain says everything.
After all, it wasn't that long ago when they rushed frantically to the discount window -- opened to non-banks for the first time in more than half a century -- because their "non-reckless" actions had nearly bankrupted the global financial system. Wall Street wants us to forget that, and the SEC is helping them create the forgiving amnesia.
The reforms that came about as a result of the Great Depression really changed things. The creation of the SEC itself, Glass-Steagal, these were game-changers that created a regulatory framework that lasted for generations.
Sadly, the worst financial crisis since the Depression will leave no such lasting legacy. We've refused to use bold and muscular enforcement, and whatever new meaningful regulatory mechanisms that were included in the general language of Dodd-Frank are being challenged or simply eviscerated in the rule-making process.
We've let the fox return to the hen-house, smug and emboldened, and have given the hens nothing to defend themselves, other than some limp fox-protection promises and a shotgun with no bullets.
The public knows something is wrong. They know it, live it, and watch it every day in the morally indefensible chasm that continues to separate the unemployment and foreclosure numbers -- and the health of small business -- from buoyant bank profits. This profound and visceral ooze of dissatisfaction, the repressed fury at the power fraternity that is still seen as running the country -- which is lodged deep in the wounded psyches of Republicans, Democrats and Independents, is what's behind Obama's treacherous poll numbers. That shared climate of betrayal is what defines the real post-partisan America.
"Without admission of wrong-doing" is a startling but not unexpected example of regulatory incompetence and flaccidity. It reminds me of what my wife Flora has always said about all this: "It's a matter of the crooks versus the schnooks."
Follow Adam Hanft on Twitter: www.twitter.com/hanft
Victor Williams: End "Trips and Traps": Recess Appoint Elizabeth Warren as CFPB Director
Dan Rather: A Billion Dollar Blunder?
Obama is the head of that kleptocracy.
Schapiro and Holder are carrying out the protection of the elites for whom he works.
. Money is like morphine. when morphine is used to treat pain, congestive heart failure or a heart attack, good things happen. when morphine is used to feel good, bad things happen. when money is used to assign value to goods and services, and to facilitate commerce, good things happen. WHEN MONEY IS USED TO MAKE PEOPLE WHO ALREADY HAVE PLENTY OF IT FEEL EVEN BETTER, BAD THINGS HAPPEN.
exmate, MD, MBA
the rapists are rewarded and the victims are sentenced to solitary.
http://www.youtube.com/watch?v=I0EpRcFgaMQ&feature=related
The more off-the-rails it is, the higher your pay, position and prestige.
It's like you have a life long get out of jail card because if anything ever comes of your actions, like the DOJ or SEC levels charges, the firm that employs you pays the fine with shareholder money and nary a slap on the wrist comes your way.
Regardless of any existing or future regulations and compliance laws, the firms simply are not concerned about the SEC / DOJ and nor should they be.
By the firms, I mean the BOD and company officers.
These firms trashed the Western world's economies, from top to bottom, harming billions of people around the globe.
Even that record setting event that wasn't enough for the Government to act against them.
In fact, they were rewarded with trillions of taxpayer money for their trouble.
Yes you are right to say that:
"The American people need strong, gutsy regulators. "
It will not happen and the Wall Street firms know it.
"Just days after the administration (including the Treasury Department) agrees to support the repeal, Treasury Secretary Robert Rubin, the former co-chairman of a major Wall Street investment bank, Goldman Sachs, raises eyebrows by accepting a top job at Citigroup as Weill's chief lieutenant. The previous year, Weill had called Secretary Rubin to give him advance notice of the upcoming merger announcement. When Weill told Rubin he had some important news, the secretary reportedly quipped, "You're buying the government?""
http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html
The above link is a timeline scanning the years from 1933 on up to when they put the last nail on Glass-Steagall's coffin.
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Start with the president.
Whatever happened to government of the people, by the people, & for the people?
I look around & (sadly) think this a more 'fitting' Preamble for these (precariously United States of America:
'We the Colossal Corporations of the United States, in Order to form a more perfect Oligarchy, to establish a more permanent (or, at the very least, a continuance) of ever increasing income disparities, to insure the self-perpetuation of a Justice we reserve for ourselves, to provide reinforcement of the front gates (to keep out the rabble), to promote Corporate Welfare (only!) & to cement (glue is obviously too flimsy) the Blessings of the 'Invisible Hand' to OURselves (& only us, dammitt) & to our posterity (only puny people, henceforth referred to here as rabble have natural life spans, We the Colossal Corporations will be immortal!) we do ordain & establish this Constitution for the United States of America.' (thanks & respect to Mr. Goodman's recent article here on HP.)
The America people are (again sadly) being 'divided & conquered'.