Wednesday is the day that JPMorgan Chase CEO Jamie Dimon testifies before the Senate Banking Committee. He was called before the Committee (I believe the term is "invited") after it was disclosed that his bank lost billions of dollars in reckless and unregulated trades -- trades which, as Dimon himself acknowledged, may have included criminal activity.
In fact, Jamie Dimon's bank has committed lots of crimes. Alleged illegal activity during Mr. Dimon's tenure have forced the bank to give up billions of dollars in fines and settlements -- usually while "neither admitting nor denying wrongdoing."
We think the Committee should -- no, wait. Let's stop right here and amend that last paragraph. Banks don't commit crimes. Bankers do. So it should begin as follows: "Bankers at Jamie Dimon's bank have committed..."
The Committee should ask Mr. Dimon about that illegal activity -- why it happened, who committed it, and what he's doing about it. It should also ask him why a bank which poses a systemic risk to the economy, and whose serial criminality he's been unable to stop, should continue to exist.
Will they ask these questions? It's going to be a little awkward, especially for those Senators who have socialized with Mr. Dimon at fundraisers and accepted generous contributions from him and his fellow bankers.
But they need to be asked.
The Way It Is
Most people don't expect questions like these to be asked. And, needless to say, Wall Street's big investors don't care much about the whole proceeding at all. From the Washington Post:
"I kind of shrug," said Bill Archer, 58, a former co- chairman of Goldman Sachs Group Inc.'s capital markets committee and now a partner at buyout firm Veronis Suhler Stevenson LLC in New York.
"That's just the way the world is."
Dimon told The New Republic's Noam Scheiber that "It's never fair to punish everybody regardless of their behavior. There are good banks and bad banks just like there are good politicians and bad politicians."
Presumably he considered Chase one of the good banks.
But then, as Scheiber points out, he responded this way when his own bank's error led to renewed calls for tighter regulations: "Just because we are stupid doesn't mean everybody else was."
Tell us again: Why don't we need to regulate you guys?
That gets us to our first question: Mr. Dimon, who are those "good banks" who don't need regulating?
More fundamentally, even if such banks exist, why is that an argument against regulation? After all, there are good drivers and bad drivers. But that's not an argument against traffic laws, is it?
And Mr. Dimon, mismanagement at your bank is of special concern to the nation because it's either the largest or second-largest bank in the world, depending on how you measure these things. It controls nearly half the market for derivatives, and is one of only six banks that control 60 percent of this country's gross national product. If your bank is endangered, the entire world economy is threatened.
Why should we permit banks like yours to exist? You keep telling us that your bank's enormous size offers "economies of scale." Goldman's Mr. Archer (quoted above) also said that "There are wrongs that come with too-big-to-fail, but there are a lot of rights."
What are those "rights," Mr. Dimon? What social benefits does your bank's size provide, and are they great enough to offset the everpresent danger?
Unless Mr. Archer meant that it gives you and your colleagues a lot of "rights" -- like the right to break the law. Do you think that's what he meant, Mr. Dimon?
Now, Mr. Dimon, you're well aware that you've been criticized for sitting on the Board of the New York Federal Reserve while running a bank that benefits greatly from that institution's largesse. A report in Bloomberg News said that "Wall Street's aristocracy got $1.2 trillion in secret loans" from that institution. Your bank received received $48 billion in secret, direct emergency loans, and it also benefited from the $107.3 billion in loans given to Morgan Stanley.
Don't you find your role at the Fed to involve an inescapable conflict of interest? After all, you're not just providing information to the Fed. You're making key decisions. You even sit on the Committee that gives the Fed's leaders their performance reviews and makes "suggestions" about how much they should be paid.
Why don't you use this occasion to step down from that position?
And while we're on the topic of the Fed, you told the public -- including investors -- that JPMorgan Chase had a "fortress balance sheet" and merely took token TARP loans at the government's request so that other banks would do the same. Yet we now know that about the $48 billion in secret, direct emergency loans, as well as the $107.3 billion in loans for Morgan Stanley.
While you repeated your statements about the bank's invincibility -- at least 16 times, according to Bloomberg News -- JPMorgan Chase continued to receive secret emergency loans for more than a year.
Are you aware that it is a violation of civil and criminal law to mislead investors about the financial condition of a publicly traded company?
Let's review some of the criminal activity conducted within your bank:
JPMorgan Chase paid $2 billion to settle fraud charges in the Worldcom case and $135 million in the Enron scandal. To be fair, you were not with the bank at the time. And you weren't there when a JPM employee began bribing officials in Jefferson County, Alabama. But you were in charge when that employee went to jail, and when it was revealed that JPM had grossly overcharged Jefferson County.
What affirmative steps did you take to make things right with Jefferson County? As you may know, Jefferson County has since gone bankrupt.
The SEC said that the banker in question, Charles LeCroy, was candid about the bribes. "That's the deal," LeCroy told a colleague. "That's just the price of doing business."
What have you done as CEO to change a corrupt culture which allows one banker to say something like that to another in your organization without repercussions?
The Buck Stops... Where, Exactly?
During your tenure as CEO, your bank has paid tens of millions of dollars on charges of unlawful IPO (stock) allocations, illegally forcing retailers to use the credit card network it co-owned, and for illegal profit-sharing and tie-ins regarding trades at JPMorgan Chase Securities. It has agreed to pay billions for mortgage and foreclosure fraud.
Your bank has been sued and severely criticized for reportedly looking the other way while profiting from Bernie Madoff's business and has been implicated in an illegal currency trading investigation in Canada and is reportedly being investigated for mortgage securities fraud.
Aren't you ashamed of a record like that, Mr. Dimon? What are you doing to end this apparent crime wave within your organization? Because we're not finished:
A whistleblower says that JPM knowingly sold hundreds of millions of dollars worth of bad credit card debt to third parties. And your bank paid $25 million, a slap on the wrist, to settle charges that it illegally propped up a failed mortgage lender in Florida. Altogether, that's quite a laundry list of misdeeds.
Mr. Dimon, you recently spoke with a newspaper called the Australian and said "It's so unfair to talk about Wall Street and ethics." You went on to say that "the people that we deal with a lot on Wall Street are some of the most ethical people I know."
Do you still stand by that statement?
And about all that foreclosure fraud: Who are the "Burger King kids," Mr. Dimon?
This is from a report in the New York Times:
Even when banks did begin hiring to deal with the avalanche of defaults, they often turned to workers with minimal qualifications or work experience, employees a former JPMorgan executive characterized as the "Burger King kids." In many cases, the banks outsourced their foreclosure operations... The result was chaos.
Your bank has now pledged billions of dollars in a settlement in order to escape further charges of foreclosure fraud. The specific fraudulent acts involved included perjury, forgery and tax evasion.
Mr. Dimon, I would like to read you excerpts from an email which a writer received from one of your customers:
Since June 2009 when my salary was reduced drastically... I still do not qualify for a HAMP remod. In October 2009 after 2 months behind in payments I was offered a trial modification. I thanked GOD someone wanted to help me save my home ... (T)hen my case was reassigned to a new loan officer and I had to resubmit my paperwork all over again, I was happy to do so as they said everything was looking good and they just needed the paperwork to sign off on. After 6 months of weekly calls I received a call from Chase saying my Loan Mod was denied ...
It goes on, but you get the gist. This homeowner is describing cruel, unethical, and fraudulent treatment of a customer in distress.
Would you like to personally apologize to this Chase customer? We're sure it can be arranged.
JPMorgan Chase was one of the original banks that founded MERS, the shell company and electronic database that's been implicated in widespread deception and tax fraud. You wisely chose to opt out of using the system when the scandal surrounding it first broke.
Are you willing to give up JPM's ownership stake in MERS and promise never to use it again? And do you agree that it should be disbanded in its present form?
To Tell the Truth
Now, about the billion-dollar incident that led to your visit with us today: We've heard that this London group bypassed the chain of command and reported directly to you. We've also heard that you bypassed your own firm's stated risk management procedures for the unit that made these bets.
Doesn't that mean you were telling the public -- including investors -- about safety measures that you knew weren't being applied everywhere within your organization? If you want to assert your Fifth Amendment rights that this point, we understand.
Are you aware of your legal obligations under Sarbanes-Oxley, Mr. Dimon? You're obligated to truthfully state to shareholders that you have personally reviewed the company's risk mitigation procedures and found them to be sound. How many times did you assert that JPMorgan Chase's risk management procedures were adequate, when you knew that they were not being applied in this case?
Now you're promoting something called the "Simpson Bowles" plan. Among other things, that plan would cut Social Security benefits and limit Medicare in order to pay for the deficits which were created largely by recklessness on the part of banks like yours.
First, why should the American people trust your judgement on economic matters? Secondly, don't you think the people who caused this mess should pay for it?
All in all, not a single banker has been indicted for the events leading up to the financial crisis, although billions have been paid out it settlement fees for alleged criminal activity. No coincidentally, banks have spent between $150 and 200 million in lobbying over three years.
Do you think our country should be proud of a system like that?
We think it needs to change, and we're going to use the democratic process to fight for that change. You may not like that. We know you get upset when people criticize you or your profession, or try to restore the curbs on your greed which kept us safe for generations. To which we can only quote a colleague of yours:
That's just the way the world is.
(The Take Back the American Dream conference is next week (June 18-20) in Washington DC. I'll be on a foreclosure and bank fraud panel with New York Attorney General Eric Schneiderman, Heather McGhee of Demos, and MSNBC's Alex Wagner.)
UPDATE: I see that Occupy the SEC has some questions for Mr. Dimon too. They're in an excellent letter the group wrote to the Senate Banking Committee. The letter is available here.
The Morning Email helps you start your workday with everything you need to know: breaking news, entertainment and a dash of fun. Learn more