Think of it as the story of two antagonists. One of them was an honest senator who came to Washington to fight corruption. The other is an arrogant banker who's so sure of his untouchability that he wore "FBI" cufflinks when he made a public appearance last month.
The Senator
Former Sen. Ted Kaufman, whose epic struggle to bring Wall Street to justice was depicted in PBS Frontline's recent episode "The Untouchables," made a striking observation on a press call today. "In a private case," Sen. Kaufman said, the Dexia bank's lawsuit "... uncovered reams of emails directly related to the fact that fraud was (allegedly) being committed by JPMorgan Chase."
He was referring to headlines like "E-Mails Imply JPMorgan Knew Some Mortgage Deals Were Bad" in the New York Times and "JPMorgan Hid Reports of Defective Loans Before Sales" in Bloomberg News. Sen. Kaufman added:
It's not just that the government wasn't bringing a case against JPMorgan Chase. Everybody in Washington from the president on down was praising its CEO, Jamie Dimon, claiming he was our nation's smartest and most ethical banker. So were a lot of reporters. Roger Lowenstein's flattering profile of the dyspeptic Dimon remains a classic of the Wall Street flattery genre.
Even Alison Frankel, who has done some excellent reporting in this area, was somehow able to ask only last month (unless her editors wrote the headline for her): "Is JPMorgan Chase the new MBS (mortgage-backed securities) piñata?"
Sometimes a piñata turns out to be a real donkey.
FBI Cufflinks
Wall Street Journal reporter David Erlich sent this to his Twitter followers from the international finance soiree at Davos: "Jamie Dimon is sporting FBI cuff links at #Davos. Sadly he wouldn't let me take a picture of them."
But then, there are a lot of things Jamie Dimon doesn't want coming to light. What message do you suppose he was trying to send with those cufflinks, especially in the wake of the criminal inquiries into his bank's behavior in the "London Whale" scandal? Peter J. Boyer and Peter Schweizer noted last May that, based on the Justice Department's record of hands-off attitude toward the bank, "JPMorgan Chase has nothing to fear from an FBI probe."
Even after JPMorgan Chase entered into enormous financial settlements -- for charges that ranged from sophisticated investor fraud to plain old-fashioned Alabama bribery -- it was considered somehow déclassé to suggest that the crime wave which occurred on Mr. Dimon's watch should in any way reflect badly on his character or managerial skills.
JPMorgan Chase was the "good" bank, and Dimon the "good" CEO. It was considered "unserious" to imagine that the bank's crimes could be pursued -- or, despite mountains of evidence, that they had even been committed. But somehow Dexia and its attorneys were able to obtain evidence that the Department of Justice, the FBI, and the enormous machinery of our national security state could not -- or would not -- find for itself.
What did FBI-cufflinks-wearing Jamie tell the public about that criminal matter, the $6 billion loss that he told investors was nothing? "We did have record profits. Life goes on."
I think we can guess what the "F" stands for.
The Evidence
The information that Dexia assembled is breathtaking -- and damning. The JPM section of their complaint begins by reminding us that JPMorgan Chase was lagging behind its Wall Street competitors in 2005. Dimon has tried to rewrite history since then by arguing that he was smarter than other bankers and stayed away from the short-term profits of mortgage-backed securities because he was wise enough to see how risky they were.
Nonsense. As the Dexia lawsuit recaps, they were just late to the game. Dimon was desperate to get it on the action, telling investors in the 2006 Annual Report that the unit handling MBS had "materially increased its product breadth and volume" -- from virtually nothing to $25 billion in just a year.
Dimon also reassured investors that the unit "maintained its high lending standards" and had "materially tightened" its underwriting -- much as he assured investors that the bank had tightened its standards after the 2008 crisis when the "London Whale" unit reporting directly to him wasn't following published standards, and much as he told them that the "London Whale" losses were a "tempest in a teapot" when he secretly knew they amounted to billions.
The emails uncovered by Dexia show that JPMorgan Chase tried desperately to make up for its late entrance into the mortgage feeding frenzy by cutting corners and misleading investors. In fact, the Dexia suit includes documentation which suggests that Dimon had already told a senior executive to sell off the bank's own ownership of these poorly-underwritten securities.
A Forbes magazine story cited in the suit also quote Dimon as saying, "This stuff could go up in smoke!"
True Confessions
An internal JPMorgan Chase memo reportedly told staff how to cheat "Zippy," the company's underwriting system, by falsifying information in order to write bad loans. The memo was even entitled "Zippy Cheats & Tricks."
The Dexia filing extensively documents JPMorgan Chase's flouting of underwriting standards, its misrepresentations to investors, and its rewriting and falsification of independent analyses. These acts are strongly suggestive of criminal acts by individuals, as well as civil wrongdoing.
Sen. Kaufman spoke authoritatively about the deterrent effect that criminal indictments have against white-collar crime. Someone is much less likely to commit a white-collar crime, according to studies, if they know that they could be prosecuted. As Sen. Kaufman explained, this deterrent effect is much weaker for drug crimes, whose perpetrators have already faced the criminal justice system. But bank crimes aren't drug crimes -- except, of course, when they are.
Sen. Kaufman added: "There have been a number of us saying in the cases against JPMorgan Chase and Goldman Sachs and Morgan Stanley and the big banks was that one of the problems with the settlements ... is that they never had to admit wrongdoing."
The Badge
When JPMorgan Chase was sued over the actions of subsidiary Bear Stearns, it implied that it had only acquired that firm as a favor to the nation -- a myth the press has often repeated - and made it clear that it felt it was unfair to be punished for the acts of an organization that was not under Mr. Dimon's supervision at the time. Thanks to Dexia, that particular injustice has now been corrected.
It remains to be seen if the Justice Department will follow Dexia's lead and investigate the compelling evidence of criminal actions at JPMorgan Chase.
Jamie Dimon may believe that he and his peers above the law, but there are still honest people trying to hold them accountable. And he may have those FBI cufflinks, but hey -- Elvis Presley got Richard Nixon to give him a badge from the Narcotics Bureau, and we know how that story ended.
(The press call was part of the Campaign for a Fair Settlement's call for prosecution of Wall Street crimes in the first 100 days of the President's second term.)