10/24/2012 11:25 am ET Updated Dec 24, 2012

Dimon Whining

One of the things that the wealthiest and most powerful of the insider special interests do to move their interests along is to drop things right before the election that the general public won't notice but that all the inside D.C. players definitely will. They know that getting powerful D.C. players to go to bat for them wouldn't be popular if anyone in the media or the general public noticed, but that two weeks before an election the news would be completely swallowed up in terms of anyone outside of the political establishment noticing.

Jamie Dimon managed to score just such a deal on Monday, and with a very well-positioned congressman: Barney Frank. Congressman Frank is retiring from the House this year, so he can help out Jamie without having to worry about answering to pesky constituents who may be wanting the biggest bankers on Wall Street to have to pay attention to laws. But even though he is retiring, Frank is still a major player in national politics, with his name on the Dodd-Frank financial reform bill Democrats are so proud of and his being mentioned on numerous short lists in the media as a Treasury Secretary candidate. Frank issuing this statement is a major coup for JPMorgan, and for all of the big banks who are trying to escape prosecution for the financial fraud committed during the build-up to the bubble that caused the economy to come crashing down.

Frank's argument, echoing Dimon's, is that JPMorgan did us all a huge favor by merging with Bear Stearns, and that we shouldn't punish them for being such good soldiers. Frank's statement's most important paragraph:

Having been Chairman of the House Financial Services committee at the time that this occurred, I know that JPMorgan Chase acted at the strong request of the Federal Reserve and the Secretary of the Treasury during the Bush administration. The Federal officials involved believed that the failure of Bear Stearns would have terribly negative consequences for the economy, and they urged JPMorgan Chase to do a good deed by taking over in institution which, I believe, the bank would never have sought to acquire absent that urging. The decision now to prosecute JPMorgan Chase because of activities undertaken by Bear Stearns before the takeover unfortunately fits the description of allowing no good deed to go unpunished.

While saying that Bank of America, as well as JPMorgan, should be off the hook since BoA similarly merged with Merrill as a favor to all of us, he does make clear that he is fine with prosecuting other banks who didn't do us this kind of favor in 2008, and he says he is fine with still prosecuting individuals. Which is all well and good, but really misses the point.

Frank's argument is fundamentally wrong on many different levels -- and Frank, as he took pains to point out, was in the mix on all this in 2008, so he should know better. JPMorgan did not make this Bear Stearns deal out of generosity, kindness or public spirit. They knew full well the liabilities involved in taking on Bear Stearns, they negotiated a sweetheart deal that was stunningly advantageous to them, and reaped massive benefits as a result. And knowing full well the legal liabilities they had taken on, they have done remarkably little in the last four and a half years to resolve the issues Bear had incurred. Mortgages have not been written down to any large extent, and defrauded investors have not been satisfied, because JPMorgan, like every other Too Big To Fail bank, assumed they could use their political pull to avoid having to pay the piper.

Let me walk through enough specifics to give you a flavor of the kind of sweetheart deal JPMorgan got from the government when they did us all this huge "favor" in 2008:

1. The Fed agreed to take $30 billion dollars of the riskiest mortgage-related assets entirely off of the balance sheet, at Dimon's insistence. This was over 90 percent of their total exposure to risky mortgage assets.

2. The price JPMorgan paid was an absolute rock bottom $2 a share. In fact, the total purchase price for the entire worldwide company was worth $200 million less than its corporate headquarters building alone.

3. The Fed and the OCC (another bank regulatory agency) granted JPMorgan an 18-month exemption from risk-based leverage and capital requirements, giving the bank a massive competitive advantage over the rest of the industry at an absolutely critical time during the crisis.

4. In the period shortly before and shortly after the merger, the Fed opened up its spigot of emergency loan money for JPMorgan, handing them over $390 billion in extremely low interest loans during the 2008-9 crisis period. In addition, in the period after the merger, JPMorgan received another $25 billion in TARP dollars.

5. There was another competitor interested in buying Bear, but the Fed announced they would not back that merger, making it clear they wanted JPMorgan to be the only one at the negotiating table.

I know that Jamie and the gang at JPMorgan did us such a great favor, but hey, it sure is nice to be so richly rewarded for civic-mindedness, isn't it? If anyone would like me to do a favor for them like that, I'd be delighted to accommodate.

As to Frank's implied argument that the generous souls at the bank shouldn't be blamed because they didn't know what they were getting into, that doesn't fly either: Moody's downgraded the mortgage debt held by Bear Stearns days before the merger, and the rumors about Bear's mortgage problems were well known at the time all over Wall Street. That was why they were having trouble raising capital.

There's one other story about all this that is not so widely known. This merger was handed to Jamie Dimon and JPM on a silver platter, with full knowledge of all the questionable deals that had been going down. Something that I wrote a year ago will give you a sense of this:

There's a story that when Bear Stearns was being forced by Hank Paulson to merge with Morgan in 2008, that the Bear Stearns board was balking at the incredibly low price they would be getting on their shares of stock. Paulson calmly informed them he had brought a team of FBI agents with them, that if the merger was not agreed to he would be seizing every computer in the building and the FBI would start combing through the books and emails to see what illegal acts were committed. The Bear Stearns board immediately voted to go forward with the merger.

Frank's argument is that the bad deeds done by Bear shouldn't be prosecuted because it's a new company, and Jamie Dimon did us all such a great favor. But this isn't how corporate law is supposed to work. When one company buys another, they know full well they are buying everything, assets but also liabilities. And they know that some of those liabilities may well be legal issues. Jamie Dimon cut an incredible deal for himself and his bank on this merger, with a fully loaded government gun at the head of the Bear Stearns board. And he was well aware of the liabilities, legal as well as financial, that he was getting as part of the deal. For him and his allies in D.C. to now be whining about finally -- finally, finally -- feeling some legal heat on this is laughable. Dimon no doubt thought he could rid himself of those legal liabilities through his political muscle, and that is exactly what he is trying to do now by getting Frank to carry his water. But the rest of us need to stand up and say hell, no, Jamie.

As to Barney Frank, I'm not going to speculate as to why he is doing this. I have a good amount of respect for Frank's legislative track record and his strong advocacy of Democratic causes. Dodd-Frank has its faults, and did not go anywhere near far enough, but it did do some important things that made the big banks mad, and I give Frank some credit for that. But he went off the rails on this one. It is especially disappointing to hear from sources inside the administration that in spite of publicly attacking the president's task force two weeks before the election, Frank didn't even give administration officials a heads up that he was about to undercut them on such a big issue.

Contrary to what Barney Frank and Jamie Dimon think, it could not be more important to prosecute the big banks who have committed fraud and demand justice. This incident just makes me all the more thankful for Eric Schneiderman's willingness to take on these big banks with all their political muscle.