10/23/2013 05:28 pm ET Updated Jan 23, 2014

No Good Deed Goes Unpunished

It's likely that JPMorgan will pay a "fine" of $13 billion to settle the government's charges of fraud in the mortgage-backed securities collapse. And for those looking for either a scalp or a scapegoat, even that amount is considered relatively small compared to the billions of dollars lost during the credit crisis.

But should JPMorgan be the one to pay? After all, they were doing the government a favor -- at the time -- by taking over two failing institutions that were threatening the collapse of the entire banking system. The purchase of Bear Stearns and Washington Mutual -- two institutions at the heart of the 2008 financial crisis, was done to help the government. It was a deal done in haste, with little chance to assess the liabilities JPM was taking on, as it rushed to stave off systemic failure.

Now, this is how the government repays them for taking on the challenge?

No matter how much you think that someone, anyone, must pay up, isn't this an example of not only government intimidation, but also of bad faith on the part of the same government that pushed these deals to fruition?

Actually, there is precedent for such government double-dealing. Back in the Savings & Loan crisis of the late 1980s, many solvent S&LS were encouraged by the government to absorb their weaker brethren. The government promised that as a "reward" for helping in the bailout, the acquiring institutions would be able to count "supervisory goodwill" as a plus on their balance sheets.

But then a few years later, a new law (FIRREA) was passed, basically saying that this "goodwill" would no longer count toward their capital requirements -- rendering many undercapitalized and vulnerable to government takeover. The shareholders of these institutions were wiped out. But some S&L shareholders sued the government successfully, saying the government had, in effect, reneged on its promise at the time of the takeover!

Dimon's Deal

Jamie Dimon's seemingly meek acceptance of this huge fine is highly uncharacteristic -- but deeply reflective of his terrific instincts for survival. The potential settlement deal raises many questions:

• Why would Jamie Dimon accept this size settlement, which doesn't even immunize the bank from criminal charges?

• Why haven't any of the officers of the companies that actually made the mortgages, and securitized them, been indicted? Or the individual mortgage brokers who brought the paper to the banks?

• Why is JPMorgan stock rising on news of this huge settlement?

• What will the government do with the money it receives?

• How will this deal set a precedent for other banks -- and how will these huge penalties impact the banks' abilities to make future loans to get the economy growing again?

These are not idle questions. And the answers all revolve around one huge principle: The banks may be too big to fail -- but they are not big enough to fight the unlimited resources of the Federal government!

Dimon -- and the bank's board of directors -- have simply determined that the cost and resources necessary to fight the government are more detrimental to the future of the bank than simply making a deal.

The stock market seems to agree, with the stock trading nearer its 52 week high of 56.93 than its low of 38.83 set just a year ago. Even news of the record fine does not seem to put off most investors, who prefer the deal to the uncertainty of ongoing costs.

JPMorgan will survive. Actually, it has "reserved" enough money (set aside out of profits) to pay a fine of this magnitude. And those profits come from earnings made possible because of the bank's size and because the Fed's downward pressure on interest rates doesn't impact earnings of a behemoth bank as much as it does small banks. Trading revenues (even those impacted by the "whale" trade), and other deal earnings have allowed the bank to report positive earnings every quarter until now.

So this potential settlement could be considered taxation by regulation -- the government getting its cut of the rebounding profits, along with approval from those who have been demanding the government take some sort of action. Call it the "greens fees" JPM must pay the government for staying in the game and making future profits for its shareholders.

Some of that penalty money will actually make its way into a "consumer relief" fund, intending to compensate those who were harmed, while the balance will be distributed throughout the system, state and federal, to "resolve other issues."

Any settlement is likely to set a precedent, causing other financial institutions to ante up penalties to the government, as well. And if you believe the government will use this money better than the banks could to reinvigorate the economy, then all of this will pass into history.

But there is one lesson that every generation of business leaders seems to learn anew. We all know to be sceptical when the knock on the door says: "We're from the government and we're here to help you." But even more potentially costly is the call from the government offering a promise that your business will be rewarded for helping government out of a tough spot.

That's the Savage Truth.