Six or eight months ago, back in the winter of practically everybody’s discontent, Jamie Dimon, superchief of superbank JPMorgan Chase, pulled the plug, renouncing Wall Street and perhaps unbridled greed, saying: – but let’s defer to the official news story, as reported in these grubby online pages:
In a modest executive suite in New York, Jamie Dimon, Chairman and CEO of JPMorgan Chase, was announcing his own about-face and condemnation of Wall Street banks and the 1% he rode in on. Often mentioned by JPM’s PR department as the most responsible Master of The Wall Street Universe, Dimon has long been outspoken as a critic of banks and bankers, but now it appeared that he wouldn’t be hanging around any longer to cast the first stone.
He chose the Financial News in the U.K. to publish his public letter of resignation, perhaps because he had a problem getting the domestic media to handle it. Both falling on his sword and skewering The Street were scarcely compatible with American values and the surging Dow.
Dimon declared that he was tired of continuing in the ‘bankrupt moral culture’ of international finance, calling for a criminal investigation into wrongdoing in the major Wall Street banks, including his own, preferably after his own departure. He declared his intention of doing yoga, not to mention retiring to Alaska and acquiring a modest salmon farm, hinting that it was the equivalent of a witness protection program.
Reaction on the Street was ho-hum. Financial analyst Ferdinand Pecora noted that Dimon’s public rant against Wall Street would produce a very limited impact. While Republicans and bankers greeted Dimon’s apparent choice of Palin’s preserve over the Street of Dreams with nervous silence, it was apparent that they had little to worry about.
“The FBI and SEC,” soothed Pecora,”have ignored every other clue they’ve gotten so far about financial crime, so I don’t expect things to change. The banks own thousands of lobbyists, congressmen, and government regulators. They’ll be just fine.”
Neither the SEC nor the Attorney General of New York returned our calls.
No matter. Jamie Dimon, as this is written, hasn’t yet departed for his fish farm in Alaska. He’s been too busy to get away, because Pecora was a little premature. While “the FBI and the SEC” may have dithered, the Justice Department apparently took Dimon’s word for it. While JPMorgan Chase of late may have been preoccupied with a $6 billion hit (“The London Whale”) brought about by sloppy traders, the most recent $13 billion fine levied by the Justice Department figures to be JPM’s Moby Dick, the dick played by Attorney General Eric Holder. Although 13B is kind of like small change for a trillion dollar player, it’s nevertheless unsettling. And it may at least have persuaded Dimon to postpone his fish-farming career.
The tab referred to is a civil settlement, allegedly for JPM’s mortgage lending practises. You remember the disturbance beginning back in ’08? It turns out that the Justice Department, like the Vatican, has the power to deal, and in the event convert felonies to sin, which can be absolved with an appropriate payment.
But first, a little background for those readers who haven’t done Finance 101 or read a Wall Street Journal in the last five years.
JPMorgan Chase, while not too big to nail, is the largest bank in the nation, with assets oh, around $2.5 trillion. It does everything from Mom and Pop over the counter banking to issuing stocks and bonds for mega companies and mega governments, while its traders do stuff like bet on the future of Libor rates. (Never mind, class — you don’t need to know what Libor is until your sophomore year.)
JPM has around a quarter of a million employees, which is more than Orlando, Florida has residents. It also has more money. It’s also more interesting than Orlando, even throwing in The Magic basketball team.
JPM’s origins extend back to 1799, when Aaron Burr, who had founded the Bank of the Manhattan Co., dueled with (and killed) Alexander Hamilton, the first Treasury Secretary, who funnily enough was also a Wall Street lawyer. Following the duel with Burr, Hamilton was buried in Trinity Church, overlooking Wall Street for all eternity, and figuratively at least, providing a permanent bur under the saddle of Burr’s Bank and all its progeny. I dunno, the hex may have been a factor, because 200-odd years and a thousand bank acquisitions later, Jamie Dimon, Aaron’s ultimate successor, wouldn’t think of shooting Jack Lew, the current Secretary of the Treasury Eric Holder, maybe.
In the interim, J. Pierpont Morgan’s bank, the successor to Burr’s Bank, funded the country’s rail system, the Brooklyn Bridge and the Panama Canal. J. Pierpont was pretty cool, quite good looking according to the daguerreotype photos of the time, as is Jamie Dimon himself. In fact, Dimon looks a little like Chuck Hagel, without the bags under the eyes.
Anyway, J.P. Morgan merged with Chase Manhattan in 2000, and so begat the current JPMorgan Chase. It is run by Jamie Dimon, who along with Sandy Weill constructed the Citi financial empire before joining JPM, and who is arguably the most successful banker of his generation. Dimon, according to the Washington Post, also has better hair than J. Pierpont Morgan, not to mention a considerably enlarged net financial avoirdupois.
Students, you’re aware of the mortgage-backed securities (MBS) dodge. First, the banks engaged in mortgage securitization, re-selling conventional mortgages, and then bundling them together to create a security like a bond issue, which they carved up into bite-sized chunks for individual and institutional investors. Great. Except that these bundles, although they were sold as triple-A merchandise, included a lot of Triple-B’s and even Triple-C’s. “Toxic mortgages,” in Street lingo. Which is to say, junk. That was one of the central reasons for the Great Crash of 2008.
Stated simply, the big players like JPM acquired this mountain of garbage, sold it as quality investment-grade merchandise, and then proceeded to bet against the success of the investment through options known as credit default swaps, a shuffle that would make a Vegas casino operator blush. As one isolated example of the fraudulent securitization of supposedly quality mortgages, the Washington Post cited the following:
“Fay Chapman, WaMu’s (Washington Mutual’s) Chief Legal Officer from 1997 to 2007, relayed that, on one occasion, ‘someone in Florida made a second-mortgage loan to O.J. Simpson, and I just about blew my top, because there was this huge judgment against him from his wife’s parents.’ When she asked how they could possibly close it, ‘they said there was a letter in the file from O.J. Simpson saying ‘the judgment is no good, because I didn’t do it.'”
And JPM, acquiring Bear Stearns and Washington Mutual, respectively a Wall Street House and a leading mortgage lender, were into the MBS va-et-retour hustle up to its corporate posterior.
This, class, is not simple Wall Street sin, with which you may be familiar, but outright, AAA criminal fraud of the worst order, and I do not refer to the American Automobile Association. Not that JPM is the only bad guy. At least 17 of the topless towers around Wall and Broad were in on the hanky-panky.
But here’s a funny one, which illustrates that it isdn’t a simple issue — the pre-2008 squeaky-clean banks, such as JPM and Bank of America were some of the biggest losers because as Wall Streeters were folding (like Bear Stearns) from the weight of the toxic inventories, they – the big banks — moved in and bought them and thereby inherited a Pandora’s box of fraud to visit on their own shareholders. In the case of Bank of America, they bought Merrill Lynch and Countrywide Financial.
So nu? as my Jewish aunt used to say: As an individual, if you adopt a criminal, you’re not necessarily liable for his crimes. But in the financial world, you are.
It’s also argued that Hank Paulson and Tim Geithner, as successive successors to Alexander Hamilton, pressured the good guys to acquire the bad guys. But that apparently isn’t enough to absolve the former. Nobody that I know of can force you to marry a pregnant girl.
So the $13 billion settlement will be devoted as to $9 billion to a fine which will help repay the taxpayers for the Big Bail-out. The other $4 billion will go to a fund to help needy homeowners struggling with underwater mortgages.
Maybe it was the underwater analogy that first suggested to Dimon that he forsake everything for fish farming. In any event, that’s why Jamie Dimon is still around The Street. In February, he’d declared that he was fed up with the crime on Wall Street and that there should be investigations. He got his wish, although it delayed his retirement to spend more time with his fish farm. But even though his own firm was implicated in this huge settlement, you can only marginally blame the father-in-law of a pregnant girl so far.
JPM’s shareholders appear to agree. In a recent proxy vote, 98% of them expressed their confidence in Jamie Dimon’s leadership.
And in the larger picture, and for the long term, it’s apparent that Dimon is the Street’s best friend.