By Tom Cushing
When $13 Billion May Not Be EnoughUploaded: Oct 25, 2013
JP Morgan Chase ("Chase") and the Department of Justice have announced a tentative settlement of charges related to the bank's actions during the mortgage debt crisis of 2008. Non-TeaPartiers will recall that those shenanigans by Chase and others mattered they nearly brought the world economy to its knees. The raw settlement number is astounding: $13,000,000,000. Lots of zeros. Such is the absurd nature of our times that they may have gotten-off easy.
Essentially, the big banks, their larcenous instincts no longer fettered by pesky former regulations, handed-out home loans like Halloween candy. Then they bundled those confections together, represented them as healthy, and sold-them-off to other famished greedies. All was well, until those worthless securities made their holders sick some fatally. Taxpayers were called-upon to contribute monetary transfusions to the errant institutions, and in the process free markets in construction and real estate suffered long term disabilities.
Washington being what it is (have you read This Town? Yikes), it has taken just short of forever to investigate the banksters' chicanery, and try to bring charges against them. It should also be recognized that the scale here is massive, and buys the services of the very best lawyers, remarkably practiced at the arts of diffusion and deflection of blame.
The recent chronology has Chase Chairman Jamie Dimon calling Attorney General Eric Holder (a former partner at one of the greatest of those law firms), to intervene in the process lest any actual charges actually be brought. The parties were then far apart Chase had offered a good round, but measly $1 Billion to end the matter for good.
That number quickly grew, first to $7 billion, then $11 billion and it came to rest at $13 billion, with some behaviors and potential charges not included. Portions of that total will go to investors and to homeowners, by some means. That's a very large sum bigger than the annual GDPs of some seventy nations, and enough money in hundred-dollar Benjamins to stretch halfway 'round the globe.
So then, why do I have the sneaking suspicion that Chase got off cheap? There are several reasons, all from a distinctly outsider's perspective.
First, it's the speed with which that number was obtained, and the mammoth contrast with Chase's previous bargaining position. True, when the senior officials get across the table, breakthroughs can occur. And Mr. Dimon certainly had access to the actual value to the bank of avoiding those charges. Still the pace was breath-taking and makes me wonder how much water remained in the settlement well. We do know, for instance, that Chase had earlier set aside a $28 billion litigation contingency fund. Tax law alchemy, we're told, will further reduce the bank's loss. Somehow, at second glance, paying a minor fraction of that contingency fund seems less impressive.
Second, there's the apparent absurdity of nearly everything that's transpired in the run-out from this crisis. An acquaintance walked-away from his submerged house after not paying for a significant period, and got a large check from his lender for doing it so-called "cash for keys." Then he joined an action against that bank and got another check -- even larger than the first. Finally (so far), he registered for yet another mortgage settlement, and got a third big check practically by return mail! He has no idea why. He has been bought-off, for reasons beyond his knowing is it not a fair assumption that whatever the bank really did was a great deal worse?
Third, in the land of gee-whiz numbers, $13B is no longer much of a king. Chase's one-year earnings in 2012, again in Benjamins, would go all the way around the world. The financial sector in the 21st century is mammoth beyond the familiarity of most folks. So, is $13B a lot? I'd have to answer, with Les McCann "compared to what?"
Finally, what's missing here? I'd suggest that it's actual accountability the kind that stands a chance of deterring actions taken on those baser instincts in the future. When fraudulent behavior, that compromises the interests of everyone in the world who's earning above a bartering subsistence level, can be translated into a cost of doing business -- there may simply be No number that's big enough.
Nobody's going to jail here hell, everybody's keeping their jobs. The Chase shareholders, who will bear some fraction of the penalty in lost earnings, may grumble. That said, I'll be astounded if, fully spun, it costs Mr. Dimon so much as his bonus, much less his job or his freedom for a time.
Until that kind of consequence occurs, we're going to get more of the same chicanery, to which we are subject, and about which we can do next-to-nothing. The game appears rigged, and all we can do is watch, and wonder.