We've Seen One Prosecution, but Make no Mistake: "Too Big to Fail" is Still "Too Big to Jail"
Some of the headlines about the conviction of hedge fund manager Raj Rajaratnam are misleading or just plain wrong. The Rajaratnam guilty verdict won't "change the way Wall Street does business" - not where it matters most. Too Big to Fail banks will continue to endanger the economy because they know they'll be rescued again. And they'll keep on breaking the law, knowing that even if they're caught they'll be protected from prosecution.
And yet, instead of being grateful, bankers like JPMorgan Chase CEO Jamie Dimon will continue to publicly sulk about their own perceived mistreatment. That can be annoying, since the U.S. taxpayer saved their corporations, their careers, and their wealth from the consequences of their own mismanagement.
But in the end all this public posturing is just a form of territorial primate display, like mandrills showing their brightly-colored posteriors to zoo visitors. These bankers are reminding us that this country's economy and government are their territory and we're just trespassing on their mating grounds. To paraphrase an old Sam and Dave song, "It's their world, we're just living in it."
Any aggravation felt as a result of their actions can easily be overcome through a rigorous program of spiritual and emotional self-improvement - or so I'm told. Here's the real problem: If you combine the egocentric and self-absorbed vituperation from these CEOs with the fact that their institutions can continue to commit crimes without fear of prosecution, it means that Wall Street enjoys state of "undiplomatic immunity" that endangers the entire country.
Whether it's Dimon's whine du jour, Bank of America CEO Brian Moynihan's arrogant sarcasm, or Washington's love affair with the CEO of serial corporate lawbreaker GE, the arrest of a hedge fund manager or two is insignificant as long as Wall Street's real power brokers remain immune from investigation. The Rajaratnam conviction doesn't change the underlying reality:
Too Big to Fail is still Too Big to Jail.
Rajaratnam sounds like a big fish. He ran a $7 billion hedge fund and was convicted of making $63 million from criminal behavior. But one bank alone, Dimon's JPMorgan Chase, has already given up three quarters of a billion dollars to settle charges after it systematically bribed government officials in Alabama. Dimon's Chase has set aside another $2.3 billion to settle additional lawsuits that are expected to arise from other illegal acts on its part.
Jack Palance's line to Billy Crystal in City Slickers was "I cr*p bigger than you." Dimon's JPMorgan Chase excretes legal settlements that are bigger than Raj Rajaratnam.
How big are the biggest banks in America? Bank of America has $2.27 trillion in assets. JPMorgan Chase has $2.2 trillion. Citigroup has $1.97 trillion. Wells Fargo has $1.2 trillion. Compared to them, Rajaratnam's hedge fund is just a rounding error.
Raj Rajaratnam isn't a big fish. He's a guppy.
Busting up the wrong gang
This conviction is "just the start," we're told. Other members of Rajaratnam's Galleon fund have been targeted, along with Silicon Valley executives and employees of other investment funds. And we're told that the SEC's investigation is broadening to address the idea of "expert networks" that link industry professionals (i.e., in technology) with hedge fund investors.
To be sure, "expert networks" are dubious at best and downright illegal at worst. Business Insider did a useful round-up of firms who advertise themselves with phrases like these: "a global knowledge broker connecting professionals seeking specialist knowledge with those possessing it" ..."connects the investment community and advisory firms with leading industry specialists around the globe in order to access key market information" ... "the premier provider of expert consultation, market intelligence, advisory services, investment, and events for the China market."
To the untrained eye, that sounds a lot like insider trading. And to the trained eye it sounds a lot like insider trading.
A very gray, very faint line divides "networking between the investment community and experts in the industry" and the illegal exchange of information between investors and experts. And it can be crossed in a heartbeat. In can be crossed in the course of a four or five-sentence answer that a "industry specialist" gives to a question from "a member of the investment community."
So it's worth investigating. But it's not the source of our economy's systematic danger ... or its systematic corruption. The Rajaratnam conviction may be "just the start" of something useful. But it's not going to fix our worst problems.
Big and Bad
We never learned our lesson from the 2008 crisis. Instead of ending Too Big to Fail, the government has encouraged it. It's been helping larger banks acquire small ones. There were 157 bank failures last year, and there are now roughly half as many banks in the U.S. as there were 20 years ago. And most industry experts agree that consolidation in the banking industry will continue.
What's much worse is the fact that the top banks are getting bigger, not smaller. The "Big Four" - Citigroup, JPMorgan Chase, Bank of America and Wells Fargo - had 32% of the market before the 2008 collapse. Afterwards they had 39%, and they continue to grow.
And these corporations are all serial outlaws. Each of them has been deeply implicated in widespread mortgage fraud that includes the forging of court documents, a crime for which the Attorneys General for fifty states are reportedly reducing a proposed slap on the wrist to a proposed gentle kiss on the back of the hand.
We've already described some of the crimes committed by Dimon's JPMorgan Chase. The number of criminal indictments that resulted? Zero. Another "Big Four" bank, Wells Fargo, systematically laundered drug money from the cartels that have murdered 35,000 people in Mexico. Number of criminal indictments? Zero. Citigroup violated SEC law regarding corporate disclosures, engaged in illegal rate activity toward credit card customers, and is under investigation for aiding and abetting a Ponzi scheme. Number of criminal indictments? Zero.
(A more detailed description of these banks and their rap sheets can be found here.)
So forget all of those headlines that say Raj Rajaratnam's conviction will "change everything." The government is still targeting small fry and trying to convince the public it's getting the people who have ruined their lives. It's not. Justice won't be served, and we won't be protected from the next crisis, until executives from the major U.S. banks are seriously investigated for their roles in the criminal behavior that has already been admitted to and addressed with a wave of large financial settlements.
It's time to get real about Wall Street crime, before it brings down the economy again. And it's time to end Too Big to Fail.
If Raj Rajaratnam's conviction fails to convince the public that the government's cracking down on bad bankers, they'll need another target for the public's wrath. Who knows? Maybe they'll arrest Martha Stewart again. Or they can get serious, and investigate the people whose crimes have done so much damage and may very well do more in the years to come.
As Martha might say, that would be a good thing.