Guess How Much More Wall St. Spends on Bonuses Than on Penalties for Torpedoing the Economy?
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Are you enraged about JPM Chase’s puny $156.3 million fine? The fine was part of an SEC settlement in which the firm "neither admits nor denies" any wrong-doing. Translation: Stuffing assets with carefully selected crap is not wrong. Creating the crap loans to begin with: Also, not wrong.
Of course you’re pissed off. I know I am.
There aren’t enough synonyms for the word "tiny" to adequately describe the size and impact of this settlement. It's a fleabite on the hand of the nation's second largest bank in punitive pain terms, and meaningless in stopping the creation of toxic assets, or reducing the criminal complexity of our banking system.
This JPM Chase settlement isn’t the first wrist slap for a financial firm’s role in killing our economy and making off with the money and the bailouts, while our political leaders scratch their heads and wonder where all the debt came from. This hush money is part of the SEC’s two-year program to address, in its own words, the "misconduct that led to or arose from the financial crisis."
So far, the SEC has charged four firms with CDO (one of the many types of toxic assets) related fraud, including Wachovia, Goldman Sachs and JPM Chase, which settled for $11 million, $550 million (plus a civil court fine of $10 million earlier this month), and $156 million respectively. Its case against ICP Asset management remains open.
The commission also charged five firms with making misleading disclosures to investors about mortgage risks, including American Home Mortgage, whose former CEO settled for a paltry $2.45 million fine and was barred from taking a director position on any board for five years; Citigroup, which settled for a $75 million penalty; and Bank of America’s Countrywide, whose former CEO, Angelo Mozilo agreed to a $22.5 million penalty and was permanently barred from being a paid director of a public company (it was a fraction of his pre-crisis $470 million take). Additionally, New Century executives were fined $1.5 million and barred from sitting on corporate boards for five years. There is an ongoing case against IndyMac Bancorp.
In addition, the SEC charged six firms with concealing the extent of risky mortgage assets dumped into mutual funds. Charles Schwab settled for a $118 million fine – it is running an expensive TV ad campaign that doesn’t mention this. Evergreen, TD Ameritrade and State Street settled for $40 million, $10 million and $300 million fines respectively.
Separately, Bank of America agreed to a $150 million settlement for misleading its investors (read: the people who own stock in Bank of America) about bonuses paid to Merrill Lynch executives, and for not disclosing Merrill Lynch's mounting losses, before taking the firm over in September 2008. This didn't stop the Federal Reserve and Treasury Department from ardently pushing the Bank of America/Merrill Lynch merger. Neither entity has said word one about the irony of making a big bank (notably one that required the SEC investigation to begin with) bigger.
The trivial JPM Chase settlement appears even smaller when compared to the financial goodies the bank received in the wake of its financial crisis. Despite CEO Jamie Dimon's disingenuous, though fervently delivered, remarks to the contrary (he didn't need a bailout, he took it for the "team" so no bank would be singled out, with a scarlet B of bailout shame), JPM Chase, at the height of the federal bank subsidization program, got nearly $100 BILLION dollars worth of -- help.
That figure included: $25 billion from the TARP fund, which has since been repaid, $40.5 billion of backing from the FDIC's Temporary Liquidity Guarantee Program (TLGP), which has since been retired, about $6 billion through the TARP HAMP program which aided a fraction of underwater borrowers, and $28.8 billion of Fed-backed, Treasury-pushed money to cushion any potential losses that could result from its takeover of Bear Stearns. Not to mention, JPM Chase got lots of government support when it took over Washington Mutual.
Then, there’s the matter of Dimon’s 2010 $17 million stock bonus.
There are those who perpetuate the myth that the bailout program was a success. They dogmatically equate the entire multi-trillion-dollar bailout, to just the $700 billion TARP part, as if the trillions of dollars of extra securities still bloating the Fed’s balance sheet, among other items, don’t exist. These people tend to either run the Fed, Treasury Department, any Administration, work for the Wall Street Journal, or are Andrew Ross Sorkin.
Yes, most banks repaid that TARP money -- with interest. But, that’s pretty easy to do when you get to borrow from the Fed at zero percent.
Banks want us to believe that this widespread, prolonged economic depression has nothing to do with them, that they were innocent participants in an unforeseen situation that spiraled out of control. A perfect storm. Many mainstream economists concur. Sure, banks made some mistakes, but who didn’t? It’s not like banks had access to more information and shady techniques than regular people. What about that guy in Vegas who took out a double mortgage on his devalued home? – it was his fault, too.
Leaving aside the tepid characterization implied by the term "misconduct" instead of say, "racketeering," these fines don't, and won't, change the banking landscape. They won’t halt the manufacturing of potentially toxic securities crafter from the droppings on the dirty floor of banks’ books. They don’t stop banks from legally taking multiple sides of any trade in the name of "market making."
The SEC seems fine with that. The SEC was founded in conjunction with the Glass-Steagall Act that separated banks that dealt with the public's deposit and financing needs, from those that created and traded speculative securities for profit. It would be prudent to suggest a modern equivalent of that act. It might help the SEC do its job of protecting the public before devastation, or at the very least, untangle the web of fraud and debt at the core of these complex giants.
But, that won’t happen. Not as long as small fines, absent any attached probation, stringent monitoring or cease-and-desist requirements, can slowly make the issue go away. It takes longer to argue a traffic ticket than the three months it took Goldman Sachs to "agree" to a $550 million settlement on July 15, 2010. People caught with minor amounts of pot undergo stricter punishments.
In total, the SEC charged 66 entities and individuals with misconduct, imposed bans to becoming a board or company director on 19 people, and levied $1.5 billion of fines. Millions of homes and jobs lost. An economy in shambles. And that’s it.
Put that in perspective with the $28 billion in bonuses that JPM Chase scooped up for just 2010, or the $424 billion in total bonuses the top six banks bagged between the crisis book-end years of 2007-2009, or the $128 billion of bonuses Wall Street got last year. Now, consider that not only is the penalty amount a pittance, but the impact of these fines is even smaller. This, amongst a host of regulatory misfires, including the tepid Dodd-Frank "reform" act, leaves us worse off from a stability perspective, than we were before the crisis.
And no one, from any party, said a damn thing about it.