Wednesday, January 8, 2014

JP Morgan coughs up more cash but its better than jail.

By Richard Mellor
Afscme Local 444, retired

There’s some really good news to report on today. JP Morgan, the largest US moneylending outfit by assets had to pay a $2.6 billion penalty to keep government regulators and legislators noses’ out of their books.

This comes on top of some $13 billion the bank paid already due to role in the crash. The company was also hit with a $1 billion fine for the questionable trading practices at its London branch that has notched up some $7 billion in losses. 

The latest penalty is for the bank’s role in keeping Bernie Madoff’s Ponzi scheme out of the public eye.  Naturally, the bank had something to say about this: “JP Morgan said it recognized it could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time”.  “JP Morgan”  told the FT this because the bank is a person you see.

As far back as 1998 and then again in 2007, JP Morgan “declined to invest in Madoff funds” the FT says because, as one manager put it, the returns were, “too good to be true.” Anyway Madoff refused to meet with them. The bank said also that it didn’t believe any employee, “knowingly assisted Madoff’s Ponzi scheme.” We’re dealing with a very talkative bank here. Talkative as it is though, it never mentioned anything to authorities until after Madoff was arrested. 

Business Week estimated late last year that when BofA’s $8 billion penalty for selling faulty mortgages to Fannie Mae and Freddie Mac is included, the total paid by the banks was $93 billion.  JP Morgan has put aside $23 billion to fight legal battles arising from its practices (currency manipulation is another). Madoff is estimated to have stolen some $50 billion, mostly from rich folks.  They don’t like it when their own kind steals from them; there has to be honor among thieves. As BusinessWeek pointed out in October of last year,  “It remains the case that no high-ranking Wall Street executives have been criminally prosecuted or seen the inside of a courtroom since 2008.”

As Ipointed out in a previous commentary last November, “The banks’ profits are so lucrative though that they’ll face the music with fines, better that than jail terms.  The banks just had two straight quarters of record profits according to the FDIC.  'This years fines may be large but don’t come close to undoing the profits banks made in the subprime craze’s headiest days' says BW. Barry Ritholtz, author of “Bailout Nation” puts it a another way, 'We’ve taken what used to be jail terms—and that should in theory prevent that kind of behavior from happening—and instead it became, ‘Let’s engage in some extralegal activities, we’ll pay some penalties, but we’ll make a load more in revenue,’ he says. 'If I steal a billion dollars and have to give back $500 million as a fine, I’ll take that trade every day. Every day.'"

Just think about the figures here and remember that it is the tip of the iceberg.  The $23 billion the moneylenders are spending to cover legal expenses would go a long way to solving a few problems in in society wouldn’t it?  The $93 billion it’s already paid would too. And, as BW points out, it’s chump change to them.

I started off reading this news with my position that the entire financial industry should be nationalized, it should be taken in to public ownership and the capital they store, the wealth of society that is deposited in them, should be allocated on the basis of social need. Committees composed of workers, representatives of community businesses, community organizations, unions, youth etc. can determine the best social use of our surplus.  In other words, it is not the savings of the worker or community business (they can receive cheap loans) that is taken in to public hands, but the institutions themselves and their content managed and distributed through a collective democratic socialist plan.

However, the Financial Times article convinced me to change my views, I was concerned JP Morgan may not be able to change it’s ways, but when I read a bit further, I see I can breathe a sigh of relief, “As part of the deferred prosecution deal, and fine which spares the bank from criminal prosecution in exchange for the payment…” says the Times (did we vote on that?), the bank made a “…promise to reform its practices.”

Problem solved.

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