Responsibility: It's one of the first things we teach our children. If you steal a cookie, admit it. It'll make you a better adult. Those rules still apply — except on Wall Street, apparently, no matter how many cookies they steal.
In other cultures less litigious than ours, like Japan's or Korea's, misbehaving executives will bow and sometimes bawl in front of the cameras, begging the public's forgiveness before resigning. But Jamie Dimon is straight-backed and dry-eyed today. And smiling broadly, of course. Dimon has put most of his legal problems behind him, and now presumably he can continue on course as CEO of the world's largest bank, JPMorgan Chase.
Even though Dimon has just publicly acknowledged, in effect, that his companies took part in one of the biggest frauds in American history.
You missed that confession, you say? Don't feel bad. So did almost everyone else. It is contained within the dry "statement of facts" that accompanies JPMorgan's historic $13 billion settlement this week. The key sentence reads: "Employees of JPMorgan, Bear Stearns, and WaMu [Washington Mutual, which along with Bear was purchased by Dimon] received information that, in certain instances, loans that did not comply with underwriting guidelines were included in the RMBS [residential mortgage-backed securities] sold and marketed to investors; however, JPMorgan, Bear Stearns, and WaMu did not disclose this to securitization investors."
Translated into plainer language, Dimon appears to be conceding that during his tenure as CEO, JPMorgan executives and salesmen massively defrauded investors in the subprime craze by lying about the true quality of the housing assets they were selling as securities, and also that they financed loans they knew borrowers couldn't afford to repay.
Let's step back and question whether, just perhaps, Jamie Dimon ought to feel just a little personal pain over this. As conducted broadly by Wall Street, these practices nearly destroyed the U.S. economy, and we are still feeling the devastating effects today. For this "unlawful" conduct, as the Justice Department statement toughly describes it (but which JPMorgan doesn't admit to), the bank will pay out $4 billion of the $13 billion "in the form of relief to aid consumers."
Case closed. What that means is that Dimon is getting away with a minimal acknowledgment of wrongdoing in what some financial experts have called the greatest scam ever perpetrated. Indeed, Dimon's confession scrapes the bottom of responsibility so lightly that the only mention that appears in the settlement agreement itself is a reference that reads: "JPMorgan acknowledges the facts set out in the statement of facts," which appears without any signatures. The deal will fold up most of JPMorgan's civil cases, and the only criminal case the Justice Department is pursuing is a narrowly drawn one in California that won't touch Dimon or any other executive in New York.
(A JPMorgan spokeswoman did not respond immediately to an email asking whether the bank's "acknowledgment" of the Justice Department's statement of facts is tantamount to an admission of wrongdoing.)
Now, getting Dimon to go even this far was a huge triumph for Attorney General Eric Holder and the Justice Department, which had come under withering criticism in recent months for its failure to hold Wall Street to account. Previous settlements had not included any acknowledgment of wrongdoing. Former critics are praising the agreement as a precedent for other Wall Street investigations.
"Given the pattern of prosecutorial passivity since Lehman's failure, I was expecting that protection against indictments would have been included in this settlement."¦ It emphatically and expressly was not," says Michael Greenberger, a legal and financial expert at the University of Maryland. "Doing something, even appearing to do something, is answering the frustrations of a vast majority of Americans, who facing the worst economic environment since the Great Depression (with no end in sight) want to see accountability for those who caused it, those who were rescued to the tune of trillions of taxpayer dollars and those who are now in financially better shape than everyone else. It is not fair. And, this settlement and the statements surrounding it for the first time since Lehman failed begin to answer that bipartisan anger."
Others say the result is disappointing. "I feel like it's too little, too late," says Kathleen Engel, a financial fraud expert at Suffolk University. "This is not new information. People have been making this point to federal regulators and to the state attorneys general for six, seven years. And in the meantime the courts were unwilling to entertain these lawsuits. If the federal government had acted in face of this evidence sooner, then cities and borrowers damaged by these loans might have found more relief sooner."
Indeed, the "statement of facts" appears to be a confession that there was a great deal of merit to lawsuits like the one the city of Cleveland (which suffered one of the highest foreclosure rates in the country) filed in 2008 against JPMorgan and 20 other major investment banks. That lawsuit contended that Wall Street's finest were a "public nuisance" that depleted Cleveland's tax base and destroyed its urban-renewal programs. "Over the course of several years, financial institutions routinely made money available to unqualified borrowers who had no realistic means of keeping up with their loan payments," the lawsuit said. "This phenomenon claimed entire streets, blocks, and neighborhoods."
The lawsuit was eventually dismissed. And Jamie Dimon is smiling.