Why Is Jamie Dimon Still Running JPMorgan?

In a dry “statement of facts,” the bank admits to taking part in one of the biggest frauds in history. Shouldn’t a minimum penalty be resignation?

Jamie Dimon, chairman of the board, president and CEO of JPMorgan Chase & Co. testifies before a US Senate Banking Committee full committee hearing on 'A Breakdown in Risk Management: What Went Wrong at JPMorgan Chase?' on June 13, 2012 on Capitol Hill in Washington, DC. 
National Journal
Michael Hirsh
Add to Briefcase
Michael Hirsh
Nov. 20, 2013, 10:11 a.m.

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.

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