By Pam Martens: November 19, 2013
This morning’s Wall Street Journal headline reads: “J.P. Morgan, U.S. Reach Historic Settlement.” Call me old fashioned, but when I think of the word “historic,” it invariably conjures up good things: the August 18, 1920 ratification of the 19th Amendment giving American women the right to vote – a scant 144 years after the Nation’s founding. Historic is also appropriate to describe the November 4, 2008 Presidential election where Barack Obama became the first African American to secure the Presidential nomination of a major political party and the first to win the Presidential post – a mere 232 years after our great democracy was founded.
A Wall Street firm throwing billions at its regulators to preempt its executives going to jail is anything but “historic.” It’s now the rubric on Wall Street and in Washington. The model is so revolting that a sitting Federal Judge, Jed Rakoff, publicly criticized the policy in a speech last Tuesday.
Speaking about the 2007-2009 collapse of the financial system, Rakoff said “The failure of the government to bring to justice those responsible for such a massive fraud speaks greatly to weaknesses in our prosecutorial system that need to be addressed.” Later in his speech, Rakoff took direct aim at U.S. Attorney General Eric Holder, stating that his suggestion that some Wall Street banks might be too big to jail was “mindboggling in what it says about the department’s disregard of fundamental legal principles.”
On March 13, 2013, Wall Street On Parade exposed the bogus nature of the idea that the U.S. Department of Justice must concern itself with economic harm before indicting and prosecuting a corporation or executive, referring to the official policy of the DOJ:
“The policy is called Title 9, Chapter 9-28.000: Principles of Federal Prosecution of Business Organizations. The policy thoroughly advocates the prosecution of corporations — especially when there is a serial history of fraud as in the case of Wall Street. Here is a sampling:
“ ‘The prosecution of corporate crime is a high priority for the Department of Justice. By investigating allegations of wrongdoing and by bringing charges where appropriate for criminal misconduct, the Department promotes critical public interests. These interests include, to take just a few examples: (1) protecting the integrity of our free economic and capital markets; (2) protecting consumers, investors, and business entities that compete only through lawful means; and (3) protecting the American people from misconduct that would violate criminal laws safeguarding the environment…Virtually every conviction of a corporation, like virtually every conviction of an individual, will have an impact on innocent third parties, and the mere existence of such an effect is not sufficient to preclude prosecution of the corporation.’ ”
While not “historic” but certainly unprecedented is how long the Wall Street Journal has been talking about this elusive $13 billion settlement. It’s beginning to feel like it started in the Paleolithic era.
Back on September 25 of this year, the Journal reported in a video news clip that the DOJ had rejected a $3 billion offer from JPMorgan to settle the charges. In the clip, an editorial page editor, James Freeman, calls the DOJ’s money demands from JPMorgan a “plunder by Washington.”
On the same day, Wall Street Journal reporters Devlin Barrett, Andrew R. Johnson and Robin Sidel reported that the price tag for the settlement had shot up to $11 billion.
By October 20, the editorial page of the Journal was reporting a $13 billion settlement and running the breathtaking headline, “The Morgan Shakedown.”
The unsigned editorial said “The tentative $13 billion settlement that the Justice Department appears to be extracting from J.P. Morgan Chase needs to be understood as a watershed moment in American capitalism. Federal law enforcers are confiscating roughly half of a company’s annual earnings for no other reason than because they can and because they want to appease their left-wing populist allies.”
If the editorial page editors of the Wall Street Journal had ventured out of the Ayn Randian opinion section into the real world of news in their own paper, they would have known by the time of penning this October 20 headline asserting a “shakedown,” that JPMorgan was running what appeared to the outside world as a racketeering enterprise.
In July, JPMorgan settled charges of brazenly rigging energy markets in California and the Midwest in an Enron-esque style of trading. In that case, regulators had previously asserted that JPMorgan “planned and executed a systematic cover-up” of its market manipulations. No one has gone to jail in that matter despite obstruction of justice being a highly prosecutable crime.
News reporters at the Journal had also played a major role in bringing to light the London Whale debacle, where JPMorgan had recklessly, and in violation of safety and soundness laws governing FDIC-insured banks, placed hundreds of billions of dollars in bets on illiquid derivative trades in London using insured deposits at its commercial bank. Thus far, it has owned up to $6.2 billion in losses on those bets.
In March, speaking on the London Whale matter, Senator Carl Levin told the Senate’s Permanent Subcommittee on Investigations that JPMorgan “piled on risk, hid losses, disregarded risk limits, manipulated risk models, dodged oversight, and misinformed the public.”
Senator John McCain said of the Committee’s findings: “This case represents another shameful demonstration of a bank engaged in wildly risky behavior. The ‘London Whale’ incident matters to the federal government because the traders at JPMorgan were making risky bets using excess deposits, portions of which were federally insured. These excess deposits should have been used to provide loans for main-street businesses. Instead, JPMorgan used the money to bet on catastrophic risk.”
Given that the details of JPMorgan’s potential involvement in the Madoff fraud, rigging the Libor interest rates, and foreign currency market manipulation have yet to be detailed by the Justice Department, one has to seriously ask who is shaking down whom.
The public has recently voted on the matter.