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My Thoughts on JP Morgan’s $13 Billion Fine

Posted by Larry Doyle on October 21, 2013 10:12 AM |

Does a $13 billion fine such as that levied against JP Morgan represent justice?

I was asked by my friends at Global Economic Intersection to weigh in on the following questions regarding this penalty seemingly so large as to be hard to fathom.

Is the reported settlement appropriate?  Sufficient?  Insufficient?
How many criminal charges would be appropriate?  None?  Operational management?  Executive management?
If you believe the action by DoJ is appropriate, has it been timely?
Should there be similar action against other banks?
Should settlements be sought in other areas of finance besides mortgages?  What areas?
Should fraud and other criminal charges be brought in other areas of finance besides mortgages?  What areas?

I welcome sharing my responses with additional color here.

A $13 billion fine is almost hard to fathom. That number represents approximately 60% of the firm’s net income for the year 2012.  Is the number sufficient or insufficient? Although the fine is enormous in size, it is virtually impossible to characterize whether it is sufficient or not without knowing the context in which it is being assessed. Additionally, what were the specific size, scope, and dollar value of the of the damages from the products and activities which regulators and judicial officials point to in determining this fine? Without that knowledge, one is hard pressed to say whether this fine is appropriate or not.

How many criminal charges would be appropriate?

It is hard to imagine that a fine of this size could be levied without some sort of criminal activity having occurred to warrant it. From that standpoint, the activity would seem to have been so broad in scope so as to render the enterprise as having engaged in a control fraud if not a racketeering enterprise. It defies logic that executive management could not have been aware and signed off on the activities involved. Additionally, how could the bank executives have been able to sign off on annual reports as dictated by Sarbanes Oxley if there were activities engaged in which led to a fine of this size?

The other question left unanswered is where exactly did the activities in question take place. I think it is safe to assume that a meaningful percentage of the activities took place at Washington Mutual and Bear Stearns prior to those firms having been taken over by JP Morgan at Uncle Sam’s behest. It strikes me as disingenuous that Uncle Sam should fine JP Morgan and promote this fine as dispensing justice when JPM was acting on behalf of the government. That said, JP Morgan has accrued enormous benefits from those transactions. The issue here is justice being misdirected. To the extent that the activities in question took place at WaMu, Bear, and/or JPM, then the justice is best directed by pursuing the individuals involved in the activities from both a criminal and civil standpoint.

Additionally, if the fine levied directs JP Morgan to help homeowners by restructuring their mortgages, then JPM is not bearing the cost of that portion of the penalty but rather mortgage investors. Justice misdirected is once again justice denied.

If you believe the action by DoJ is appropriate, has it been timely?

I do not believe the DoJ action is timely, but rather has been undertaken at this point in time so as to disallow related suits from being pursued due to statute of limitations. A lot of water, i.e. timely evidence, has gone downstream over the last 5 years. Opportunity lost and justice once again denied.

Should similar actions be taken against other banks?

It appears that the Department of Justice is ready to roll out a similar sort of fine against Bank of America. I would make the same points in regard to that fine as I do here.

Again, we need to know the specifics as to what exactly occurred and is being fined. Assuming it is the origination, securitization, and distribution of fraudulently originated mortgage products, then yes, other banks should be similarly pursued but more importantly the executives involved in overseeing the banks’ activities should be held accountable.

Get Kerry Killinger from WaMu, Angelo Mozilo from Countrywide, and Jimmy Cayne from Bear Stearns back in here. Oh, but Angelo had so many Friends of Angelo atop Capitol Hill so we all know how that works. And while we call Kerry, Angelo, and Jimmy to put them on the stand, I guess we should do the same with their Capitol cronies starting with Chris Dodd.

Should settlements be sought in other areas of finance besides mortgages?  What areas?

Should fraud and other criminal charges be brought in other areas of finance besides mortgages?  What areas?

Aside from mortgages, the other market sector that is screaming to be addressed is the opaque derivatives market that was promoted as a risk mitigant but was in fact a risk accellerant. I strongly believe that a lot of the insider activity on Wall Street was transacted through the derivatives channels.

In conclusion, transparency remains the great disinfectant. Fines are little more than blankets that obscure meaningful justice from being dispensed and misdirected from those who engaged in and profited from the activities in question.

The costs of not properly dispensing justice are an ongoing degradation in the rule of law and an erosion of trust and confidence in free market capitalism.

We need a full accounting of all that transpired if we hope to advance as a nation.

Navigate accordingly.

Larry Doyle

Please pre-order a copy of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy, that will be published by Palgrave Macmillan on January 7, 2014.

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I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Peter Scannell

    From what I have read, a settlement also would require JP Morgan to cooperate with the DOJ investigation of individuals at the bank that may have been duplicitous regarding fraud, the statute of limitations for wire fraud is 10yrs.

    And there is still the matter of Madoff’s checkbook – JP Morgan was the only large institutional investor able to bailout of the Madoff Ponzi weeks before the proverbial shit hit the fan.

    • LD

      Peter,

      I think I speak for thousands — perhaps millions — in stating that we could only hope that meaningful transparency could be brought to bear on any/all of these matters.

      To date and for far too long, as you well know, all we have gotten is frustration.

      Our only means of recourse is to continue to bring pressure on those involved on all sides of the table and call them out.

      I thank you for doing so with forcefulness and regularity.

  • James

    Good article-

    Larry, we NEED something that has teeth.

    World English Dictionary
    perp walk
    — n
    informal ( US ) an arranged public appearance of a recently arrested criminal for the benefit of the media

  • Russ

    Larry,
    This fine is a cover for BOTH Wall Street and the government. They need a cover that looks like it’s punitive, when in fact, it’s simply a payment to keep the game going. With enough attention on the government from books like “Griftopia” and a FEW media outlets and blogs, the government can’t appear to be in the tank for Wall Street (of course they are).

    Likewise, the fine needs to appear to be harsh. My guess is that the government said to JP Morgan, “don’t worry about it, we’ll take care of you with some inside information down the line.”

    The ONLY thing that will stop this game is to make campaign contributions of any sort, illegal.

    Can’t wait for your book. I already ordered it.






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