In the decade or so since the onset of the financial crisis, JPMorgan Chase has racked up 52 fines and settlements with various agencies of the federal government, totaling $28.8 billion.
It’s an impressive array of infractions: bribing Chinese government officials; violating economic sanctions against Iran, Cuba and Sudan; being complicit in the Bernie Madoff investment scandal; rigging interest rates; manipulating energy markets; alternately ripping off and bribing local governments; retaliating against a whistleblower; deceiving regulators about trading data; and creating a litany of mortgage abuses and related scams involving the sale of bad mortgages to investors. The complete list, compiled by the Good Jobs First nonprofit, includes employment discrimination, accounting violations and unpaid wages, among other abuses large and small.
JPMorgan, which declined to comment for this article, is hardly unique. For many years now, the United States government has treated corporate fraud and abuse as a line-item cost on a balance sheet, not a matter of public trust and accountability.
Which is why Janet Yellen’s final action as chairwoman of the Federal Reserve was so surprising. Late Friday, the Fed ordered Wells Fargo to replace four members of its board and barred the bank from further growth “until it sufficiently improves its governance and controls.” The decision is rightly being interpreted as a milestone in the central bank’s regulatory oversight of the financial system, a belated government censure for a scandal in which Wells Fargo created millions of bogus accounts for customers over the course of several years.
The Fed could, of course, go further. It has the power to ban individuals from the banking industry for life ― a penalty routinely deployed against tellers who pocket $20 bills from the register. It didn’t invoke that authority or name any specific directors in its order. And if the central bank wants to be consistent about its oversight of big bank abuse, there is no reason to exempt other serial offenders from the crackdown. Wells Fargo’s account scandal is unique, but JPMorgan, Goldman Sachs, Citigroup and Bank of America each have a long, long list of federal fines and settlements to their names in the years since the crash.
But Yellen’s parting shot against Wells Fargo is a significant departure for an institution that simply has not taken serious action against the leaders of rogue banks in the past. As a regulatory agency, the Fed has been just as likely to help big banks wriggle out of rules policing excessive risk as it has been to write them. Yellen was planting a flag. If you can’t police your bank, you shouldn’t be on its board.
Over the past year, the parade of outrages has obscured deeper uncomfortable truths about the pervasiveness of corruption ― legal or otherwise ― in American government. President Donald Trump and his family appear to be openly profiting from his presidency. But this is a cartoon version of recent political history, not a radical break with it.
Throughout the financial crisis and its aftermath, former Treasury Secretary Timothy Geithner repeatedly railed against what he called “Old Testament justice” as a response to the breakdown on Wall Street (he used variants of the phrase no less than 18 times in his memoir). People who wanted to see bankers held personally accountable for their role in the 2008 collapse ― a calamity fueled by stupidity, carelessness and criminal behavior ― were no more than bloodthirsty rubes, he argued. Clawing back bonuses, firing directors or jailing executives for fraud was no different than putting heads on pikes in response to a bad harvest. It wouldn’t fix a broken system or help people get back to work. Geithner’s perspective was shared by Attorney General Eric Holder, who told Congress that prosecuting top bankers for crimes ― however blatant ― would harm the financial system.
Geithner managed to revive bank liquidity and get a lot of regulations written. But he didn’t actually fix anything. By allowing big banks to function as ongoing engines of fraud amid high unemployment, stagnant wages and the annihilation of middle-class housing wealth (which had profound implications for black families), he and the Obama administration fed twin political and economic problems.
Big banks have continued to behave badly. Yellen wouldn’t have had to punish Wells Fargo if it hadn’t been creating so many fake accounts post-crisis. More important, the anger at Geithner’s governing philosophy fueled enthusiasm for outsider political candidates, many who held hateful ideologies and authoritarian impulses. When democracy doesn’t seem to work, people embrace alternatives.
Trump has made a mockery out of corporate accountability during his time in office. He named a foreclosure fraud kingpin as his treasury secretary and picked Goldman Sachs’ bailout attorney to head the Securities and Exchange Commission. He killed a rule requiring retirement account managers to act in the best interests of their clients, and Budget Director Mick Mulvaney, freshly installed at the Consumer Financial Protection Bureau, has scuttled an investigation into the massive consumer data breach at Equifax.
But while corruption may be bipartisan, it is neither popular nor ― as Yellen’s kiss-off to Wells Fargo shows ― inevitable. Prosperity and accountability go hand in hand. Building trust in democratic institutions isn’t all that complicated. It just takes political will.