Will California Attorney General Kamala Harris hang tough in her new lawsuit against JPMorgan Chase, the first to target individual bankers accused of defrauding the public? If so, it would be the first time in five years that executives at a major bank have personally paid a price for their misdeeds.
Weekend at Jamie's
Recent revelations have shown the world that JPMorgan Chase comes as close as any institution in America to embodying all this is corrupt, contemptible, and criminal about today's megabanks. This is gratifying, at least on a personal level, since that was not a popular position when we first started writing about JPM and CEO Jamie Dimon a few years back. In those days Dimon was help up as the "good banker" by the president and the press. His institution was considered well-managed and ethical by some of the more shallow members of the popular press, despite the plethora of scandals and crimes like the Alabama bribery case.
Since then we've had a variety of Chase revelations: the "Burger King kids" details behind its massive foreclosure fraud; its confessed criminal mistreatment of active duty military personnel; its deeds in fraudulently propping up a failed mortgage lender (it was like a financial Weekend at Bernie's); and (speaking of "Bernies") its negligence (at best) in the handling of the fraudulent Madoff accounts, which should have triggered all sorts of red-flag warnings.
Now there's the London Whale scandal and what appears to be a subsequent case of investor deception.
The bank wound up paying a staggering $16 billion in fines and settlements over a four-year period, more than 12 percent of its net income during that time.
The Scandal of Our Time
An ethically healthy society would never have lionized a CEO like Jamie Dimon or an institution like JPMorgan Chase. That's why we've called it "the scandal of our time." What explains Dimon's inability to stem the lawbreaking and correct his organization's broken ethical system? The most generous interpretation is that he's an incompetent manager -- so incompetent that, even after numerous suits, revelations, and settlements, "Jamie didn't know" about all the illegal and unethical behavior that continued unabated in his institution.
Needless to say, there are more plausible explanations.
And yet, in those cases where the bank has been called to account with fines and settlements, it has been shareholders and not the wrongdoing bankers themselves,who have paid cost. Ironically, that even happens when the shareholders themselves are the ones who were defrauded. That's why we say that bank fraud is the only crime on Earth in which the victims make restitution on behalf of the wrongdoers.
Is this ugly pattern finally changing?
Meet the Does
Blogger and finance expert Yves Smith thinks so. California Attorney General Kamala Harris is suing JPMorgan Chase and individual bankers (named as "Does 1 through 100") for "commit(ting) debt collection abuses" against Chase credit card holders, "flooding California's courts with... collection lawsuits based on patently insufficient evidence."
The Harris suit calls on the Court to assess $2,500 against each defendant for each violation of "Business and Professions Code section 17200," and an additional $2,500 penalty for each violation perpetrated against a senior citizen or disabled person.
That may not sound like a lot of money for a banker but, as Smith points out, there are more than 100,000 potential violations. Smith writes: "If (Harris) can get the individuals who were supervising the robosigning operations (better yet, the C level execs ultimately responsible) and the complicit law firms, she might bankrupt some well-placed people. This could be extremely entertaining."
Indeed. In fact, I'll buy the popcorn.
Walking the Walk
Fro Yves Smith:
"Now Harris has been widely depicted as an opportunist. But she's kicking up more dirt on the banking front right now than any other official ... This case has enough headline value that Harris might go a few rounds before settling. JP Morgan is known for throwing vast amounts of lawyers at opponents to bury them in legal costs and busywork, so this case, sadly, is unlikely to go to trial. But if she can get the goods on the right sort of DOES, she might make some individuals pay in a serious way, which would have far more deterrent effect.
Adds Smith: "If nothing else, we should applaud what she's so far and press her to keep going."
I generally agree with all of the above. But some of us have been burned by even the most cautious cheerleading for seemingly promising Wall Street investigations and lawsuits. That's especially been true when the actions in question are being conducted by elected officials with any sort of connection to the Obama White House, an institution which has become synonymous with efforts to protect bankers and restrict their punishment to the merely symbolic.
Attorney General Harris is considered close to the president. She's undoubtedly being either cajoled or pressured (or both) to cave on this issue.
So I'm going to emphasize the words "press her" in Smith's last sentence. If Harris is determined to see this through, her suit is potentially the kind of sea change in banker law enforcement we've been waiting for. But that means she'll need emphatic expressions of support to strengthen her resolve (and to explain to the Administration why she can't and won't back down).
And if this is merely another publicity stunt, she needs to know that a choreographed cave-in will be very poorly received by her constituents.
Harris therefore deserves strong expressions of support, along with statements that citizens expect her to see this action through -- at least far enough to ensure that the malefactors involved pay some personal penalty for their misdeeds.
(Contact information for Kamala Harris, Attorney General for the State of California, can be found here.)