"Without Admission of Wrong-Doing" -- The Infuriating Wrist-Slap of JPMorgan Chase

This week, the SEC settled with JP Morgan Chase. And we, the taxpayers -- more aptly known as their oxygen supply -- have nothing much to show for it.
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This week, the SEC settled with JP Morgan Chase. And we, the taxpayers -- more aptly known as their oxygen supply -- have nothing much to show for it.

The bank agreed to fork over a paltry $153.6 million to the government to settle civil charges that "...it misled investors in a complex mortgage-bond" deal. Its sin was a failure to disclose to these investors that a hedge fund helped to construct the portfolio it sold, and that it "stood to profit" if the debt instruments cratered.

The deal was for over a billion dollars. But the settlement was so tiny that JP Morgan's reserves were able to absorb it, and there will be no impact on second-quarter earnings.

Goldman Sachs made a similar settlement with the SEC for their ill-fated "Abacus" fund. Their penalty was $550 million. And like JP Morgan, Goldman neither "admitted nor denied wrong-doing" although Lloyd Blankfein admitted to "making mistakes."

In announcing the settlement, JP Morgan was positively -- and understandably -- chirpy about the salutary outcome, noting proudly that they "weren't charged with intentional or reckless misconduct."

The deal in question was called Squared CDO 2007-1. Investors lost it all, the hedge fund made a "windfall," and JP Morgan pocketed around $19 million for its efforts in gift-wrapping the garbage in a shiny box.

The SEC's behavior has been spineless. Both Goldman's and JP Morgan's actions rose to -- and met -- the level of "wrong-doing" and they were let off the hook by a compliant bunch of regulators who desperately needed to teach a lesson, not give a hall pass.

How could withholding information about the fact that JP Morgan worked with a hedge fund to package their junk not be intentional? Or -- put even more convincingly -- how could this have happened unintentionally? What about it wasn't reckless -- given both the bank's awareness of the content of the CDO, and the consequences of its actions?

The American people need strong, gutsy regulators. (I write this as the Obama administration continues to have a backbone of custard in the congressional fight over the appointment of Elizabeth Warren to run the new Consumer Protection Agency.)

Far more than JP Morgan's lousy $153 million, we need to see those responsible for the financial crisis get more than a slap on the wrist. Some should face criminal charges, and a Prada perp walk. And the institutions themselves should be forced to admit -- as part of any settlement -- that more than mistakes were made. Intentional misconduct -- much of it reckless -- was an everyday fact of life.

Wall Street's systemic corruption has never been adequately recognized, punished and resolved. The Financial Inquiry Commission was tougher in its language than the enforcement response. Big deal, small comfort -- someone can point to strong words on a page. But such fulminations, published years later and largely ignored beyond a single news cycle -- are useless husks. And the contrast between those words and business-as-usual on Wall Street is another tranche (to use one of their favorite words) of frustration.

Without the public declaration that the SEC failed to insist upon, Goldman, JP Morgan and others will forever be able to hide behind the protective, weasely cover of "we didn't admit any wrong-doing -- and the government agreed."

That's bad for America, bad for history, and bad for the culture of Wall Street. Jamie Dimon recently scolded Ben Bernanke for the increased capital requirements that Dodd-Frank is putting on banks, claiming they are suppressing lending, and arguing against the 3% increase (from 7% to 10%) for so-called SiFis (Systemtically Important Financial Institutions.)

Do you think that if JP Morgan and Goldman Sachs had not been permitted to deny wrong-doing, these institutions would be so shameless in advocating against modest increases in their capital requirements? Their freedom to complain says everything.

After all, it wasn't that long ago when they rushed frantically to the discount window -- opened to non-banks for the first time in more than half a century -- because their "non-reckless" actions had nearly bankrupted the global financial system. Wall Street wants us to forget that, and the SEC is helping them create the forgiving amnesia.

The reforms that came about as a result of the Great Depression really changed things. The creation of the SEC itself, Glass-Steagal, these were game-changers that created a regulatory framework that lasted for generations.

Sadly, the worst financial crisis since the Depression will leave no such lasting legacy. We've refused to use bold and muscular enforcement, and whatever new meaningful regulatory mechanisms that were included in the general language of Dodd-Frank are being challenged or simply eviscerated in the rule-making process.

We've let the fox return to the hen-house, smug and emboldened, and have given the hens nothing to defend themselves, other than some limp fox-protection promises and a shotgun with no bullets.

The public knows something is wrong. They know it, live it, and watch it every day in the morally indefensible chasm that continues to separate the unemployment and foreclosure numbers -- and the health of small business -- from buoyant bank profits. This profound and visceral ooze of dissatisfaction, the repressed fury at the power fraternity that is still seen as running the country -- which is lodged deep in the wounded psyches of Republicans, Democrats and Independents, is what's behind Obama's treacherous poll numbers. That shared climate of betrayal is what defines the real post-partisan America.

"Without admission of wrong-doing" is a startling but not unexpected example of regulatory incompetence and flaccidity. It reminds me of what my wife Flora has always said about all this: "It's a matter of the crooks versus the schnooks."

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