JPMorgan Chase

Diamond Jamie: Latest News On the JPMorgan Chase Crime Watch

Richard Eskow — Sat, 13 Oct 2012 10:18:47 -0400

History will judge us, at least in part, by our willingness to defend our moral principles against the corrupting influence of the Wall Street capos. So far their campaign cash and lucrative revolving-door jobs have kept them above the law, while their PR firms and personal salesmanship have exempted them from moral judgement in the inner corridors of wealth and power.

Al Capone's Chicago had nothing on today's Washington DC.

A new lawsuit against JPMorgan Chase is being met with both optimism and skepticism. And finally Federal investigators have finally broken their silence on criminal indictments for bankers ... to protect its chief executive.

The Chicago-style immunity enjoyed by today's bankers will only be broken if this new lawsuit is followed by many more - along with criminal indictments where appropriate. And these lawsuits will only deter future crimes if bankers are forced to make restitution from their own pockets, not their shareholders'.

Look Who's Talking

The Justice Department has been stonewalling the public for years on Wall Street crime by saying it "can't comment on ongoing investigations." But when it comes to investigations designed to exonerate those same bank CEOs, look who's talking now!

"Federal authorities are using taped phone conversations to build criminal cases related to the multibillion-dollar trading loss at JPMorgan Chase," the New York Times "Dealbook" blog reported this week, "focusing on calls in which employees openly discussed how to value the troubled bets in a favorable way."

Why so chatty all of sudden, "sources close to the investigation"? The answer becomes obvious a few paragraphs into the piece: "The investigation does not appear to touch the upper echelons of the executive suite ... The findings could insulate JPMorgan and its chief executive, Jamie Dimon, from further fallout." (emphasis ours)

Got that? Investigators won't say a word when big bankers are under suspicion. But when talking will help them you can't shut 'em up!

Lucky Jim

And ah, yes. James "Jamie" Dimon. Dimon, the CEO whose bank has apparently been above the law, suddenly finds that his institution is the target of a criminal investigation. At long last. And the Justice Department's even willing to talk about it! But whaddya know? They're claiming it will exonerate Mr. Dimon.

Jamie Dimon. Like the man in the Dylan song says: He can't help it if he's lucky.

Dealbook's anonymous source is quite the chatterbox, even offering the names of the individual suspects ... most of whom, as fate would have it, are French citizens who have returned to their home country and are therefore beyond the reach of US law. Zut alors!

(Ah, how we wish we could indict them, one imagines the Justice Department official whispering to the journalist, but their government will not extradite. You know how it is with the French, our anonymous source adds with a shrug. I ask my friends at the Sûreté what can be done, but they merely light another Gauloise and say C'est la vie.)

Looks like Jamie Dimon's luck is contagious.

London Calling

Looks like the French employees may be left holding le sac on this one. But even this happy accident isn't the exoneration that Dealbook seems to think it is, not even if this targeted investigation clears Chase's senior management on the trading fraud itself. Au contraire, mes amis!

There's evidence - very public evidence - which suggests that Dimon and other senior executives may have misled investors about the extent of the losses on an investor call. If true, that's a crime, too: It's called 'stock fraud.' and the SEC says it's investigating. In cases of this kind, the SEC must refer any evidence of a crime to the Justice Department for investigation.

But when it comes to the investor fraud angle, the Chatty Kathies at the DoJ have apparently clammed up again.

Mr. Dimon also reassured investors of JPM's fiscal soundness by describing the bank's rigorous internal risk management controls. What investors didn't know was that he apparently exempted the London unit from those controls without any public notice. That's also potentially illegal, under both Sarbanes-Oxley and the 1933 law that created the SEC.

The London unit reportedly bypassed the bank's normal organizational chart and reported directly to Dimon himself. As CEO, Dimon is required to confirm in writing every year that he has personally reviewed the company's procedures to ensure that they prevent fraud of this kind. It's illegal to do so falsely.

ProPublica's Jesse Eisenger asks the right question: What did Jamie Dimon know and when did he know it? But investigators are apparently too busy pursuing errant Frenchmen to ask it.

Diamond Jamie

Dimon wasn't acting like somebody who was worried about accounting for his own actions this week. He was too busy traveling to Washington to lecture the government on what's doing wrong financially.

"Jamie Dimon is mad at the government," says CNN Money. Why? Because it's not cutting spending quickly enough to please him. Some people still have the silly notion that we need to help the millions of people who have been economically victimized by people like ... well, like Jamie Dimon.

When we call Dimon's JPMorgan Chase a serial corporate criminal, it's not empty rhetoric: It's documented fact. Chase was implicated in a recent municipal bid-rigging case which led to two convictions. It has paid settlements in six fraud cases over the last thirteen years. It paid more than $2 billion to settle fraud charges in the WorldCom case, $135 million in the Enron case, and more than $153 million to settle charges of investor fraud regarding mortgage-backed securities.

JPM gave up nearly three quarters of a billion dollars in fines and lost fees over the Jefferson County, Alabama bribery case. Then there's the $25 million for unlawful IPO (stock) allocations; $25 million (and possibly more) for what was essentially illegal restraint of trade in forcing retailers to use the credit card network it co-owned; and $6 million regarding illegal profit-sharing and tie-ins at JPMorgan Chase Securities.

There's more where that came from.

And yet, other than a low-level guilty plea in the bribery case, no individual bankers have ever paid for these misdeeds ... not with jail time, and not even financially. As far as the Justice Department is concerned, it looks like all this fraud just ... committed itself. These fines and settlements were all paid by shareholders. That's right: Nobody went to jail.

That means bankers at institutions like JPMorgan Chase have absolutely no reason not to keep breaking the law. Meanwhile Jamie Dimon, a man whose gluttony for praise rivals that of namesake Diamond Jim Brady's for food, roams the corridors of power seeking influence ... and flattery.

New Suits

What about the lawsuit that New York Attorney General Eric Schneiderman filed recently against JPMorgan Chase? A certain skepticism was to be expected at this point, after the government's long-standing failure to take action and the many disappointments surrounding the $25 billion mortgage fraud lawsuit. Could this suit change that pattern?

The Schneiderman lawsuit, filed with the long-moribund Presidential task force on mortgage securities fraud, focuses on crimes committed at Bear Stearns, the subsidiary that JPMorgan Chase acquired with strong encouragement - and a lot of financial incentives - from the Federal Reserve and the Treasury Department. Why not go after an active bank?

There's also a new lawsuit against Wells Fargo involving what David Dayen describes as "incendiary charges" - but which has been met with some skepticism as well.

I shared the doubts, although I was heartened by an initial assessment from Prof. Adam Levitin. Levitin, who's highly respected in the field of bank fraud, thinks that this lawsuit could set an important precedent. The suit was filed under New York state's Martin Act, which allows for broader charges than Federal law does. Levitin observes that Schneiderman's is a "platform-wide case" covering a broad and long-standing pattern of fraudulent activity.

"That's a new type of suit," Levitin writes, "not one that has been brought under the Martin Act before." He adds that it "majorly ups the ante for JPMorgan" and "covers an enormous volume of deals." Levitin argues that this might result in substantial damages.

Proof

If the Schneiderman suit is followed by filings against several other banks, as some stories have suggested, it could be the start of something important. But even if they're successful they'll fail to deter future Wall Street crimes - that is, unless courts demand that bankers personally return their ill-gotten gains. And ultimately only prison sentences will deter future criminals.

Will these lawsuits rock these banks back on their heels?

The market doesn't seem to think so. It rewarded JPMorgan Chase with another excellent week of trading. It also offered its blessing to Wells Fargo, whose was filed under the False Claims Act which forbids defrauding the government and under the little-used FIRREA statute.

If the market doubts that these banks will be brought to justice, it can hardly be blamed for that. Investors are letting recent experience guide their judgement. Some of us lapsed into optimism at this year's first attempts to hold banks accountable. Those of us who allowed ourselves to feel that optimism more than once wound up feeling like Charlie Brown. This Administration has pulled the football from us one too many times.

So far the naysayers have had a better track record when it comes to predictions than we do. It's up to Schneiderman and the task force to prove them wrong.

Good Grief, Charlie Prince!

According to the Wells Fargo suit, the bank continued to illegally conceal its "materially deficient" loans until the end of 2010, well after the wheels of justice were allegedly turning against them. They clearly didn't believe it either.

It was Charles Prince, CEO of crime-plagued and failed Citigroup, who most eloquently described the motivation behind bankers' willingness to follow each bubble, each greed-driven whim, as far as it will take them: "As long as the music is playing, you've got to get up and dance." Looks like some of them are still dancing,

So far nobody has made bankers pay for their crimes with criminal indictments, or even with fines paid from their own pockets rather than that of shareholders. And ego-driven financiers like "Diamond" Jamie Dimon haven't even faced much public approbation the actions of their institutions - actions which include bribery and fraud. The mildest slights to their vanity throw them into rage, as a recent Vanity Fair article on Dimon demonstrates once again. But they've yet to receive real and public shaming they deserve.

Yves Smith believes that "One of these days, Dimon's lack of caution will catch up with him." Let's hope so. But man, that guy sure is ... lucky. It's almost as if somebody's looking out for him.

3.Hopefully Adam Levitin is right and the Bear Stearns suit is prelude for more actions to come. But those actions must have a deterrent effect which can only come when bankers are held personally accountable for their actions.

Until then, for Jamie Dimon and other executives, the beat goes on.

Wall Street's City Bid-Rigging Racket: Who Ran It? How Many Billions Are Missing? Where's the Investigation?

Richard Eskow — Tue, 26 Jun 2012 14:31:49 -0400

A recent court case proves what many of us have long suspected: Big banks have been ripping off this nation's towns and cities for years in an old-fashioned racketeering scam. We ran some numbers to see how much this criminality might have cost the American people.The answer? Billions.

That's billions that might have been used to educate our children, pave our roads, and protect us from crime, disease, and fire. Will somebody take this investigation as high in these organizations as it needs to go, pursuing the truth wherever it may lead?

The Unindicted

You might call that a delicate subject in some circles. The convicted felons worked for GE Capital, which was allowed to retroactively declare itself a bank so it could be rescued by taxpayers. GE's CEO, Jeffrey Immelt, was tapped to head the President's Jobs Commission.

JPMorgan Chase was also implicated in this bid-rigging case. Its CEO, Jamie Dimon is frequently described as "America's favorite banker" - most often by himself or his publicists - and politicians of both parties flatter and kowtow to him. Yet another was Bank of America, whose CEO Brian Moynihan is often characterized as ... well, this is a family publication. But Bank of America was probably the worst of the corporate felons in the mortgage fraud scandal.

The crimes in this case were committed between 1999 and 2006, well into the period when both Dimon and Immelt were leading their respective organizations. We'd like to know if prosecutors in this case use the tactics that have worked so well against the Mob, by pressing these low-level employees to turn state's evidence and testify against the higher-ups. And each of these CEOs was required by Sarbanes-Oxley to certify that he has personally reviewed the anti-fraud measures in his own company and found them adequate.

The question we need answered is a time-honored one: What did these CEOs know, and when did they know it?

The Crime

Matt Taibbi has a new piece in Rolling Stone called "The Scam Wall Street Learned From the Mafia," by which he means bid-rigging on municipal contracts. Taibbi points out that the wiseguys have fixing things like a city's paving bids, and anybody who didn't play along might wind up under the pavement instead of pouring it.

Convictions in a recent case called The United States of America v. Carollo, Goldberg and Grimm illustrate the banks' municipal bid-rigging racket. A town or city would hire a firm - in this case, a GE Capital subsidiary - when it wanted to issue a municipal bond. These bonds are often issued for projects which take a number of years to complete. Since cities don't spend all the money right away, part of the "competition" part of the process involves seeing who can offer the best interest rates while the money's waiting to be spent.

That's where the rigging comes in. The defendants made sure that the interest rates quoted were all higher than the municipalities would have received under true competition so the difference could be skimmed off.

Officials in the Justice Department, along with a host of bank-friendly journalists, keep saying it's too hard to get convictions in for bank fraud. This verdict proves that they're wrong. The mechanisms for fraud may be complicated, but the crimes themselves are often easy to characterize. Here's a one-sentence description of this case:

Cities and towns thought they were received competitive bids for the best available rates, but the bid process was rigged so that crooked bankers could skim money off the top.

That wasn't hard, was it?

The Trial

Taibbi has some authorial fun drawing on the colorful, old-school nature of what sounds a lot like an old-fashioned racketeering trial. They even played audio recordings of the defendants plotting their crimes. Audio! How retro can you get? He writes:

In the manner of old mob trials, Wall Street's secret machinations were revealed during the Carollo trial through crackling wiretap recordings and the lurid testimony of cooperating witnesses, who came into court with bowed heads, pointing fingers at their accomplices ... on tape after tape these Wall Street crooks coughed up phrases like "pull a nickel out" or "get to the right level" or "you're hanging out there" - all code words used to manipulate the interest rates on municipal bonds ...

How much might have been stolen this way? Taibbi again:

By shaving tiny fractions of a percent off their winning bids, the banks pocketed fantastic sums over the life of these multimillion-dollar bond deals ... (C)onsider this: Four banks that took part in the scam (UBS, Bank of America, Chase and Wells Fargo) paid $673 million in restitution after agreeing to cooperate in the government's case. (Bank of America even entered the SEC's leniency program, which is tantamount to admitting that it committed felonies.)

A number of other firms were implicated in the case, too, including Goldmans Sachs and AIG. Writes Taibbi:

(S)ince settlements in Wall Street cases tend to represent only a tiny fraction of the actual damages (Chase paid just $75 million for its role in the bribe-and-payola scandal that saddled Jefferson County, Alabama, with more than $3 billion in sewer debt), it's safe to assume that Wall Street skimmed untold billions in the bid-rigging scam.

Billions? I thought I'd pull some publicly available municipal bond data to see if that could possibly be true.

The Big Haul

Municipal bonds are a $3 trillion-plus market, and Taibbi's right when he says it's a complicated one. But the basic structure isn't. There are three types of municipal bonds: competitively bid bonds, like the ones in this case; negotiated bonds, and private placements. Based on past experience, it's safe to assume that the banks have cheated in all three categories. But even if we limit our universe of bank cheating to competitively bid bonds, we're still talking about a market of roughly $1 trillion (in bonds that were issued between 1996 and 2011).

We used some data from a trade organization called the Securities Industry and Financial Markets Association, or SIFMA, and looked at the average length of the bonds from issuance to maturity (along with some other details that would bore most people) to get a rough sense of how much could have been stolen over the last fifteen years or so.

Here's what we found: If interest rates were artificially lowered on all of these bonds by ten basis points, as was done in one of the bids in this case, that would have cheated America's towns and cities out of $82 billion dollars in the years between 1996 and 2011.The "nickel" skimmed in another case would have cost our cities $41 billion.

That's a lot of money. Our money.

The Rackets

Not all bids were necessarily rigged, of course, and some may have been rigged for less (as some of the bids in this case were).Others may have been rigged for more than that. But when you're looking at these numbers, remember: The rackets are much bigger than this one scam.

There are many other forms of financial fraud, and some of them may have been arrayed against these towns and cities when they were issuing non-competitive bonds as well. States also issued bonds. In one well-reported example, Goldman Sachs took a fat fee for issuing a California bond, while at the same time secretly robbing it of value by encouraging its clients to bet against California's bond. That drove the value of the bond down and most likely cost the state tens of millions of dollars.

Then there's JPMorgan Chase's sewer bid-rigging cost Montgomery County, Alabama up to $3 trillion. It's worth noting that this case did not involve competitive bidding, which shows how broad the scope of bank bid-rigging fraud could have become. And then there are the various forms of investor fraud perpetrated during the housing bubble, which affected government investors as well as private ones.

All in all, state and local governments undoubtedly lost billions of dollars, and perhaps tens of billions, as a result of bid-rigging and other fraud by major financial institutions. That's billions of dollars for hospitals. Billions of dollars for schools. Billions of dollars for roads, buildings, important public services.

And billions of dollars for jobs.

It's clear from the behavior of the defendants that they never expected to be punished for behavior that they considered common in their own workplace. Why should they? Each of their institutions had been operating like a criminal syndicate for years.

Priors

There isn't room enough to go into all the misdeeds committed by these serial corporate offenders, so we'll just offer a few examples:

GE Capital: What an outfit! Committed investor fraud and bank fraud in which senior individuals in the Accounting Department were identified as the perpetrators, but were (not so) mysteriously never indicted. Paid a fine for, in the SEC's words, "knowing or reckless fraudulent activities resulting in numerous materially false and misleading statements or omissions ... conducted (which) involved fraud, deceit, or deliberate or reckless disregard of regulatory requirements, and resulted in substantial loss, or significant risk of substantial loss, to other persons."

Other GE priors include misdeeds such as: Illegally concealed payments to its former CEO. Paid $23.4 million in fines for illegal kickbacks to Iraqi officials under the Oil For Food program. Purchased a subprime lender which, according to published reports and analyses, had already engaged in highly suspect and probably fraudulent activities, then intimidated or demoted whistleblowers so that the fraud could continue.

Here's another piece of Mob-like color, from Michael Hudson's fine reporting on the GE/subprime story:

"What GE got ... was a place where erstwhile shoe salesmen, ex-strippers and even a former porn actress could sign on as sales reps and make big money pushing home loans ... earn(in) a million dollars a year or more and lived fast, swigging $1,000 bottles of Cristal and wheeling around in $100,000 Ferraris and Bentleys."

JPMorgan Chase's rap sheet is lengthy, too: Bid-rigging in Alabama. Investor fraud in Florida. Other offenses such as mortgage and foreclosure fraud (tax evasion, perjury, forgery) through the use of "Burger King kids" to mass-produce false documents. It's SEC investigation for fraudulently understating the impact of its multi-billion-dollar London losses, which Dimon first called "a tempest in a teapot."

Bank of America: Essentially admitted it had committed fraud in municipal bond bid-rigging once before, back in 2010, and paid $137.3 million in fines. Violated bankruptcy law by illegally seizing the deposits of Lehman Brothers. It was fined for investor fraud in illegally concealing $6 billion in payouts to employees, and fined again for deceiving investors by hiding losses in its Merrill Lynch subsidiary.

Now comes this latest conviction, which directly implicates these three institutions along with a host of others. When can we expect the investigations of the big boys behind these organized rackets?

The Fix

The answer? Not soon, unless people demand it. The statute of limitations on many of these crimes has run out already, or is running out in the near future. The bank's CEOs are politically connected, and they're more politically powerful than ever in this post-Citizens United world.

These convictions are not enough. This case has provided concrete evidence that these low-level bankers were colluding with executives at other major banks. How high up the reporting chain did the criminality go? Did CEOs tell the truth in their annual reports?

The Administration's indifference to prosecuting bankers seemed to change with the claim that it was ramping up of the Mortgage Fraud Task Force, but even that relatively narrow inquiry seems to have foundered in fingerpointing and apathy. Unless it shows results soon, another avenue for justice will apparently have closed.

What's more, there appears to have been some sort of immunity granted to institutions, and possibly to executives, in the pursuit of the Carollo case.

Taibbi deserves a lot of credit for being the only reporter to give this story in-depth coverage, and Rolling Stone deserves equal praise for publishing it. But the low-level coverage given by most other outlets shows us how little our journalists, much less the public at large, understands what's going on. And without coverage, people won't demand investigations.

Note that we said "investigations," not "indictments." We can't know whether or not any individual executives should be indicted unil there's an investigation. The leaders of our major banks may not be dishonest. They may just be incompetent executives who lack the managerial skills needed to end the rampant lawbreaking in their own organizations.

If so, they deserve the opportunity to clear their names.

Meanwhile, the Carollo conviction was something of a fluke in our current system. The big fish are slipping away and even the little fish are, for the most part, still swimming through the net. That's tragic. Unless citizens hammer their leaders in both parties, demanding an immediate and thorough investigation of bank criminality, the kingpins will have learned the real lesson of this story:

Crime does pay, and it pays big.

How to Fight Wall Street - and Transform a Nation

Richard Eskow — Thu, 21 Jun 2012 18:41:01 -0400

Eric Schneiderman was right.

New York State's Attorney General told an audience at the Take Back the American Dream Conference that we need a "transformational politics" that will change the way we look at ourselves, our society, and our economy.

The wealthy have amassed an ever-greater share of our national income through conscious policy choices, said Schneiderman,not through an act of God.They've been able to divert our nation from a production economy to a financial-speculation economy the same way.

Schneiderman was suggesting that political action should help us change the way we view our economic world.

Free Your Mind, Arrests Will Follow

I couldn't agree more. Thanks to an expensive and intensive decades-long campaign of propaganda and political influence-peddling, many Americans re-adopted a mythology about wealth that had been discredited and abandoned by most of the world (including the United States) in the 20th Century. We need to transform ourselves, remove the blinders, and see things as they really are.

Schneiderman's distinction between "transformational" and "transactional" politics was also valid: Voters don't just want to see a legislative accomplishment - any accomplishment - regardless of its impact. They want to see accomplishments that reflect who we are as a people, and which advance us as a society.

But transformation will need some involvement from the world of "transactional" activity, too. As I told the group, I can't think of any single act that would be more "transformative" that the arrest of a senior Wall Street executive.

Wall Street: CSI

The occasion was a panel discussion on "Taking On Wall Street" moderated by MSNBC's Alex Wagner. Activist Tracy Van Slyke and I joined Schneiderman for an open-ended discussion on the topic. (The video's below.)

Could a CEO arrest like the one I described ever take place? Should it? Individuals and groups of people are innocent until proven guilty - but there's an overwhelming mountain of evidence suggesting that a great many crimes took place.

There are at least two areas of criminal activity worth concentrating on: mortgage documentation, and securities. Perjury, forgery, and tax evasion are among the potentially criminal acts that have been well-documented in the mortgage area. Most of these apparent crimes occurred around two basic activities, the first of which was the use of the MERS system. That combination database and pseudo-corporation was a mechanism for avoiding the payment of local taxes, and which allowed financiers to transfer ownership of a mortgage debt without notifying local authorities.

The second area of apparent criminal activity in the mortgage documentation arena involved "robo-signing," in which banks hired unskilled employees or vendors to mass-produce foreclosure papers in which courts were falsely told that the bank possessed title documents and other items which it did not in fact possess.

Securities fraud, as well as other forms of investor fraud, involved misleading investors about the true value of the institution or fund in which they're investing. That can be done by making false statements, or through lying by omission (leaving out important facts about the investment). There is considerable evidence that Wall Street CEOs and other bank executives did plenty of both. (See here, for example).

Jamie Talks, JPM Walks

Moderator Alex Wagner also asked the panel about the recent testimony of JPMorgan Chase CEO Jamie Dimon - testimony in which the relentlessly self-promoting executive admitted that he knew more than he let on about his bank's multibillion-dollar London losses when he told investors on a phone call it was a "tempest in a teapot." That immediately triggers red flags for anyone who understands securities law, and the SEC promptly announced it was beginning an investigation.

Let's hope that the SEC's "London whale" investigation doesn't end as virtually all of them have in recent years: with a settlement in which the very investors who were presumably defrauded wind up paying the cost of a settlement which is paid by the bank, and not by the executives who broke the law - while those executives "neither admit nor deny wrongdoing."

Bank shareholders should fight that kind of outcome as aggressively as anyone. They should lay down the law for executives: If the law wasn't broken, we're not paying a nickel in settlement charges. And if it was.broken, we want to know who the criminals are so we can punish them - by "clawing back" their ill-gotten income, and then firing them.

Remember, JPMorgan Chase has paid billions of dollars in recent years to settle criminal charges. Their stock performance has been pretty lousy, too, like that of other big banks. With a track record like that, why aren't more shareholders up in arms?

We need to appropriate the gun lobby's slogan, with a little rephrasing:

Banks don't commit crimes. Bankers do.

Oh, yeah? Make me!

Attorney General Schneiderman is co-chair of the President's Task Force on Mortgage Fraud, and it was presumably with that role in mind that he told the audience of a (reportedly apocryphal) exchange in which Franklin D. Roosevelt told a group of activists: "I agree with you. Now go out there and make me do it."

Democrats and independent progressives should adopt that attitude toward the White House - with a passion. If the President and his party don't do something to convince the public they're really going after crooked bankers, they run a much greater chance of losing everything in November.

The counter-narrative being pushed by the Right - and, too often, by the White House as well - is that bankers may have behaved badly but "didn't break the law." Both the President and Treasury Secretary Geithner have taken that position in recent months. But it's wrong: It's wrong to ignore compelling evidence to the contrary. It's wrong to pronounce your own verdicts from Washington before any thorough investigations have been conducted.

And it's not just morally wrong. It's politically wrong, too. It undermines public confidence in our government - and in those who lead it.

Homeowners 30 Percent Guilty, Bankers 100 Percent Innocent?

The narrative which says bankers are innocent also argues that underwater homeowners shouldn't receive meaningful mortgage relief because that would "reward the undeserving" and help "greedy" and "dishonest" homeowners.

To believe this narrative, you have to believe that 16 million homeowners defrauded their lenders, but not a single banker committed a crime! And that 31 percent of homeowners - nearly one in three - is an undeserving fake, but 100 percent of bankers are upright citizens who deserved all the Federal help they received.

That's nonsense. Only today we received more evidence that Washington Mutual deliberately misled homeowners into borrowing more money on their homes than they were worth, by firing home appraisers who wouldn't dishonestly inflate the value of the home so that they could make more money on the loan!

This is exactly what a GE Capital subsidiary was accused of doing in places like West Virginia, and it provides even more compelling evidence that the vast majority of America's underwater homeowners were neither dishonest nor foolish:

They were conned.

Power to the (Underwater) People

Washington Mutual eventually failed, of course, and the government brokered its sale to ... you guessed it: JPMorgan Chase. If the value of WaMu homes was artificially inflated by crooked adjusters, the result is artificially inflated value on JPMorgan Chase's books - and unfairly inflated debt for JPMorgan Chase's borrowers.

No wonder influential bankers (and campaign contributors) like Jamie Dimon are resisting principal write downs. That's why, as Tracy Van Slyke pointed out, we need groups like the Home Defenders League which will organize underwater homeowners into a political force. As we noted, we did some calculations and concluded that we can reasonably estimate the following:

• 40 million people live in underwater homes.
• 24 million voters live there, too.
• They owe a total of $4.8 trillion in mortgage debt to the banks.
• $1.2 trillion of that amount is "underwater."

Here's the best way to help promote justice, economic fairness, and liberal ideals: Activists must demand real action on bank criminality from the President, Attorney General Holder, the Mortgage Fraud Task Force, and the Attorneys General for all fifty states.

Real action, especially criminal investigations, will reinforce another goal popular among progressives: electing Democrats. Now that 91 percent of MoveOn's members have voted to support President Obama's reelection, their next step should be tomake it more likely - by pressuring him to take legal action against crooked bankers, a move that will be popular across the political spectrum.

As for underwater homeowners, imagine what could happen if they get organized. If they demand legal action against crooked bankers it will help prevent more bank crimes in the future, which could save us from the next crash. If they receive principal reduction, the billions in relief could serve as a new economic stimulus without taking a penny from the Federal government.

If these homeowners get organized, and then bring in their friends, families, communities, and allies, the result could be ... well, transformative.

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Mr. Dimon's Bank, Sen. Lee's Short Sale: Unanswered Questions About a Suspect Deal

Richard Eskow — Tue, 29 May 2012 12:05:48 -0400

There's a lot we don't know about the deal between Sen. Mike Lee, Tea Party Republican of Utah, and America's largest bank. But we already know something's very, very wrong:

Why is it that most Americans can't get a principal reduction from Chase or any other bank, but JPMorgan Chase was so very flexible with a sitting member of the United States Senate? The hypocrisy from Sen. Lee and JPMorgan Chase CEO Jamie Dimon overfloweth. But does the Case of the Senator's Short Sale rise to the level of full-blown corruption?

Mr. Dimon and Sen. Lee need to answer some questions. But first, this story needs some background.

When Jamie Met Mike

It's not a pretty picture: In one corner is a Senator who wants to strike down Federal child labor laws (although he did allow that child labor was ""reprehensible"). More to the point in this case, Sen. Lee also cosponsored a bill that offered residency in the United States to any non-citizen who buys a home with cash.

In the other corner is the bank whose CEO said that the best way to relieve the crushing burden of debt on homeowners is by seizing their homes. "Giving debt relief to people that really need it," said Dimon, "that's what foreclosure is."

That comment is Dickensian in its insensitivity - and Dimon' clearly knows the difference between foreclosure and real debt relief. It certainly didn't foreclose on the Senator from Utah.

The story of the short sale on Sen. Mike Lee's home broke broke shortly not long after the world learned that JPM lost billions of dollars through trading that might have been illegal, and about which it certainly misled investors.

A Senator who doesn't believe in child labor laws, and a crime-plagued bank that was just plunged into a trading scandal after losing billions in the London markets.

Why, they were practically made for one another.

Here in the Real World

This was also the week we learned from Zillow, one of the nation's leading real estate data companies, that there are far more underwater homeowners than previously thought. Zillow collated all the information on home loans, including second mortgages, in order to develop this larger and more accurate number.

The new estimated amount of negative equity - money owed to the banks for non-existent home value - is $1.2 trillion.

Zillow found that nearly 16 million homeowners, representing roughly a third of all homes with a mortgage, were "underwater" (meaning they owe more than the home is now worth). That's about 50 percent more than had been previously believed. Many of these homeowners are desperate for principal reduction, which would allow them to get back on their feet.

Banks can reduce the amount owed to reflect the current value of the house, which would lower monthly payments for many struggling homeowners. Another option is the "short sale," in which the bank lets them sell the house for its current value and walk away. That would allow many of them to relocate in search of work.

But the banks, along with their allies in Washington DC, have been fighting principal reduction and resisting any attempts to increase the number of short sales. They remain out of reach for most struggling homeowners.

Mike's Deal

But Mike Lee didn't have that problem. Lee was elected to the Senate after buying his luxury home in Alpine, Utah at the height of the real estate boom. JPMorgan Chase agreed to a short sale, and it sold for nearly $400,000 less than the price Lee paid for it four years ago.

Sen. Lee says that he made a down payment on the home, although he hasn't said how much was involved. But if he paid 15 percent down and put it $150,000, for example, then the Senator from Utah was just allowed to walk away from a quarter of a million dollars in debt obligations to JPMorgan Chase.

Let's see: A troubled bank gives a sitting member of the United States Senate an advantageous deal worth hundreds of thousands of dollars? You'd think a story like that would get a little more attention than it has so far.

The Right's Outrageous Hypocrisy

We haven't seen this much hypocrisy in the real estate world since the Mortgage Bankers Association walked away from loans on its own headquarters even as its CEO, John Courson, was lecturing Americans their "legal obligation" and the terrible "message they would send" by walking away from their mortgages.

Then he did a short sale on the MBA's headquarters. It sold for a reported $41 million, just three years after the MBA - those captains of real estate - paid $74 million for it.

The MBA calls itself "the voice of the mortgage banking industry."

The hypocrisy may be even greater in this case. Sen. Mike Lee is a member in good standing of the Tea Party, a movement which began on the floor of Chicago Mercantile Exchange as a protest against the idea that the government might help underwater homeowners, even though many of the angry traders had enriched themselves thanks to government bailouts.

When their ringleader mentioned households struggling with negative equity, these first members of the Tea Party broke into a chant: "Losers! Losers! Losers!"

Mike Lee's Outrageous Hypocrisy

Which gets us to Mike Lee. Lee accepted a handout from JPMorgan Chase after voting to end unemployment for jobless Americans.

How big a hypocrite is Mike Lee? His website (which, curiously enough, went down as we wrote these words) says he believes "the federal government's out-of-control spending has evolved into a major threat to our economic prosperity and job creation" and that he came to Washington to, among other things, "properly manage our finances". Lee's website also scolds Congress because, he says, it "cannot live within its means."

As Ed McMahon used to say, "Write your own joke."

Needless to say, Lee also advocates drastic cuts to Social Security and Medicare while pushing lower taxes for the wealthy - and plumping for exactly the same kind of deregulation which let bankers to run amok and wreck the economy in 2008 by doing things like ... well, like what JPMorgan Chase just did in London.

"Give Me Your Wired, Your Wealthy, Your Upper Classes Yearning to Buy Cheap"

Lee has also co-sponsored a bill with Chuck Schumer, the Democratic Senator from ~~Wall Street~~ New York, that would grant US residency to foreigners who purchase a home worth at least $500,000 - as long as they paid cash.

The Lee/Schumer bill would be a big boon to US banks - banks, in fact, like JPMorgan Chase. If it passes, the Statue of Liberty may need to be reshaped so that Lady Liberty is holding a book of real estate listings in her right hand while wearing a hat that reads "Million Dollar Sellers' Club."

Mike Lee's bill would also have propped up the luxury home market, offering a big financial boost to people who are struggling to hold to the equity they've put into high-end homes, people like ... well, like Mike Lee.

Jamie Dimon's Outrageous Hypocrisy

Then there's Jamie Dimon, who spoke for his fellow bankers during negotiations that led up to the very cushy $25 billion settlement that let banks like his off the hook for widespread lawbreaking in their foreclosure fraud crime wave.

"Yeah," Dimon said of principal reductions for homeowners like Sen. Lee, "that's off the table."

Dimon's been resisting global solutions to the negative equity problems for years. He said in 2010 that he preferred to make decisions about homeowners on a "loan by loan" basis.

The Rich Are Different - They Have More Mortgage Relief

"The rich are different," wrote F. Scott Fitzgerald, and (in a quote often misattributed to Ernest Hemingway) literary critic Mary Colum observed that " the only difference between the rich and other people is that the rich have more money."
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And they apparently find it a lot easier to walk away from their underwater homes.There's been a dramatic increase in short sales lately, and the evidence suggests that most of the deals have been going to luxury homeowners. Among other things, this trend toward high-end short sales the lie to the popular idea that bankers and their allies don't want to "reward the underserving," since hedge fund traders who overestimated next year's bonus are clearly less deserving than working families who purchased a modest home for themselves.

Nevertheless, that's where most of the debt relief seems to be going: to the wealthy, and not to the middle class.

Guess that's what happens when loan officers working for Dimon and other Wall Street CEOs handle these matters on a "loan by loan" basis.

Immoral Logic

While this "loan by loan" approach lacks morality, there's some financial logic to it. Banks typically have a lot more money at risk in an underwater luxury home than they do in more modest houses. A short sale provides them with a way to clear things up, recoup what they can, and get their books in a little more order than before. That's why JPMorgan Chase has been offering selected borrowers up to $35,000 to accept short sales. You can bet they're not offering that deal to middle class families.

There are other reasons to offer short sales to the wealthy: JPM, like all big banks, is pursuing very-high-end banking clients more aggressively than ever. That's where the profits are. So why alienate a high-value client when they may offer you the opportunity to recoup losses elsewhere?

("Sorry to interrupt, Mr. Dimon, but it's London calling.")

Corruption Or Not: The Questions

Both the bank and the Senator need to answer some questions about this deal. Here's what the public deserves to know:

Could the writedown on the home's value be considered an in-kind gift to a sitting Senator?

If so, then we have a very real scandal on our hands. But we don't know enough to answer that question yet.

What are JPMorgan Chase's procedures for deciding who receives mortgage relief and who doesn't?

Dimon may prefer to handle these matters on a "loan by loan" basis, but there must be guidelines that bank officers can follow. And presumably they've been written down somewhere. Were they followed in Mike Lee's case?

Who was involved in the decision to offer this deal to Mike Lee?

Offering mortgage relief to a sitting Senator is, to borrow a phrase, "a big elfin' deal." A mid-level bank officer isn't likely to handle a case like this without taking it up the chain of command. So who made the final decision on Mike Lee's mortgage?

It wouldn't be unheard of if a a sensitive matter like this one was escalated to all the way to the company's most senior executive - especially if that executive has eliminated any checks on his power, much less any independent input from shareholders, by serving as both the Chair(man) of the Board and the CEO.

In this, as in so many of JPM's scandals, the question must be asked: What did Jamie know, and when did he know it?

Is Mike Lee a "Friend of Jamie"?

Which raises a related question: Is there is a formal or informal list of people for whom JPM employees are directed to give preferential treatment?

Everybody remembers the scandal that surrounded Sen. Chris Dodd when it was learned that his mortgage was given favorable treatment by Countrywide - even though the Senator apparently knew nothing about it at the time. The world soon learned then that Countrywide had a VIP program called "Friends of Angelo," named for CEO Angelo Mozilo, and those who were on the list got special treatment.

Is there a "Friends of Jamie" list at JPMorgan Chase - and is Mike Lee's name on it?

Were there any discussions between the bank's executives and the Senator regarding the foreign home buyer's bill or any other legislation that affected Wall Street?

Until this question is answered the issue of a possible quid pro quo will hang over both the Senator and JPMorgan Chase.

Seriously, guys - this doesn't look good.

Was MERS used to evade state taxes and recording requirements on Sen. Lee's home?

JPMorgan Chase funded, and was an active participant, in the "MERS" program which was used, among other things, to bypass local taxes and legal requirements for recording titles.

As we wrote when we reviewed hundreds of internal MERS documents, MERS was instrumental in allowing banks to bundle and sell mortgage-backed securities in a way that led directly to the financial crisis of 2008. It also helped bankers artificially inflate real estate prices, encourage homeowners to take out loans at bubble prices, and then leave them holding the note (as underwater homeowners) after the collapse of national real estate values that they had artificially pumped up.

"Today's Wall Street Corruption Fun Fact": MERS was operated by the Mortgage Bankers Association - the same group of real estate geniuses who lost $30 million on a single building in three years, then gave a little lecture on morality to the homeowners they'd been so instrumental in shafting.

Q&A

I was also asked some very reasonable questions by a policy advocacy group. Here they are, with my answers:

If this happened to the average American, would they be able to walk away from the mortgage as well?

If by "average American" you mean "most homeowners," then the answer is: No. Although short sales are on the rise, most underwater homeowners have not been given the option of going through a short sale. Mike Lee was. The question is, why?

Will Mike Lee's credit rating be adversely affected?

This is a very important question. The credit rating industry serves banks, not consumers, and it operates at their beck and call.

The answer to this question depends on how JPM handled the paperwork. Many (and probably most) homeowners involved in a short sale take a hit to their credit rating. If Lee did not, it smacks of special treatment.

Given the fact that it was JPMorgan who financed the loss, does that mean, indirectly through the bailout, that the taxpayers paid for Lee's mortgage write-off?

That gets tricky - but in a moral sense you could certainly say that.

Short Selling Democracy

There's no question that this deal is hypocritical and ugly, and that it reflects much of what's still broken about both our politics and Wall Street. The rich still get better treatment than everyone else, and Wall Street is still granted the privilege of deciding whether or not to act fairly on a "loan by loan" basis.

But is it a scandal? Until these answers are answered we can't know for sure.

it's time for JPMorgan Chase and Sen. Mike Lee to clean about this deal. If they did nothing wrong, they have nothing to hide. Either way the public's entitled to know.

(NOTE: We gave this piece some light editing and a title change after publication. There was no pressing need for it; we were just being compulsive.)

How to Fix the Fed: Dismiss Dimon, Boot the Bankers, and Can the Corporations

Richard Eskow — Fri, 25 May 2012 12:00:56 -0400

More and more people are calling for Jamie Dimon, CEO of JPMorgan Chase, to resign from the Board of the New York Federal Reserve.

His latest scandal, combined with Dimon's hypocrisy and relentless self-promotion, make him an obvious target. But Dimon isn't alone. Bankers dominate the Fed at the regional and national levels, and most of the other outside seats are held by executives from large corporations. (Remember Herman Cain?)

Should Dimon resign? They all should.

The Board Member With No Name

The scary thing is that Dimon may not be the Fed's most inappropriate board member. That honor may belong to the individual I call the Board Member With No Name. (I don't to want inflame the situation by identifying her, and what she represents is more important than who she is.)

Shouldn't a résumé that includes being the top bank lobbyist and working for the firm that laundered a third of a billion dollars for Mexican drug cartels disqualify someone from serving at the Fed?

Before she became the banking industry's chief lobbyist, the Board Member With No Name was an executive at scandal-plagued Wachovia Bank, an institution whose egregious mismanagement led to its collapse and a government rescue. Wachovia's many scandals and crimes included: deceptively packaging its toxic subprime mortgage backed securities; rigging municipal bond bids, which led to a $148 million fine; and, worst of all, laundering $378 billion in drug money for the Mexican cartels that have murdered at least 60,000 people.

The legislators who passed the Federal Reserve Act of 1913 couldn't have imagined that someday one of its governors would come from a firm that was buste,d when its laundered money was used to buy a drug-smuggling plane in Sinaloa.

Banks are large organizations, and it's unlikely that the Board Member even knew about the wrongdoing. She looks like a very nice person - and she probably is. But her background hardly qualifies her for a position of public trust. After all, she's only two or three degrees of Kevin Bacon away from cartel bosses like "El Loco," who leads a group of deserters from the Mexican Army's Special Forces known as "Los Zetas."

Coincidentally, El Loco was arrested this week for beheading 49 people and dumping their bodies in the town square.

The drug cartels have been called "vicious," "evil," and "sociopathic." At Wachovia they were also called "preferred clients."

Conflicted

The New York Fed is the most powerful of all the regions - understandably, since it includes Wall Street. Dimon's one of three bankers on its board. One of the others is from a bank which still owed the government nearly $1 billion in TARP money as of last report. The corporate world is represented by the CEOs of a technology venture capital firm, an HMO, and the company which owns Macy's and Bloomingdale's (who's actually said to be a good guy.)

The Richmond Fed's bank representatives include the leaders of First Citizens Bancshares and CommerceFirst bank, as well as the managing partner of a Charleston law firm who specializes in labor and employment law (judging from his resume he defends corporations). There are also executives from an oil company, a big construction company, and an aerospace manufacturer. The Seattle board includes executives from Wells Fargo Bank (Wachovia's new parent) and Boeing.

And so it goes ...

Other banks and corporations represented at the regional or branch level include Bank of America, Boyd Gaming, Shorenstein Properties, Dow Chemical, Nissan, AutoNation, USAA, IBM, Southwest, JC Penney, USG, Nissan, along with energy and lumber companies and some of the legal and accounting firms that serve the country's megabanks.

Of nearly 250 Board members for the Fed's regions and branches, I was able to identify only three union representatives (from the AFL-CIO), one or two pension fund representatives (pension funds have been robbed blind by the big banks), and one member of a housing coalition. The Fed's boards have become more exclusive than a country club - and a lot more powerful.

Federal Case

Why do we even have a Federal Reserve? There are people - mostly libertarians of the Ron Paul school - who think it should be abolished. They're wrong. We need a central bank. The financial crises which peppered our early history proved the need for a secure dollar backed by the "full faith and credit" of the United States government.

Panics like the one that led to William Jennings Bryan's famous "Cross of Gold" speech were led by speculators who became wealthy at the expense of working people and farmers. Back in the 19th Century many banks issued their own dollars, leaving both buyers and sellers unsure of their value from day to day. Anybody who had been holding "Lehman Brothers dollars" would be out of luck today.

So the question isn't whether we need a central bank: We do. The question is, Why is it dominated by the people who have already ruined the economy once - and who have a clear conflict of interest?

The World's Biggest ATM

Give a bunch of bankers access to the world's biggest ATM and look what happens: As Bloomberg News reported last August, "Wall Street's aristocracy got $1.2 trillion in secret loans" from the Federal Reserve.

What the Federal Reserve hasn't done is carry out its mission, which the Fed's own "Purposes and Functions" document describes as:

conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates

supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers

maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

providing financial services to depository institutions, the U.S. government, and foreign official institutions ...

When it comes to that last bullet point the Fed's knocked it out of the park, especially for the banks. The other goals? Not so much.

Scoring the Fed

Let's rate the Federal Reserve according to the parameters it set out for itself:

"Maximum employment": Thanks to the Fed, banks have had access to free or very-low-cost money, which they've used to make money on Treasuries and other safe investments. But they haven't been lending it to the consumers and small businesses who are the engines of job growth.
"Stable prices": Gas prices keep swinging up and down radically because of speculation.
"Moderate long-term interest rates": Yes - but is that good? Opinions vary.
"Safety and soundness of the nation's banking and financial system": JPMorgan Chase's recent debacle shows how little the Fed has accomplished here. but then, how easy can it be to rein in Jamie Dimon when he's chairing the meeting?
"Protect the credit rights of consumers": Massive mortgage fraud by major banks. One settlement after another for deceiving consumers. How much time do you have?
"Maintaining stability ... containing systemic risk": JPMorgan Chase's latest debacle settles this issue once and for all ...

... By any objective measurement, the Federal Reserve has failed to do meet these key objectives, and the composition of its boards is one of the reasons why.

The Radical Fed

Is it any wonder that the Fed gave out more than a trillion dollars to Wall Street's biggest banks - and did it in secret? (That alone would appear to violate securities law, since it allowed bankers like Jamie Dimon to materially misrepresent the financial condition of their corporations.)

And that's not all the newly radicalized Fed has done. It broke the rules by allowing Goldman Sachs and GE Capital to call themselves "banks" - just in time to collect their taxpayer-funded bailouts. But it hasn't shown any flexibility when it comes to demanding that banks use some of their low-interest Fed loans to lend to the people and companies that will use it to create jobs.

The Fed has even broken its own rules in order to protect bad bankers. As Prof. Steven Davidoff noted in the New York Times: "In Blocking Activists, the Fed Protects Poorly Performing Banks." It's also protecting poorly performers bankers - like the ones that sit on its boards.

In one case the Fed blocked a shareholder action by invoking a rule which said an outside party couldn't have more than 25 percent control of a bank - but the shareholder would only have acquired 22 percent control. As Davidoff documents, Fed is repeatedly bending or violating its own rules to prevent shareholders from exercising their rights to limit executive compensation or take action against underperforming or ethically-challenged executives.

The Fed has changed the playbook for bankers over and over. But whenever someone suggests imaginative programs to stimulate the economy by helping consumers or small businesses the Fed suddenly decides it's a stickler for the rules.

Resistance Is Futile

In our interview for The Breakdown last week, Paul Krugman reiterated his statement that his former Princeton colleague Ben Bernanke has "joined the Borg." The "Borg" is the collective alien entity from Star Trek that takes over people's identities and leaves them with no other mission but expanding its own power.

These Federal Reserve boards represent the Corporate Borg in all its unchecked power - but the power they possess is power that we have given them, through our elected representatives.

It doesn't have to be this way. There are good folks on the Committee, like Janet Yellen, Sarah Bloom Raskin and Daniel Tarullo.

But they're the exceptions, not the rule.

Enter Sanders

That's why Sen. Bernie Sanders' Federal Reserve Independence Act is so important. The bill would eliminate these conflicts of interest and force the Fed boards to stop serving bankers' interests and return to the Fed's original mission. People should insist that their Senators support it.

The bill follows on the Federal Reserve Transparency Act, which was cosponsored by Sen. Bernie Sanders and Rep. Ron Paul. That bill demanded a public audit of the Fed, which is how we learned about those massive secret loans. That act showed that the left and the right can work together to change our broken central banking system.

It's time to reunite that left/right coalition. Ron Paul may be wrong about the need for a central bank, but he's right when he says that the Fed must be accountable to the people.

Dissing Dimon

Which gets us back to Jamie Dimon. When the prominent economist Simon Johnson first demanded Dimon's resignation he noted that, while his role is sometimes described as "advisory," Dimon sits on the Management and Budget Committee which supervises the pay of senior Fed executives.

That committee also approves the self-evaluation of senior Fed executives - which essentially means it gives them their performance reviews. It reviews and approves the Fed's overall budget, too, including the budget for auditing bankers like Jamie Dimon. According the Fed itself, its other main responsibility is to "review and endorse the Bank's strategic plan."

Budget, compensation, strategic planning: That pretty much covers everything.

Dr. Johnson has started a petition drive calling for Dimon's resignation or removal. He's been joined by Elizabeth Warren and the American Constitution Society for Law and Policy, which calls Dimon's position "a stunning conflict of interest."

They're right, of course. But in saner times people would also be demanding that Dimon resign from his bank, too. His tenure as CEO has been marked by a wave of massive deals to settle criminal and civil charges. That alone would have led to disgrace and resignation in more civilized times.

Even in today's more mercenary atmosphere, Dimon's nothing to write home about: The stock was worth around $40 when he became CEO in 2005 and never rose much above $50 after that. It was $33.78 after this latest fiasco.

Dismissing Dimon

From his perch on the New York Fed board, Dimon has had a front row seat to the dispensing of a trillion dollars in secret cash to Wall Street banks - including his own. His bank reportedly received as much as $48 billion in secret loans at 1.1 interest, when less privileged banks were paying 3.8 percent. The money saved in interest on that loan alone could amount to almost $1.3 billion.

It's like the old saying goes - a billion here, a billion there, and pretty soon you're talking about real money.

Dimon's always been a paper tiger, a product of his own PR campaign and the low standards of his profession. If he won't resign as JPM's CEO, he should certainly resign as its Board Chairman, a title he assumed in 2006. That's another clear conflict.

An ethically-managed Federal Reserve wouldn't wait for Dimon to resolve this internal conflict by giving up one of these roles. It would have demanded it long ago. And it would have dismissed Dimon from its Board for JPMorgan Chase's past scandals, as well as the one that just came to light.

And now for something completely different ...

It seems like something out of a Monty Python routine. The boards that govern the Federal Reserve, the publicly-created central bank that dispenses money to bankers, are all dominated by ... the bankers who receive that money. Picture it if you can:

Fed Board room, 2008:

ECONOMIST: This is serious! The global economy is collapsing because of your reckless gambling!
LONE CITIZEN BOARD MEMBER: That is serious. What can we do? We could break up our banks and fire their executives, or ...
BANKER: Wait! I've got it! Give us more money!
(Nods all around the table)

Six months later:

ECONOMIST: This is serious! We've given you money but you're not lending it out to get the economy moving!
LONE CITIZEN BOARD MEMBER: That is serious. What can we do? Perhaps there could be rules and conditions about lending that ...
BANKER: Or they could give us more money!
OTHER BANKERS: Good one! Let's go with that!

Three years later:

ECONOMIST: This is serious! Joblessness is still at record highs. Poverty has soard. Too-big-to-fail banks are bigger than ever. And you guys are still breaking the law and skirting the rules.
LONE CITIZEN BOARD MEMBER: Hmm. That is serious. The Fed could use its regulatory authority to ...
BANKER: (aside) I hate that guy. (to all) Let me see ... hmmm ... how about giving us more money?

Three and a half years later:

ECONOMIST: This is serious! The country -
BANKERS (in unison): More money!

Clean Up the Boards

The Federal Reserve's governing structure isn't quite that bad - but it's pretty close. As the President of the Kansas City Federal Reserve just noted, bankers have a "special obligation" to maintain the "integrity, dignity and reputation" of the central bank. ""No individual is more important than the institution and the public's trust," she added.

We'll go a step further: The public's trust can no longer be given to a central bank whose governing bodies are dominated by the wealthy and powerful. Bankers and large corporations should be asked to provide information to the Fed, and should be encouraged to offer their advice. But they don't belong on its boards or committees.

Other steps are needed to make the Federal Reserve responsive the people who created it and gave it such power. But the composition of its boards is a key part of its problem. Its an impediment to change and a disgrace to the nation. As Simon Johnson told an interviewer recently, "No other central bank in any serious country in the world allows bankers to be represented in this fashion."

It's time to boot the bankers from the Federal Reserve's boards and those seats to people who will work on behalf of the citizenry which created the Fed in the first place.

10 Reasons To be Suspicious About Wall Street's Facebook Fiasco

Richard Eskow — Tue, 22 May 2012 21:31:35 -0400

Three of Wall Street biggest and best-known financial institutions handled the Facebook IPO, so why were people immediately suspicious when the stock soared and then promptly tanked? Easy answer: Because three of Wall Street biggest and best-known financial institutions handled the Facebook IPO.

Each of them - Morgan Stanley, Goldman Sachs, and JPMorgan Chase - has a history of exactly the kinds of unethical and/or illegal behavior that might, just might, explain what happened with Facebook.

Mark Gongloff offers a good overview of Mr. Zuckerberg's Wild Ride, in which a stock that was offered at an IPO price of $38 soared to $45 and then plunged to its current (as of this writing) price of $31. A lot of people lost money - which means a lot of people made money, too.

Zuckerberg promptly sold his 30.2 million shares, netting a quick billion dollars and change. That tells you what he thinks of this investment.

Here are ten reasons why it makes sense to be suspicious of the Facebook IPO, starting with the fact that any overview of the three institutions which handled it might best be described as "rounding up the usual suspects":

1. Morgan Stanley has a history - and a culture - of tricking their own clients into making lousy investments.

It was Morgan Stanley's brokers who, in one notorious account, loved to brag "I ripped his face off!" after convincing one of the firm's own clients to buy a stock that the firm knew was lousy. (See Frank Portnoy's account in Fiasco.)

CNBC reports that "Morgan Stanley may have spent billions of dollars to support the (Facebook) stock price by buying shares in the market." This kind of market manipulation is common. They do these things to create an artificial sense of momentum when the market is turning against an offering. Investors don't know they're doing it at the time, of course. In this case, Morgan Stanley could have spend a billion dollars or more manipulating the stock price.

Now Morgan Stanley's being investigated by the SEC and the Commonwealth of Massachusetts, after reports indicated that its analysts were withholding crucial (and negative) information about the stock offering and at the same time sharing it with their own favored clients. That's a no-no.

2. JPMorgan Chase has a long rap sheet. What's another bust?

JPMorgan Chase is currently in the public time-out box for its botched derivatives trades in London - about which which it appears to have deceived its own investors (when it failed to tell anyone that the new, improved "risk model" it rolled out was not being used to analyze this London unit.)

When CEO Jamie Dimon said that laws may have been violated in that case, was he expecting people to be surprised? JPM has a long history as a corporate lawbreaker during Dimon's tenure. It paid millions to settle a long list of violations that includes illegally cheating veterans coming home from Iraq - or still risking their lives there. It gave up nearly three quarters of a billion dollars to settle charges of bribing public officials in Jefferson County, Alabama. (Jefferson County is bankrupt. JPM's executives are doing just fine.)

And JPMorgan Chase just gave up billions more to settle charges stemming from its rampant foreclosure fraud, which involve mass perjury and forgery conducted by a group of inexperienced youngsters that JPM employees called "the Burger King kids."

The JPM rap sheet's got a lot more offenses on it, but that should give you the general idea. Dimon loves to affect an air of respectability. But his outfit ain't the PTA, if you catch my drift.

3. Goldman Sachs is ... well, it's Goldman Sachs.

In one of its many notorious deals, ABACUS, Goldman Sachs lied to prospective investors about mortgage-backed securities. While it was telling investors that these securities were well-chosen and reliable, it was hiding the fact that they were actually being selected by an investor who was famous for betting against them.

Goldman recently settled a $22 million lawsuit for illegally sharing confidential information with its preferred clients, which is a form of insider trading, using internal meetings called "huddles."

That's a lot like the conduct that's being investigated at Morgan Stanley, and the questions it raises is the same one: Was this IPO designed to fail? Barring that, did insiders only tell a few favorites once they knew it would fail, so that they could all get rich betting against the suckers who didn't know any better?

Who's huddling who in the Facebook deal?

4. Goldman Sachs already tried to evade the law for Facebook once before.

If at first you don't succeed ...

At the time we asked, "Which Is More 'Gangsta,' (rapper) 50 Cent's Twitter Stock Pitch or Goldman's Facebook Deal?" We stand by our original conclusion: Sorry, Fitty.

Lloyd Blankfein's entourage tried to avoid SEC regulations that say a privately held company can't have more than 500 investors by defining many thousands of unrelated investors as a single group. They demanded a minimum $2 million investment - there ain't no sucker like a rich sucker - and pitched the deal in language that would embarrass a Nigerian email scammer:

"When you have a chance I wanted to find a time to discuss a highly confidential and time sensitive investment opportunity ... If you agree not to use information that we reveal to you ... I will be able to disclose the name of the company and provide you with more information..."

They should've started the pitch letter with the words "Dearest Beloved, My late husband the oil minister ..." As Nomi Prins noted at the time, the plan was to artificially inflate the value of these illegally-traded shares and then ""pawn off the overpriced goods on the clients."

They tried to run that little number back in 2010 but failed. Did they finally succeed this time?

5. There's no such thing as a free market.

Thanks to deregulation, our "free markets" ain't free - in fact, they're less free than at any time in modern history.

Nevertheless the anti-regulatory crowd insists on describing what we have today as a "free market," instead of what it really is: a financial funhouse where investors don't know until it's too late which pop-up vampire is a cardboard cutout and which one's really going suck their blood. "Ripped his face off" indeed.

That's not market economics, it's a horror show.

6. Facebook's a shaky investment anyway.

Think about it: With all the money they have at their disposal, Zuckerberg and his team still can't design a user interface that doesn't frustrate, aggravate, and infuriate millions of people every day. Sure, people use it - because everybody else does. But that was true of MySpace, too, until something better came along. Facebook has a mind-boggling number of users, and they spend an equally mind-boggling amount of time on it every day. But even Mafia Wars come to an end sometime.

What's more, the stock they're peddling isn't much to write home about. Their voting rights are highly diluted, so that the stock owned by Zuckerberg and other preferred holders has ten times as much voting power as everybody else's. Zuckerberg owns 18 percent of Facebook's shares, but has absolute control of the company with 57 percent of the votes.

When something's as overhyped as Facebook stock, it's caveat emptor time. You're throwing yourself at Zuckerberg's mercy, hoping he does better with the company than he has designing Facebook's account management features. (Tried changing your privacy levels lately?)

But if he mismanages your money you'll just have to bend over and get poked.

7. Mark Zuckerburg doesn't give a rat's you-know-what about investors or IPOs.

"A million dollars isn't cool," says Justin Timberlake as Sean Parker in that movie about Zuckerberg and Facebook. "A billion dollars is cool." It was a cool week for Zuckerberg, who just made another billion, but he doesn't think much of investors. Stephen Gandel lays out all the ways it shows, starting with the fact that Zuckerberg didn't want to take the company public and keeps reminding everybody about it. SEC rules - the same rules Goldman tried to evade last year - forced him into it.

Zuckerberg also kept blowing off investors at scheduled meetings. Frankly, that's a refreshing change from all the CEOs I've known who kowtow to them (and often game the numbers to impress them). But it doesn't exactly strengthen one's confidence that this offering was designed with the best interests of investors in mind.

And while CNN's Gandel concludes that Zuckerberg doesn't care about making more money, I'm not so sure. He's sure made a lot in the last few days. For its part, Goldman's already shown that it's willing to trade on insider information to help high-value clients - clients like Meg Whitman. They called it "spinning," and it involved rewarding executives who gave them a lot of corporate business (which uses their investors' money, not their own) shares in IPOs they're underwriting.

Whitman was forced to resign from its board and pay a multimillion-dollar fine after the story became public. If they'd "spin" for a piece of eBay's investment action, what motions would they go through for Facebook's?

8. These three players have a huge collective presence on Nasdaq.

Morgan Stanley and Goldman Sachs are almost always in the top ten in reported trade volume on NASDAQ, where Facebook was offered. And JPMorgan Chase provides financial backing to many of these deals. Together they represent a huge chunk of NASDAQ (and New York Stock Exchange) transactions. They control a lot of the trading flow and they're sitting on a lot of data.

That means they can manipulate the market in all sorts of ways. And they can leverage other people's money and make it work ... for them.

So while we're at it, remind me again: Why do we allow so few companies to dominate our financial market? It's called an "oligopoly," and it's bad. It's especially bad when they become too big to fail and can pretty much do whatever they want, knowing we'll rescue them again if - make that when - they screw up again.

9. There was a lot of automated trading of Facebook shares.

The roller-coaster ride for Facebook's stock also appears to involve very high volumes of electronic robo-trading, which always raises suspicions. That could just be a sign that the computer programs which now dominate our stock market (and which cry out for a financial transactions tax) didn't like the transaction. If so, they're smarter than most humans.

Or it could mean that these three firms, which together play a dominant role on Nasdaq, pulled a fast one of some kind. Somebody needs to analyze those 'flash' trades and find out.

10. Because they can.

Hey, these three underwriters can do whatever they want - and they know it.

Until some bankers get indicted - which doesn't seem likely anytime soon, given the glacial pace of the Administration's much-hyped (but now apparently forgotten) mortgage fraud task force - they can break any law or rule they want to break. What's the worst that could happen to them? If they get caught they'll negotiation another gigantic fine and let the shareholders (including working people's pension funds and 401ks) pick up the tab while they collect their bonuses and head off to the Hamptons.

So, until the Administration shows us some Wall Street indictments, the usual suspects will keep committing the usual offenses over and over. The Justice Department needs to get serious about investigating Wall Street fraud. And more states should join Massachusetts in investigating this deal.

This one goes to 11 ...

Do we know that's what happened with the Facebook IPO? No - and we won't know without a proper investigation. But we do know that the Facebook plunge reflects a classic scenario for shady traders who make money hyping a stock while secretly betting against it.

And we know that all three of these institutions are perfectly capable of doing it. They have the means, they have the motive, and - until our government does something about it - they have the opportunity.

So get on with it, Washington. You better update your status on those fraud investigations before it's too late.

JPMorgan Chase: Break Up the Big Banks Now. Here's How.

Richard Eskow — Mon, 21 May 2012 00:33:33 -0400

When Jamie Dimon revealed that JPMorgan Chase had lost billions through risky and legally questionable trading, he said the losses would be about $2 billion and maybe more. Apparently it is more - a lot more. People in a position to know are saying the real figure is probably in the $5-7 billion range.

The JPMorgan Chase scandal - and yes, it is a scandal - shows us why we need to break up the big banks as quickly as possible.

But that won't happen unless we can get our hands around the real scope of the problem, which is probably far greater than we're being told. That means cutting through the enveloping shroud of jargon, euphemisms and double talk - "crap," if you will - that keeps us from seeing the situation as it really is.

Here's why we need to do it, and here's how.

Talk Talk

Two images come to mind when considering too-big-to-fail banks like JPMorgan Chase: The first is of the gigantic spaceships hovering over all of the world's cities in Independence Day, leaving the citizenry in shadows and the world in fear and uncertainty.

The second image is of an old New Yorker cartoon which shows a husband and wife chatting with guests over drinks and h'ors d'oeuvres while an enormous monster scowls in the corner. The caption reads: "We deal with it by not talking about it."

Most politicians are either talking about tighter regulations for too-big-to-fail banks, or about the virtues of self-regulation and the so-called "free markets." But the real problem isn't how to manage too-big-to-fail banks, which are inherently unmanageable. The real problem is that they exist, an everpresent menace that hovers over our economy while we go about our daily lives.

They deal with that problem by not talking about it.

Monster Mash

JPMorgan Chase is either our largest or second-largest bank, depending on when and how you ask the question. News stories often point out that it has $2 trillion in asset, which sounds impressive. But they usually fail to mention that it has liabilities of more than $2 trillion, too, leaving it roughly $183 billion in the black.

That ain't bad - but it's not much more net worth than you'll see sitting around the table when Mitt Romney's Super PAC friends get together for lunch.

And we can't trust those numbers. We now know that these risky London deals weren't accurately conveyed in last year's annual report. What else don't we know about JPM's liabilities?

All of our big banks were on the hook for hundreds of trillions of dollars in the run-up to the financial crisis of 2008. And now they're bigger than ever. How big? We don't know for sure - and that's a big part of the problem.

Our four largest banks have 95 percent of the total exposure to derivatives. Two years ago we analyzed the raw data and found that JPM alone held 44 percent of that risk - and JPM has grown since then.

Because they intend to keep right on growing. As Jamie Dimon promised shareholders, “I want to assure you that your company will be bigger and stronger and better a year from today.”

If that doesn't frighten you, you haven't been paying attention.

Bigger ≠ Better

Here's an example of what we mean when we say it's time to "cut the crap" when we talk about big banks:

Writers should no longer be allowed to tell us, even in passing, that "I agree we need large institutions" unless they tell us why we need them.

Jamie Dimon was leading the chorus of bankers saying that their large size leads to increased efficiency and economies of scale. Okay, Mr. Dimon: Where are they? Is the cost of borrowing cheaper at JPM than it is at community banks? Are ATM fees lower? Are loans easier to get?

"Economies of scale" work well for customers - when you're manufacturing toasters. But banks like JPM aren't in the toaster business. They're not even in the customer business anymore. Ordinary clients at the big banks are like cannon fodder in a colonial army: They're there to be used and discarded, not to be served or respected.

(John Reed's interview with Bill Moyers offers an enlightening glimpse into this shift in banking culture.)

So let's stop repeating the mantra that big institutions have anything to offer us - anything, that is, except moral hazard. We did fine without them for centuries, and we'll be better off once they're gone.

Gaming the Numbers

Here's something else that needs to stop: When a bank deceives its investors, reporters need to stop saying only that it "changed its risk model." That makes it sound arcane. What JPM really did was mislead everyone.

The bank told investors that they had begun assessing internal risk in a new and more effective way. But reports say that the unit which made these hazardous trades reported directly to Dimon, bypassing the bank's other executive and risk management channels. And despite what they told the public - include investors - the bank did not use its new risk model to assess these trades. They used an old model which dramatically understated the risk involved.

Listen, I know this kind of talk confuses some people, but if there's one thing I learned after working in risk management it's this: The more jargon you hear, the less trustworthy the source.

If reports are true, then Chase deceiving the public and it was deceiving investors. That's not "changing its risk model." It's lying. And it's very possibly fraud.

Byline Creep

And while we're in the crap-cutting business, here's something else that needs to stop:

Just because Jamie Dimon described the loss as "stupid" doesn't mean that you have to believe him, or use the same language.Listen, writers: He's the architect of this charade, not an observer.

If this disaster should tell you anything, it's to stop letting Jamie Dimon write your copy for you.

Something Stupid

Executives at Chase and the other big banks live in confidence that they'll reap the profits for risky betting and leave the losses to you. That may be many things - venal, selfish, greedy - but it's not stupid.

What's more, as long as nobody is indicted for Wall Street's ongoing criminality, they can keep breaking the law knowing they'll never pay the price for that either.

And if laws were broken in JPMorgan Chase's case, as Dimon himself acknowledges is possible, then these deals were only "stupid" the way any crime is stupid: It's only stupid if you get caught.

It Can Be Done. Here's How.

We've been led to believe that it's politically and economically impossible to break up these banks. That's not true. How can the political climate be changed?

The first step is to push for better financial reporting, so that we see less of the mistakes described above. If people are better-informed about big banks, sentiment against them will run even stronger than it is right now.

Which gets us to the politics of big banks.

Democracy First

The common-sense SAFE Act introduced by Sen. Sherrod Brown and Rep. Keith Ellison would end the era of too big to fail. It's a smart first step toward ridding the world of these menaces to society.

Legislation should also be introduced to strengthen and expand antitrust laws so that they can rein in out-of-control banks like JPM.

True, the SAFE Act and antitrust banking bills are unlikely to pass under our corrupt political system. But every politician in Washington should be forced to vote "yes" or "no" on this bill before the elections and let the public know where they stand on this vital issue. That's the only way Americans can make an informed decision in November.

During the drafting of Dodd/Frank financial legislation we saw something important happen a number of times: If politicians were allowed to craft deals in private, those deals always benefited the big banks. But if they were forced to debate these issues publicly, we saw a much greater consensus against Wall Street.

Public debate: It's how democracy is supposed to work. It will help us break up the big banks.

Contraptions and Elegance

The Dodd/Frank bill's reforms, while anemic, are somewhat useful. It's madness to suggest repealing them, as Republicans are trying to do. But Dodd/Frank isn't useful at all unless agencies are staffed with regulators determined to do their jobs. The Administration's record has been lackluster (or worse) in that regard, while the Republicans have made it clear that they'll staff regulatory agencies with people determined not to do their jobs.

It doesn't help that when it comes to too-big-to-fail banks the current system of financial regulation is a rickety, complicated, Rube Goldberg-ish contraption designed to work around the massive danger that they pose to the economy.

Simple solutions are usually the best, and the simple solution to too big to fail banks is: Break them up.

That may not be politically feasible right now, but it's the job of a mobilized citizenry to change the political equation with public pressure whenever possible. That means keeping the issue on the front burner by inundating elected officials from the White House on down with emails and calls in support of the SAFE Act. (More here.)

Lead the Fed

The public needs to pres Congress about the Federal Reserve, too. The Fed is feeding the growth of the megabanks with free or very low-interest money, no strings attached. That gives megabanks the resources and the incentive to place that where it can maximize income in a stagnant, nearly consumerless economy. That tempts the banks into increasingly risky transactions and instruments like the ones that caused JPM's loss.

The Fed must also stop interfering with shareholder democracy, which cuts to the core of executive accountability. We should demand that Congress hold the Fed accountable for its actions in propping up too-big-to-fail banks.

That's not very likely to happen as long as the Federal Reserve, a creation of the United States government, is governed by boards that are dominated by bankers - bankers like Jamie Dimon. So the public must demand that Dimon step down, and that bankers are removed from Fed boards altogether.

Shine a Light

The public has the right to know about the banks it's been coddling, spoon-feeding low interest loans to, and protecting for years. It should demand a full and complete audit of these banks by trustworthy outsiders - if enough of them can still be found. Auditors can provide the banks with all the proprietary protections they rightfully deserve. But twe rescued them, and now we need to shine a light into their dark corners.

In addition to these general audits, we also need an immediate, extensive and transparent no-holds-barred review of the JPMorgan Chase debacle. Simon Johnson compares this event with the near-collision of two jet airliners, which would trigger an immediate investigation by the National Traffic Safety Board. It's an apt analogy, and an excellent idea.

And bank executives must be investigated, too - for criminal activity. That, and that alone, would discourage illegal risk-taking. It would also make them take their legal responsibilities under Sarbanes-Oxley much more seriously than they apparently do today, and would discourage them from routinely deceiving the public - which in many cases appears to cross the line into fraud.

Declare Independence

Our national and world economies are in grave danger as long as banks like JPMorgan Chase exist in their present form. They've already left our economy in ruins once. It's only a matter of time before they do it again.

Even if we assume that JPM's current problems can be contained, we should realize that every loss of this kind has the potential to turn into a chain reaction. Each could become a cascading failure that threatens JPM or another megabank -- and which therefore threatens the entire financial system.

The megabanks pose an existential threat to our economy. They hover over our economy, our political system, and our personal lives like a fleet of giant spaceships. They serve no useful social purpose, and they only exist because we allow them to exist.

it's time to declare our independence from their domination and demand that our elected officials help us in our fight for freedom. It's time to stop living in their menacing shadow and come out into the sunlight.

It's time to dedicate ourselves to breaking up JPMorgan Chase and the other too-big-to-fail banks, and to ensuring that they never threaten the world's economy again.

Jamie Dimon's JPMorgan Chase: Why It's the Scandal of Our Time

Richard Eskow — Mon, 14 May 2012 12:19:33 -0400

Most observers are missing the point. When CEO Jamie Dimon announced that JPMorgan Chase had incurred at least $2 billion in losses from risky, unsecured, derivatives-types trading, it uncovered the scandal of our time once and for all.

The Chase disaster gives us a much-needed a glimpse into our corrupt political system, its Wall Street paymasters, and the media voices that allow people like Dimon to escape scrutiny.

The JPMorgan Chase story is the story behind the financial crisis that has thrown millions of people out of work. It's the story behind our ever-growing wealth inequity. It's the story behind Washington's inability to prosecute criminal bankers, regulate reckless ones, and propose the economic solutions the rest of us urgently need.

Predictably, the pundits who aid and abet people like Jamie Dimon are dismissing this story's importance, pointing out that $2 billion (it could become much more) pales against the $19 billion in profit Chase reported last year.

But it was potentially $2 billion earned through crime. And more importantly, this story isn't just about Chase's errors and crimes. It's much bigger than that.

Besides, $19 billion in a single year? That's a big part of the story, too.

The Case Against Chase, its CEO, and its accomplices is too big to cover all at once. Here are the aspects of this under-reported story we plan to address in the days and weeks to come.

The Firm

Depending on the day and the measurement used, JPMorgan Chase is now the largest or second-largest bank in the world. Its Japan operation alone has been cited by that nation's regulators as a systemic risk because of its size.

If Chase began to collapse because of risky betting, the government would be forced to step in again.

Jamie Dimon knows that. It's a lot easier to gamble when you know somebody else will be forced to bail you out if you lose too much.

Chase, like the other mega-banks, has systematically engaged in criminal activity for years. At the same time, it has used its vast wealth to corrupt our political and regulatory systems. And it has been aided and abetted by willing collaborators in the media, every step of the way. It gave up nearly three quarters of a billion dollars in settlements and surrendered fees to settle one case alone - that of bribery and corruption in Jefferson County, Alabama.

Chase has paid out billions to settle charges that include perjury and forgery (in its systemic foreclosure fraud and abuse), investor fraud, and sale of unregistered securities. And these charges were for actions that took place while Jamie Dimon was the CEO.

The first of Dimon's executives have offered their resignations in this latest scandal. But investigations of everyone from Lucky Luciano onward have focused on the boss, not just the underlings. Laws like the Securities Act and Sarbanes-Oxley provide strict legal guidelines for corporate CEOs and their staff. There's strong evidence to suggest those laws have been stretched to the breaking point - and beyond.

The Boss

We may someday look back at Jamie Dimon's increasingly shrill cries of persecution as a cry for help or a plea to be caught. He has not only fought the regulation of Wall Street banks. He's used extreme language to characterize criticisms of bank activities as a) mean, b) an attack on all forms of business, and c) bigotry that is no different from racism.

Dimon has used his visibility - and his lavish public relations budget - to obtain highly flattering profiles of himself in major US publications. And he's used that public platform for, among other things, arguing for unwise ideas in public policy areas where he has no expertise. Most of those ideas involve forcing the American people to suffer additional financial hardship in order to pay for the damage caused by Dimon and his colleagues.

Just last week Dimon was arguing for the "Simpson/Bowles plan" authored by two private individuals, which would impose the same kind of austerity on the United States as that which is currently wreaking economic and poetical havoc on Europe.

If nothing else, Dimon is consistent: He can't respond to reality any more effectively in the policy arena than he can in the banking sector.

Dimon argues against regulation by saying that bankers are moral and sophisticated enough to manage their businesses without oversight. But he's been making those arguments to a nation that's standing in the wreckage his colleagues left behind the last time they were allowed to play with trillions without adult supervision.

And he has somehow managed to argue simultaneously that no other bankers are as smart as he is, and that nevertheless they should be unregulated because guys like him are so smart. That doesn't make sense.

The Flacks

Despite Dimon's illogic and the criminal track record of his organization, he has been flattered, quoted, and profiled in major news publications at roughly the same frequency as Lindsay Lohan has been in entertainment mags, and for the same reason: He makes good copy if you don't dig too deeply.

The day before the scandal broke, in fact, Dimon punked CBS host David Gregory on Meet the Press by pontificating on political and other matters in a pre-taped interview, knowing that this story was about to break tomorrow. We won't knock Dimon for not breaking the story (there are rules about handling information at a publicly traded company, although Dimon never seems to have cared much about them before.)

But it was an embarrassment to Gregory just the same.

The flackery didn't start after this story broke. The supposedly 'hardball' coverage of this '"error" typically amounted to little more than the kind of damage control Dimon and his PR team were no doubt hoping they'd get. The incident was described as an "embarrassment," a "mistake," an "error."

Few news outlets discussed the size of JPMorgan Chase and other too-big-to-fail banks, which continued to grow even after the passage of a financial reform law. They failed to discuss what would happen if the bank got into serious trouble.

And they glided lightly over the fact that crimes may have been committed. When they did, they were quick to characterize this scandal as the work of overzealous or crooked underlings.

That's what they said in Alabama, too.

The Influence Peddlers

Banks have paid Washington lobbyists $50-60 million per year for the last few years - and they've gotten their money's worth.

Real financial reform was hamstrung under Dodd/Frank by behind-the-scenes wheeling and dealing. Even that bill's modest reforms are being undercut by Republicans from Mitt Romney downward, who are determined to avoid even the pretense of regulating the nation's reckless and criminal bank enterprises.

The White House had yet to indict a single banker for the events leading up to the financial crisis, although billions have been paid out it settlement fees for criminal activity.

When you look at it in context, $150-200 million over three years is one of the best investments Wall Street has ever made.

The Watchdogs

The Federal Reserve rescues failed bank executives - often breaking its own rules to do it - and yet cites the same rules when it refuses to help other businesses, or individual consumers, in ways that would do much more to restore the economy. No wonder: The Fed's board includes many of the same bankers who broke the economy - including Jamie Dimon.

Intransigent pro-bank regulators refuse to carry out their own agencies' mandates if it would discommode Wall Street.

And Administration officials meet routinely with double-dealing bankers like Lloyd Blankfein from Goldman Sachs, according to visitor logs, while rarely laying eyes on foreclosed homeowners or other ordinary citizens.

Some of the bank executives they meet with are their own colleagues. There are so many people moving from Wall Street jobs to high government positions - and back again - that our country's center of economic power now resides somewhere on the Amtrak route between New York and Washington. (I'm guessing Metropark, NJ.)

The Solutions

Some people have called for reasonable steps in the wake of this scandal: Tighten banking regulations. Strengthen the Volcker rule. Restore Glass-Steagall. Force Jamie Dimon to

Each of these moves would be a start - but they would only be a start. But the story of Jamie Dimon and JPMorgan Chase illustrates a far deeper, far more systemic problem. They highlight the broken and corrupt matrix of relationships between rich (and often lawbreaking) bankers, politicians and regulators in Washington, and supplicating figures in the national media.

This is an opportunity to explain what's wrong with our system and pursue ways of fixing it. Let's seize the moment now - before it's too late and they break the economy again.

While Jamie Dimon Gently Weeps, a "Big Stick" Bank Attack on Democracy

Richard Eskow — Thu, 05 Apr 2012 14:40:45 -0400

He's at again - and we're glad. A lot of smart people are dedicating their lives to fighting the corrosive effect of Wall Street on our economy and our democracy, but the best spokesman for that cause comes from Wall Street itself.

JPMorgan Chase CEO Jamie Dimon is still the poster child for today's morally degraded, self-entitled banker mentality. I don't know why he keeps talking, but he's the gift that keeps on giving.

At every major junction in the post-crisis debate about banking, Dimon has stepped in with a perfectly tactless remark that illustrates both the vacuity and the moral corruption of his industry. This week was no exception.

JPM: CSI

Dimon's own bank is the perfect case study in the lamentable state of Wall Street's ethics nowadays. Bankers have been able to break the law and walk away by agreeing to settlements in which their shareholders, not they, pay the penalty for their misdeeds.

A Google search of the words "JPMorgan Chase settles" yields nearly two million hits. Narrow it down to recent events and you get items like these:

"JPMorgan a party to mortgage servicing settlement …" (that's the deal to settle massive mortgage fraud; by the way, where are the prosecutions?);
"JPMorgan settles AFTRA pension suit for $150 million" (which appears to involve more incompetence than fraud);
"JPMorgan Chase< /a>has agreed to pay $153.6 million to settle federal civil accusations that it misled investors in a complex mortgage securities transaction in 2007";
JPMorgan to pay $20m to settle case on Lehman funds handling" (for misappropriating funds); and
"JPMorgan Chase Settles Whistleblower Lawsuit Alleging Fraud in Veteran Loans for $45 Million."

That last one is a particularly odious lawsuit "alleging that it cheated military veterans and taxpayers out of millions of dollars by hiding illegal fees in veterans' home mortgage refinancing transactions and then seeking to collect on void government loan guarantees."

Running JPM's Priors

That's a lot of activity since we last reviewed JPMorgan's criminal record at the end of 2010. JPM's history back then included a settlement in which it had to forego three quarters of a billion dollars in fines and anticipated fees after the bribery of public officials in (now bankrupt) Jefferson County, Alabama. It also included a $25 million fine for selling unregistered securities in Florida, multiple whistleblower complaints, and allegations of currency manipulation.

As for the mortgage fraud charges that Dimon's bank just bought its way out from, accounts at the time told of a sleazy operation where untrained and inexperienced youngsters were hired to mass-produce paperwork that evicted people fraudulently from their homes:

"At JPMorgan Chase & Company, they were derided as 'Burger King kids' -- walk-in hires who were so inexperienced they barely knew what a mortgage was ... revelations that mortgage servicers failed to accurately document the seizure and sale of tens of thousands of homes have caused a public uproar ..."

JPMorgan's rap sheet is long and ugly, which leaves observers with a judgement they'll have to make for themselves about Dimon: Is he ethically challenged, or is he just an incompetent executive who can't get his own house in order?

Nice Little Office You Got Here, Representative. Hate to See Somethin' Happen To It

Dimon's latest foot-stamping tirade comes at the perfect time, as usual. American Banker reports that bankers have formed a SuperPAC which one lobbyist describes as a "big stick" in order to bully politicians into serving them more effectively.

"Congress isn't afraid of bankers," said another. "They don't think we'll do anything to kick them out of office." In case somebody missed the point, the lobbyist then added: "We want to change that perception."

Actually, progressive members of Congress are very aware of the bank lobby's power. Progressive Representatives have told me privately that they're very aware of the cautionary tale of Rep. Peter DeFazio, a courageous reformer in a "safe" district who suddenly found himself in a bitter election struggle in 2010 against an unknown an inexperienced opponent - one with a huge campaign war chest funded by anonymous "Eastern" donors.

DeFazio survived - barely - after being forced to divert attention and resources to his bank-funded opponent. Many other progressives in Congress lack the voter familiarity and demographics that allowed DeFazio to hang on against such a well-funded onslaught, and they know it.

That's one reason why so many Democrats don't take more forceful stands against Wall Street - that, and the chance to get some banker contributions, has helped bank executives rewrite laws, write loopholes - and stay out of jail despite over whelming evidence of lawbreaking. But it's not enough. The new SuperPAC is meant to consolidate the bankers' stranglehold over our politics and our lives.

While My Banker Gently Weeps

Enter Jamie Dimon, right on cue. Dimon just complained that regulators “made the recovery worse than it otherwise would have been" - which is not only wrong, but avoids addressing the issue of the recovery's cause, which was banks like Dimon's. Dimon added that the government forced banks to de-leverage "“at precisely the wrong time" - which is precisely wrong. The government's real error was in not breaking up too-big-to-fail banks like Dimon's.

“Complexity and confusion should have been alleviated, not compounded," complains Dimon. I have a friend who works for JPM - name withheld for his own protection - who complained about the "mountains of paperwork" they've been forced to fill out. "I have a better solution," I told him. "We can just break you guys up. You wouldn't need to fill out the papers if your bank's failure didn't pose a threat to the entire financial system." He thought for a second and then said, "You're right."

On a parenthetical note: I just helped my mother take some money out of her modest Chase long-term savings account. If you want to talk about "complexity and confusion," Chase's own internal procedures are a good place to start.

Where are those "economies of scale" Mr. Dimon keeps promising we'll get from allowing banks like his to become so enormous?

Hit Me With Your Banking Stick ... Hit Me, Hit Me ...

Meanwhile, the new SuperPAC is filled with the language of bullies: "Big stick." "Make them afraid." "Surgical." ""Defeat our enemies." "Hammer these guys." Bullying has always gone hand in hand with a sense of victimhood, and today's bankers are no exception.

Their new PAC is called, without any apparent sense of irony, "Friends of Traditional Banking."

But what they represent isn't traditional banking at all. It's the new breed of Superpredator Bank created by deregulation, and it's exactly what must be stopped.

With Friends Like This

The ABA article says "SuperPACs are considered pretty cutting-edge, which is not a place a lot of bankers feel comfortable."

But we know that's not true. Bankers, and their compliant political friends in both parties, felt comfortable deregulating in the nineties in order to promote what was then called "financial innovation" - credit-default swaps, mortgage-backed securities, and the like. They still complain that regulation will stifle "innovation."

And all the major banks were happy to collaborate in MERS, the electronic mortgage casino that circumvented local laws and taxes while enabling the housing bubble and the explosion of banker mortgage fraud.

No, banks like the "cutting edge" just fine - as long as someone else does the bleeding. That's why bankers like Jamie Dimon and SuperPACs like "Friends of Traditional Banking" must be stopped - by friends of traditional democracy.

Bankers Shouldn't Worry About Drum Circles - But Some of 'Em Should Worry About Subpoenas

Richard Eskow — Wed, 29 Feb 2012 22:42:44 -0500

JPMorgan Chase CEO Jamie Dimon recently said that he felt safer in Lebanon than he did when Occupy marched past his house. If nothing else, it proves that Wall Street bankers haven't gotten any better at risk management - the art of knowing where danger lies and avoiding it - than they were when their bad bets crashed the economy and caused the Great Recession.

But then we knew that already, didn't we? After all, Chase is one of five too-big-to-fail banks that could lose $80 billion or more from their poorly-thought-out risk-taking in Europe's most troubled countries. The risky behavior shouldn't surprise anyone, though. These banks know -- or at least believe -- that their too-big-to-fail status means we'll rescue them again when they make the next devastating set of blunders.

What's really striking about comments like these is the fact that executives at America's big banks never seem to worry when police cars approach their houses. Their biggest fear is that that they might glimpse a sign or hear the sound of a mic check reverberating faintly through well-aged brick walls.

Consider JPMorgan Chase, the institution run by Mr. Dimon. To call his bank "scandal-plagued" would be putting it mildly. Chase has settled six fraud cases with the SEC over the last thirteen years and is implicated in several ongoing investigations, including the two most notorious fraud cases of our time. At any other moment in history the headlines would be screaming with various combinations of the words "JPMorgan Chase," "fraud," "probe," "drop," mistakes," "disaster," "incompetence," and "scandal."

But these aren't normal times. The public has come to expect that bankers will commit fraud, and that the government will ignore it. They've come to expect that banks will make bad loans, and that the governments of the world will rescue them by making life more difficult for ordinary people.

Money for Nothing

The public has also come to expect that bankers' compensation won't even be tied to the most basic performance measurements. A case in point is Mr. Dimon himself. He earned - excuse me, a more accurate word would be "received" - roughly $23 million in compensation in 2010. Presumably he was being rewarded for persuading the taxpayer to offer handouts to his bank and others, since that was the only reason any Wall Street bank was still in existence.

But in 2011 the value of JPMorgan's stock fell 17 percent and the bank's credit was downgraded. How much did Mr. Dimon receive? Roughly $23 million. Pay-for-performance? We report, you decide.

(A side comment: As a proud Occupy type, I'm not comfortable with actions that involve anybody's home. Occupy is a proudly peaceful movement, but that doesn't mean people aren't uncomfortable when the place where they live winds up in the spotlight. I've been as tough on him as anyone, but Jamie Dimon has just as much of a right to privacy like anyone else. It might make a good proposal for the next General Assembly: Leave people's homes out of any future actions.)

They Stand Accused

Meanwhile back on Wall Street the scandal train rolls on, and JPMorgan Chase holds a first-class ticket. Here are the latest charges and accusations to cross the bank's scandal-plagued portal:

The trustee for people who were ripped off by Bernie Madoff is seeking to overturn a judge's ruling and reinstate action against JPM, citing evidence that it knew of Madoff's fraud and concealed it from others;
Chase was naive - at best - when it lent money to now-disgraced MF Global, which illegally bet its investors' money and lost. Now it's jumping the line of creditors - most of them victims of massive fraudulent mismanagement it didn't seem to notice - by filing a lien which would give it preferential treatment over MF Global's victims;
JPM is part of an investigation into currency trade rigging in Canada. According to Bloomberg News, "Canadian officials were informed that HSBC Holdings Plc (HSBA), JPMorgan Chase & Co., Citigroup Inc., Deutsche Bank AG, Royal Bank of Scotland Group Plc, ICAP Plc (IAP) and RP Martin Holdings Ltd. took part in the scheme. Employees at the banks agreed to make artificially high or low submissions for Yen Libor to improve the outcomes of trades tied to the rate, the Canadian regulator said."
A bond insurer is suing a JPMorgan Chase division for fraudulently misrepresenting the mortgage-backed securities it was insuring;
A recent class action filing accuses it of mass foreclosure fraud and, as Yves Smith notes, the case is tied into the mass filing of fraudulent court documents by banks like Chase eager to foreclose on homeowners even though they didn't have the right paperwork;
Chase is also knee-deep in the oil speculation market, which some very smart people think is manipulating the market. There's reason to believe that speculators drove oil prices down in 2008 and are driving them up this year. Chase is one of four banks that control 70 percent of the world's commodities.

With so much scandal at so many big banks, why isn't there a public drumbeat for criminal investigations into the behavior of the individuals involved? Fraud doesn't just commit itself, after all.

JPM's Rap Sheet

Chase has a long and sordid history in this area - one that links them to some of the most notorious fraud cases in history, including more than $2 billion to settle fraud charges related to WorldCom and $135 million for charged related to the Enron scandal.

Last year it paid more than $153 million to settle charges that it defrauded investors in mortgage-backed securities.

The bank paid tens of millions and walked away from nearly three quarters of a billion in fees over charges that Chase exes bribed officials of Jefferson County, Louisiana. Chase walked away - and last November Jefferson County filed for bankruptcy. (Another thing Chase execs don't seem to worry about is being troubled by their own consciences.)

Other settlements include $25 million for unlawful IPO (stock) allocations; $25 million (and possibly more) for what was essentially illegal restraint of trade in forcing retailers to use the credit card network it co-owned;and $6 million regarding illegal profit-sharing and tie-ins at JPMorgan Chase Securities regarding the trades it was making.

Fearless

So why are bankers at Chase and elsewhere more concerned about angry words than they are about subpoenas and fines? For one thing, the SEC has let JPMorgan Chase off the hook with a promise not to do wrong again - which it then has proceeded to do anyway. For another, senior Justice Department officials have close ties to iChaseand other banks through their work at law firm Covington & Burling, while senior White House officials like Bill Daley are Chase veterans.

That may explain why nobody at JPMorgan Chase seems to be sweating bullets about possible legal action, even though the SEC recently sent so-called "Wells notices" to three banks, including JPMorgan Chase, notifying them that it may be taking action over yet more investor fraud around mortgage-backed securities.

Or about the fact that New York Attorney General Eric Schneiderman is suing Chase and two other banks over the reportedly fraudulent electronic filing of mortgage documents through MERS, the database and shell company whose legal framework was designed for the banking industry by ... Covington & Burling!

Muscle

But then, why should someone like Jamie Dimon worry about investigators? Guys like Dimon have a lot of muscle. As Bill Moyers noted in 2010, his institution is one of six banks that control 60 percent of our country's gross national product. (It's undoubtedly more now.) It's one of ten banks that hold 77 percent of this country's banking assets. And as we explained in 2010 in a piece called "The Case Against Jamie Dimon: Oligopoly, Pain, And Systemic Risk In Five Slides," reports released that year showed that the top five banks controlled 96 percent of the derivatives market - and JPMorgan Chase alone controlled 44 percent. (It's undoubtedly more now.)

No wonder the scariest thing on a banker's mind, no matter what his bank's rap sheet looks like, is that someday he might look out the window and see a drum circle. And we understand that Mr. Dimon felt safer in Lebanon than he did when Occupy came to visit. But the real question about Mr. Dimon's visit to Beirut is this:

Did Lebanon feel safer?