Government prosecutors’ efforts to hold JP Morgan accountable for mortgage market deceptions that contributed to the financial crisis are “unfair,” CEO Jamie Dimon told CNBC in an interview taped at the World Economic Forum in Davos, Switzerland.
“I think a lot of it was unfair, but I’m not going to go into details,” Dimon said, adding that he was glad to have the mortgage investigations behind him. Dimon argued that “80 percent” of the misrepresentations about mortgage-backed financial products involved in the case originated at two banks JP Morgan acquired at the height of the financial crisis, and that it is unfair to hold his company responsible for Bear Stearns and Washington Mutual employees’ conduct prior to those acquisitions.
This portrayal of the recent settlement between JP Morgan and federal prosecutors is factually incorrect. The lawsuits underlying the settlement did pertain to Bear and WaMu deals as well as JP Morgan deals, but the settlement itself was specifically designed to avoid penalizing JP Morgan for Bear’s and WaMu’s misconduct. Only $2 billion of the total $13 billion settlement package came in the form of an actual fine, and that fine was for JP Morgan’s own mortgage actions. The remaining $11 billion is tax deductible for the bank, reducing the actual cost of the deal to less than half of what the headlines proclaim. Furthermore, $4 billion of that tax-deductible portion of the deal isn’t actually payments by the bank, but “consumer relief” actions that are in the bank’s best interests anyhow.
Just $3 billion of the total settlement came in the form of direct payments to investors who were cheated in the Bear Stearns and WaMu deals that Dimon cited on Thursday, and all of that money is tax deductible for JP Morgan. As Felix Salmon put it last fall, the bank “is not paying penalties for mistakes made by Bear Stearns. All that it’s doing is making good on obligations of WaMu and Bear related to securities they sold.”
Dimon and his fellow JP Morgan executives were adamant that they knew and accepted the risks at the time that they scooped up the two failing banks at fire sale prices. The government took most of the really bad assets that Bear and WaMu held off of JP Morgan’s hands through the Toxic Asset Relief Program (TARP). The acquisitions have made the bank billions of dollars in profit — arguably more money than even the inflated $13 billion figure often used to describe the settlement Dimon now calls “unfair.”
Applying the concept of fairness to the fallout of the crisis more broadly, Dimon seems poorly positioned to gripe. Like the other five largest U.S. banks, JP Morgan has rebounded to near-record profitability in five years while unemployment has remained high, foreclosure abuses have remained rampant, and wages for working people have fallen despite increasing productivity. The economic harm caused by the kinds of mortgage market deceptions perpetrated by Dimon’s bank and many others is measured in the trillions of dollars, and the financial industry’s legal costs look like a rounding error next to the cost of the crisis. Once the tax deductions and other flaws in these settlements are factored in, the real legal bills for the industry shrink even further.
If anything, the government has been too fair to Dimon and his ilk. Landmark settlements have proved weak and hard to enforce, and government prosecutors have won few significant victories on behalf of consumers. While Dimon and his top lawyer seem to think the government has trampled the financial industry, the facts don’t support that sense of victimhood.