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

JPMorgan Chase CEO Jamie Dimon recently said that he felt safer in Lebanon [1] 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 [2]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 [3], 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 [4] - 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 [5], "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 [6]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 [7] 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 [8]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 [9] and $135 million for charged related to the Enron scandal.

Last year it paid more than $153 million [10] 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 [11]. (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 [12]; $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 [13]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 [14], 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 [15] 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, [16] 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 [17]. And as we explained in 2010 in a piece called "The Case Against Jamie Dimon: Oligopoly, Pain, And Systemic Risk In Five Slides [18]," 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?