Will J.P. Morgan Chase Be Torn a New One?

Friday, March 15, 2013 by Rolling Stone

by Matt Taibbi

 

Beginning at 9:30 a.m. Friday, I live-blogged a hearing held by Senator Carl Levin's Permanent Subcommittee on Investigations – the best crew of high-end detectives this side of The Wire, in my opinion – who will be grilling J.P. Morgan Chase executives and high-ranking federal regulators in a get-together entitled, "J.P. Morgan Chase "Whale" Trades: A Case History Of Derivatives Risks And Abuses." This follows this afternoon's release of a brutal 301-page report commissioned by Levin and Republican John McCain by the same name.

The Subcommittee investigators, largely the same crew who unraveled financial scandals surrounding infamous Goldman Sachs trades like Abacus and Timberwolf, and also took on HSBC's trans-global money-laundering activities in an extraordinarily detailed report issued last summer, have now taken aim at the heart of the Too-Big-To-Fail issue through its examination of the much-publicized catastrophic derivative trades made by its amusingly-nicknamed "London Whale" trader, Bruno Iksil, last year.

Most ordinary people dimly remember the London Whale episode now, and even at the time struggled to understand even the vaguest contours of the story while mainstream reporters (including people like myself) were trying with all their might to make sense of it from afar. What most people got out of that story was that J.P. Morgan Chase somehow lost buttloads of money through some sort of impossibly complex derivative trade – billions, though nobody could ever settle on an exact number – and that this was somehow a very bad thing that required the attention of the federal government, although even that part of it was a bit of a mystery to most ordinary people.

Gangster Bankers: Too Big to Jail

Why should we care if a private bank, or more to the point a private banker like Chase CEO Jamie Dimon, loses a few billion here and there? What business is it of ours? And why did we have to have congressional hearings about it last year? The whole thing certainly seemed a big mystery to Dimon himself, who dragged himself to Washington and spent the entire time rolling his eyes and snorting at Senators' questions, clearly put out that he even had to be there.

This new report by the Permanent Subcommittee answers the question of why the public needed to be involved in that episode. What the report describes is an epic breakdown in the supervision of so-called "Too Big to Fail" banks. The report confirms everyone's worst fears about what goes on behind closed doors at such companies, in the various financial sausage-factories that comprise their profit-making operations.

If the information in the report is correct, Chase followed the behavioral model of every corrupt/failing hedge fund this side of Bernie Madoff and Sam Israel, only it did it on a much more enormous scale and did it with federally-insured deposits. The fund used (in part) federally-insured money to create, in essence, a kind of super high-risk hedge fund that gambled on credit derivatives, and just like Sam Israel did with his Bayou fund, when it got in trouble, it resorted to fudging its numbers in order to disguise the fact that it was losing money hand over fist.
Chase for years hid the very existence of this operation from banking regulators and lied about the purpose of the fund (saying it was purely a hedging operation when it stopped being a hedge and instead became a wild directional gamble), and it also changed the way it calculated the fund's value once it started to lose hundreds of millions of dollars. Even worse, the bank's own internal auditors signed off on the phoney-baloney accounting of this Synthetic Credit Portfolio (SCP), at one point allowing it to claim $719 million in losses when the real number was closer to $1.2 billion.

How did they do this? In the years leading up to January of 2012, Chase used a standard, plain-vanilla method to price the derivative instruments in its portfolio. The method was known as "mid-market pricing": if on any given day you had a range of offers for a certain instrument – the "bid-ask" range – "mid-market pricing" just meant splitting the difference and calling the value the numerical middle in that range.

But in the beginning of 2012, Chase started to lose lots of money on the derivatives in its SCP, and just decided to change its valuations, that they weren't in the business of doing "mids" anymore. One executive thought the "market was irrational." As the Subcommittee concluded:

By the end of January, the CIO had stopped valuing two sets of credit index instruments on the SCP's books, the CDX IG9 7-year and the CDX IG9 10-year, near the midpoint price and had substituted instead noticeably more favorable prices.

If you can fight through the jargon, what this basically means is that Chase decided to go into the fiction business and invent a new way to value its crazy-ass derivative bets, using, among other things, a computerized model the company designed itself called "P&L predict" which subjectively calculated the value of the entire fund toward the end of every business day.

If this all sounds familiar, it's because it's the same story we've heard over and over again in the financial-scandal era, from Enron to WorldCom to Lehman Brothers – when the going gets tough, and huge companies start to lose money, they change their own accounting methodologies to hide their screw-ups, passing the buck over and over again until the mess explodes into the public's lap. The difference is that Chase is a much bigger and more dangerous company to be engaging in this kind of behavior.

An even scarier section of the report regards the reaction of the Office of the Comptroller of the Currency, or OCC, the primary government regulator of Chase. The report exposes two huge problems here. One, Chase consistently hid crucial information from the OCC, including the sort of massive increases in risk the OCC was created precisely to monitor. Two, even when the bank didn't hide stuff, the OCC was either too slow or too disinterested to take notice of potential problems. From the report:

During 2011, for example, the notional size of the SCP grew tenfold from about $4 billion to $51 billion, but the bank never informed the OCC of the increase. At the same time, the bank did file risk reports

with the OCC disclosing that the CIO repeatedly breached the its stress limits in the first half of 2011, triggering them eight times, on occasion for weeks at a stretch, but the OCC failed to follow up with the bank.

In other words, Chase added nearly $50 billion in risk and failed to mention the fact to the OCC – but the OCC also failed to bat an eyelid when Chase breached its stress limits eight times in a space of six months, often for weeks at a time. Do you feel safer now?

This episode proves what everyone already implicitly understands about these gigantic banking institutions: that their accounting is often little more than a monstrous black box within which any sort of mischief can and probably is being hidden from shareholders, counterparties, and the public, which has a direct interest in the health of these banks because (a) their enormous size makes them systemically important, i.e. we'd all be screwed if any of them collapsed, and (b) they are the supposedly cautious and conservative guardians of billions in federally-insured deposits.

The Senate investigators highlighted a frightening metaphor to explain what they found out about Chase's response to its burgeoning accounting disaster last winter and spring:

The head of the CIO's London office, Achilles Macris, once compared managing the Synthetic Credit Portfolio, with its massive, complex, moving parts, to flying an airplane. The OCC Examiner-in-Charge at JPMorgan Chase told the Subcommittee that if the Synthetic Credit Portfolio were an airplane, then the risk metrics were the flight instruments. In the first quarter of 2012, those flight instruments began flashing red and sounding alarms, but rather than change course, JPMorgan Chase personnel disregarded, discounted, or questioned the accuracy of the instruments instead.

Investigators took note of this and then, sensibly, wondered if Chase was the only bank ignoring all those flashy lights:

The bank's actions not only exposed the many risk management deficiencies at JPMorgan Chase, but also raise systemic concerns about how many other financial institutions may be disregarding risk indicators and manipulating models to artificially lower risk results and capital requirements.

Anyway, officials from Chase and the OCC are being dragged in tomorrow to answer some heavy questions about all of this. Expect a lot of double-talk, sweaty foreheads, pompous "You just don't understand because you don't make enough money" excuses, and other sordid behaviors. Tune in here for updates.

In the meantime, kudos to Senator Levin and to his Republican partner in this investigation, John McCain, for taking on this topic. Increasingly, key voices in the upper chamber like these two, plus Ohio's Sherrod Brown, Iowa's Chuck Grassley, Oregon's Jeff Merkley, Vermont's Bernie Sanders and others are starting to act genuinely worried about the Too Big to Fail issue. Their determination to keep it in the public eye is, to me, a signal that a consensus is forming behind the scenes on the Hill.

JPMorgan admits to losing $5.8 billion this year so far

RT - Published: 13 July, 2012,

There’s bad news out of Wall Street this week after JPMorgan Chase admits that a trading goof earlier this year has helped earn the country’s biggest bank $5.8 billion in losses — nearly triple the original estimate.

JPMorgan Chase CEO Jamie Dimon tells reporters early Friday that the botched deal overseen by then-Chief Investment Officer Ina Drew is now believed to have cost the bank around $4.4 billion in the second quarter for 2012. Originally JPMorgan staffers saw the gaffe as costing them only around $2 billion, but between Friday morning’s revelation and the revisions made on its first quarter losses, the actual amount lost in 2012 for the bank stands to be around $5.8 billion, notwithstanding any further developments.

Speaking to the press early Friday, Dimon tells the media, “we don’t take it lightly,” but adds that he believes the snafu was not part of any larger screw-up.

"We're not making light of this error, but we do think it's an isolated event,” Dimon pleads.
Dimon has dismissed claims that the mix-up earlier this year will have long-lasting effects on the bank, but has also been open to admitting their faults. In a statement delivered in May, Dimon said, “We maintain our fortress balance sheet and capital strength to withstand setbacks like this, and we will learn from our mistakes and remain diligently focused on our clients, who count on us every day.”

Drew, the former CIO for the bank, resigned from that role in May after news of the gaffe made international headlines. Even after overseeing a deal that cost the company only an estimated $2 billion at the time, though, Drew’s departure from JPMorgan was accompanied by a payout expected to bring her $15 million personally by walking away.

“Despite our recent losses in the CIO, Ina’s vast contributions to our company should not be overshadowed by these events,” Dimon insisted after the resignation was made public.

In this Friday’s statement, Dimon adds, "We have put most of this problem behind us and we can now focus our full energy on what we do best.”

Marty Mosby, an analyst that follows JPMorgan for Guggenheim Securities, tells USA Today that the new developments about the trading loss doesn’t come as too big of a surprise on Wall Street. The real shocker, however, was that JPMorgan has revised is first-quarter earnings to account for a $459 million in additional losses that it is only admitting too now.

"The trading loss was right in line with what we expected," says Mosby. "And the actual report on earnings was much stronger than we expected. What we didn't expect was the restatement. It raises further uncertainty and could lead to reviews from the Securities and Exchange Commission" and other regulators.

The bank agrees that the latest development "raises questions about the integrity" of other trades made this year.

Bankers and Forgiveness

The Gentle Law for the One Percent

by ANN ROBERTSON and BILL LEUMER

 

When homeowners have fallen behind in their mortgage payments, whether because of a job loss or because the interest rates just shot up, the bankers have responded coldly. Led by their economic interests, they set their robo-signers working overtime on foreclosures, forcing millions of people out of their homes. Back during the height of this current economic crisis, when Congress considered passing legislation that would have allowed judges to lower home loans in order to prevent these foreclosures, the banks lobbied furiously and killed the legislation.

But when the bankers themselves commit their own transgressions — not innocent and unavoidable transgressions like not paying back a loan because you lost your job thanks to the bankers’ recession — but actually breaking the law, the government not only forgives them, it virtually becomes an accomplice in their crimes.

Robo-signing, for example, is a crime. It occurred when bank employees signed thousands of documents, claiming they were accurate, without bothering to verify their claim. Yet no one went to jail.

In a recent New York Times article, Jesse Eisinger pointed out that the JPMorgan scandal has raised an array of questions:

 “What did Jamie Dimon, JPMorgan’s chief executive, and Doug Braunstein, the chief financial officer, know, and when did they know it? Were the bank’s first-quarter earnings accurate? Were top JPMorgan officials misleading when they discussed the chief investment office’s investments? … The first question on everyone’s mind should be whether any existing laws were broken.” (May 17, 2012).

However, Eisinger was quick to point out in relation to the last question: “That it hasn’t been asked shows how little true accountability there has been since the financial crisis. No top-tier banker has gone to prison for the many bank failures, the deceptive sales practices or the misrepresentations of the books.”

The laws for the 1 percent are treated by the government as if they were humble requests — nothing to be seriously enforced if the 1 percent decline to accept. The laws for the 99 percent are brutally enforced, not to mention the prevalent police brutality that occurs without any legal justification.

Back in 2011, Gretchen Morgenson and Louise Story, in another New York Times article (July 7, 2011), reported federal prosecutors adopted a gentler code for bankers:

“Federal prosecutors officially adopted new guidelines about charging corporations with crimes — a softer approach that, longtime white-collar lawyers and former federal prosecutors say, helps explain the dearth of criminal cases despite a raft of inquiries into the financial crisis. … The guidelines left open a possibility other than guilty or not guilty, giving leniency often if companies investigated and reported their own wrongdoing. In return, the government could enter into agreements to delay or cancel the prosecution if the companies promised to change their behavior.”

More recently, Gretchen Morgenson has reported that a prominent Wall Street analyst and others suspect that “insider trading can and does occur regularly at many Wall Street firms. In their view it has become institutionalized…. Those in the know can get rich before the rest of us know what happened.” (The New York Times, May 20, 2012).

And this failure of the Securities and Exchange Commission (S.E.C.) to prosecute these cases comes on the heels of its spectacular failure to indict Bernard Madoff, even after being presented with overwhelming evidence of his guilt.

Although the financial industry is the recipient of the bulk of the government mercy, perhaps because it is responsible for the bulk of the crimes, the corporate world in general is a lucrative beneficiary. In the wake of the recent Wal-Mart Mexican bribery scandal, The New York Times (April 27, 2012), reported that, even though bribery of foreign officials is a crime, if past practice is any indication, no one will be prosecuted.

The prominent example of past practice mentioned in the article was Tyson Foods. After listing a series of crimes committed by Tyson executives, the article concluded:

“It’s axiomatic that people, not corporations, commit crimes. So what happened to the Tyson executives involved? Not only did the Justice Department and the Securities and Exchange Commission take no action against them, but the executives involved weren’t even named.” (The New York Times, April 27, 2012).

Why is the government so intent on pursuing a double standard when it comes to enforcing the law on the 1 percent and on the rest of us? In part this mundane corruption is due to the cozy relation that has been cultivated between the politicians and the corporate world. If a politician or regulator plays the game and pleases the corporations, they can look forward to a financially rewarding career in the private sector after they leave office. Politicians, for example, routinely become lobbyists.

The corruption is also due to this fact: “At least two-thirds of the U.S. senators drafting new financial regulations hold stock in banks or other companies affected by the legislation, such as Citigroup Inc. and Wells Fargo & Co., disclosure statements show.” (Bloomberg, June 16, 2010).

But the final explanation is that politicians have acquired the automatic habit of prostrating themselves before those with vast sums of money. And this is one more of the many toxic byproducts of the growing inequality in wealth: a sense of community is increasingly destroyed, along with the moral values that hold it together. We are left with two opposing classes that inhabit two opposing worlds, and their clash is inevitable.

The True Costs of Bank Crises

The Suicide Machine

by ROB URIE

 

In March 2010 Andrew Haldane, Executive Director for Financial Stability at the Bank of England, estimated that the financial crisis that began in 2008 will ultimately cost the world economy between $60 trillion and $200 trillion in lost production (link). The methods he used to reach his conclusions require a number of assumptions, but so would any effort at assessing the broader damage. And to his point, counting the cost of bank crises in terms of costs to the banks alone substantially misrepresents the economic harm that recurrent crises cause.

When J.P. Morgan announced last week that it had lost $2 billion from derivatives transactions gone awry, later revised to $3 billion and rising, the mainstream press reiterated the framing that this is a cost to be borne by the bank and that it indicates what the rest of us might be expected to contribute if another banking crisis erupts. The implication is that future crises are possible, ignoring that we are collectively still paying for the last crisis. And again, to Mr. Haldane’s point, the costs to Wall Street are nearly irrelevant when considering the total costs of banking crises.

This all proceeds from the premise that the broader economic order, of which the banks are a part, is a viable form of economic organization. Given that the current order is radically environmentally unsustainable, it is tempting to imagine that the lost production that Mr. Haldane is counting as a cost of the financial crisis has a silver lining in slowed environmental degradation. Additionally, any careful look at the business of banking finds degrees of predation inversely related to social power—even when they aren’t blowing themselves up, most of the world would be better off without predator banks.

This establishes a paradox—the existing economic (and political) order isn’t working. But, as political leaders on the right and what passes for the left these days claim, failing to sustain it would entail massive human costs in terms of unemployment, bankruptcy, poverty, divorce, suicide and the dissolution of our public institutions. Ironically, add increasing environmental destruction to this list and it well describes current conditions under the existing order.

Apparently the best that defenders can offer is that things could be a lot worse.

To point to the obvious, even Mr. Haldane’s lower cost estimate of $60 trillion isn’t being borne by the banks. The banks couldn’t pay this if they were forced to—it is more money than they will collectively earn in profits over coming decades. And it isn’t being borne by the large corporations that are earning the highest rate of profits in history. It is in fact a negative, an unmet promise made to the rest of us by the proponents of capitalism over recent decades. Through the prism of social struggle it appears as an absence, not as a more straightforwardly actionable misappropriation. But then, what is the ultimate difference?

Jamie Dimon, J.P. Morgan’s CEO, offered that the bank’s loss reflected a failure of risk models. But the bank’s risk models are necessarily narrowly delineated—what model could propose that transactions that could cost the broader economy $60 trillion if they go wrong balance out in favor of the transactions? Such risk models carry the implicit premise of heads, the banks win; tails, the rest of us lose. Practically speaking, these trades, when they work, are simply a method of converting a rigged game into cash. The assets being traded, reportedly a basket of credit default swaps, are un-funded insurance policies; accounting fictions that when aggregated guarantee bailouts—every bank requires that every other bank meet its obligations or the whole system collapses.

For all of the money that the banks have been allowed to create and pay out to the purported rocket scientists who build their risk models, the particular model under discussion in J.P. Morgan’s case (VAR, value-at-risk) is a work of rare idiocy. The question that it attempts to answer is: how badly can things go for one day, week, month etc. assuming (1) no other banks run into similar problems and (2) everything goes back to normal in the next period. What makes use of this model so questionable is that both of these assumptions are behind every spectacular financial collapse in modern history that didn’t involve outright theft (e.g. Ponzi schemes).

Ultimately the particulars of J.P. Morgan’s losses are so much noise.
What they point to is an economic system designed to self-destruct. Add increasing environmental degradation in the face of global warming to structural financial fragility and what capitalism appears to have created is a full-blown suicide machine. And to invert Mr. Haldane’s premise—the $60 trillion in lost production (minimum) was never going to go to us anyway. The trajectory since the 1970s had it going to corporate executives, bankers and machines (automation).

The challenge for reformers and re-regulators is that the system is the problem.

Companies pollute because they individually prosper while we collectively pay the costs. Banks take risks that are internally rational while they are systemically catastrophic. Environmental and financial crises cannot be solved with capitalism intact. In fact, when global warming and bank crises are considered, there is little evidence that capitalism ever produced any profits net of externalized costs. And the consolidation of wealth that capitalism produces undermines all attempts at remediation. Capitalism itself is a suicide machine.

What made J.P. Morgan’s loss news is the recognition that the financial crisis hasn’t been resolved. And again, this crisis isn’t from without. It is endemic to the system we are being told we must save. As Mr. Haldane has it, even if the crisis had been resolved, we would still collectively be out more than $60 trillion anyway. And the only way toward those trillions is through increasing environmental catastrophe. By appearances, the current order is in the process of imploding of its own weight. And while dislocations create fear, they also create openings for other possible futures.

Big Bank Backlash: From Coast to Coast People are Moving their Money

Friday, May 6, 2011 by PRWatch.org

by Mary Bottari

As the economy continues to stutter and new unemployment claims surge to an eight month high, it hasn't escaped the notice of people on Main Street that the folks on Wall Street are back in the black.

According to FORTUNE magazine, profits of the 500 largest U.S. corporations have surged 81 percent this past year. FORTUNE editors write, "We've rarely seen such a stark gulf between the fortunes of the 500 and those of ordinary Americans."

When FORTUNE is standing up for the workers, you know it's bad.

The Big Lie 

As the United States splinters further into two worlds, the American people have not forgotten who got us into this mess in the first place. They are refusing to buy the big lie peddled by new Republican Governors, like Scott Walker in Wisconsin or John Kasich in Ohio, that greedy public sector workers are to blame for our economic woes. They know who inflated the housing bubble and played both sides with credit default swaps, and it wasn't teachers, firefighters or snowplow drivers.

From San Francisco to Wall Street people are taking to the streets reminding governors and their friends on Wall Street and that they remember very well who tanked the global economy putting more than 11 million Americans out of work and creating a revenue crisis for many states.

Hundreds protested inside and outside the Wells Fargo shareholder's meeting in San Francisco this week, and the big bank backlash is gaining steam.

Cheeseheads Say Move Your Money from M&I Bank 

Wisconsin State AFL-CIO is the latest in a wave of businesses, organizations, and individuals who are closing their accounts with M&I Bank. Yesterday the federation closed out a $100,000 CD it held at M&I. Taxpayers bailed out M&I with $1.7 billion of TARP funds. Instead of repaying the money, M&I executives and employees gave $54,000 in political contributions to Governor Scott Walker. Plus, M&I is planning on paying its failed executives $71 millions in bonuses this year when the bank is sold to the Canadian-owned Harris Bank and will close its Milwaukee headquarters.

Mark Furlong the CEO of M&I is scheduled to receive $24 billion bonus package after the bank is sold. In a letter to Frulong, Stephanie Bloomingdale, Secretary-Treasurer, WI AFL-CIO puts it bluntly: "By contributing money to Scott Walker and other Republicans, you have taken part in the destruction of Wisconsin's middle class. As a company entirely dependent on American taxpayers for its survival, M&I owes its allegiance to those taxpayers... We care about our families and communities, while you care only about your bottom line. Here's our bottom line: We're moving our money."

The AFL-CIO joins the firefighters the teachers, church groups and hundreds of individual who have decided to chose a new bank. More actions are planned. If you are interested in moving your money, you can find a new bank or credit union at the Move Your Money site of the Huffington Post.

Buckeyes Tell JPMorgan Chase to Stop the Foreclosures 

Ohioans will greet Jamie Dimon, "the most dangerous banker in the world," at JPMorgan Chase's annual shareholder's meeting in Columbus, OH. After taking $25 billion in TARP bailout money and after acquiring Bear Sterns and Washington Mutual, Jamie Dimon thinks that the big banks aren't big enough and neither is his bonus. In 2010, his total compensation topped $28 million.

Hard to imagine what the spinmeisters were thinking when they advised Dimon to flee Wall Street for Ohio. Ohio is one of the states hardest hit by the epidemic of foreclosures and joblessness caused by Wall Street. It is a state where unions have been under attack, and where hard-won labor rights that built the middle class have been stripped away from public sector workers. This week National People's Action will release a study showing a projected one out of every ten homes in Cleveland, Cincinnati and Columbus received a foreclosure filing since the start of the housing crisis.

Wall Street firms have long been big backers of Kasich. According to Ohio Citizen Action, Chase employees gave $29,000 to Kasich's gubernatorial campaign.

"Protesters will deliver a message to Wall Street – it is time for big banks like JPMorgan Chase to stop the foreclosures, pay their fair share, create jobs, and end the revenue crisis," says Adam Keck, Senior Organizer, Mahoning Valley Organizing Collaborative.

You are invited to join the Buckeyes in Columbus on May 17th and you can find more information at: Showdown in America.

Bash the Bank

Saturday, February 19, 2011 by CommonDreams.org
by Christopher Brauchli

"A power has risen up in the government greater than the people themselves, consisting of many and various and powerful interests, combined into one mass, and held together by the cohesive power of the vast surplus in the banks."
—John Caldwell Calhoun, Speech 1835

For the last quarter of 2010, JPMorgan Chase (JPMC) had a 47% jump in profits and since 2010 was such a good year it set aside $9.73 billion for its investment bankers’ bonuses. It is easy for pundits to decry such bonuses and at the World Economic Forum in Davos the bank’s president, Jamie Dimon, struck back at critics. He deplored what he described as “banker bashing” and said that bankers have become political whipping boys. He doesn’t seem to know why that is. To figure it out he could go back to JPMC’s actions in the early days of the foreclosure crisis and its unwillingness to help homeowners, whose homes were in foreclosure, modify their mortgages, an unwillingness described here and in countless other publications.

Alternatively Mr. Dimon might have considered events that would be described by Stephanie Mudick, an executive vice president in JPMC’s Office of Consumer Practices when testifying before the House Committee on Veterans Affairs on February 9th. She testified that the bank had overcharged approximately 4,500 members of the U.S. military on mortgages and had “accidentally” foreclosed on 18 service members’ homes. Stephanie expressed the bank’s “deepest regret over the mistakes we’ve made in applying these protections [for service members]. I commit to you that we will get this right.” (On February 15th it was announced that the bank would make amends by, among other things, not foreclosing mortgages on any active-duty military personnel. This will, of course, not help those who “accidentally” lost their homes or were overcharged. As one lawyer representing service members who had been cheated by the bank observed: “When I was prosecuting cases, I never had a defendant who got caught breaking the law that didn’t want to give back what they took and promise to lead a better life.”)

When berating his critics, Mr. Dimon knew about the lawsuit that was filed against the bank by Irving H. Picard in early December 2010. Mr. Picard is the bankruptcy trustee who is making claims against those who were unjustly enriched by their dealings with Bernie Madoff. According to Bloomberg News, in his suit against the bank, Mr. Picard alleges that the bank knew of Madoff’s fraudulent operation and was, according to Mr. Picard’s attorney, “willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff. JPMC was at the very center of that fraud, and thoroughly complicit in it.” Some people might think the allegations in the suit would have chastened Mr. Dimon. On the other hand, maybe not. After all, a plaintiff can say anything he or she wants in court pleadings and that does not make them true, even when Bernie Madoff says the banks knew what was going on. And if those episodes did not help Mr. Dimon understand why people bash banks, he might consider the matter of the Blackstone Hotel in Chicago and New Markets Tax Credits (NMTC).

The Department of the Treasury describes the NMTC program saying it “permits taxpayers to receive a credit against Federal income taxes for making qualified equity investments in designated Community Development Entities (CDEs).” The credit totals 39 percent of the cost of the investment and is claimed over a seven-year credit allowance period. An organization that wants to receive money under NMTC must demonstrate “a primary mission of serving, or providing investment capital for low-income communities or low-income persons as defined by the Department of the Treasury. The determination as to whether an area meets the requirements is based on the most recent census which is the year 2000. As Bloomberg Markets Magazine reported on February 11, 2011, because of the use of old census data many high-end developments have occurred with NMTC funds that were not supposed to be the beneficiary of those funds. The Blackstone hotel is one of them. It opened in 2008 after a $116 million dollar renovation. Rooms at the Blackstone today go for up to $699 a night. Very few low-income persons stay there.

Prudential Financial Inc. developed the property and got $15.6 million in tax credits. JPMC was the lender and handled construction financing receiving fees and interest from the project. A spokesman for JPMC told Bloomberg Markets Magazine “We think these projects help the community.” He’s probably thinking of employment opportunities since when it opened it hired 200 workers.

As Cliff Kellogg, a former senior policy advisor at Treasury discussing the Blackstone project told Bloomberg, “Things like luxury hotels are entirely contrary to what we set out to do.” It’s probably contrary to what Mr. Dimon’s bank set out to do when it participated in the project, helped Bernie Madoff cheat investors, cheated soldiers or accidentally threw them out of their homes. As the saying goes, bad things happen. That’s no reason to bash those who received $9.73 billion in bonuses. Just ask Mr. Dimon.

Banksters Back in the Black: JPMorgan Chase

Monday, February 7, 2011 by BanksterUSA
by Mary Bottari

Earnings and bonus reports are rolling in and the big, bailed-out banks are back in the black. In 2010, total compensation and benefits at publicly traded Wall Street banks and securities firms hit a record of $135 billion -- up almost six percent from 2009 according to the Wall Street Journal. JPMorgan Chase CEO Jamie Dimon may take home the biggest bonus check, an eye-popping $17 million.

While the Wall Street economy is booming, the real economy is in a dead stall. Only 36,000 jobs were created in January 2011. A roundup of recent headlines shines a light on how big banks like JPMorgan Chase make their big bucks.

No Saving Private Ryan

U.S. foreclosure filings are projected to reach 9 million in 2011. An increasing number of the foreclosed are U.S. service members even though they have access to special protections and programs. USA Today reports that foreclosure filings near military bases jumped 32 percent since 2008. More than 20,000 veterans, reservists and active-duty troops lost the homes to foreclosure in 2010, the highest number since 2003. This report comes hard on the heels of an NBC expose showing that JPMorgan Chase illegally overcharged 4,000 active service members for their mortgages improperly foreclosing on a number of them.

Diane Thompson from the National Consumer Law Center points out that big banks and mortgage service firms have perverse financial incentives that spur them to foreclose. “The servicer’s expenses, other than the financing costs associated with advances, will be paid first out of the proceeds of a foreclosure. . . Whether and when costs are recovered in a modification is more uncertain.”

In other words, big banks and mortgage firms are rushing to kick American families to the curb to pocket more fees. Thanks for the service boys!

Profiting on Poverty

In these hard times, some 43 million American families rely on food stamps. To the surprise of many, JPMorgan Chase is the largest processor of food stamp benefits in the United States. The bank is contracted to provide food stamp debit cards in 26 U.S. states and the District of Columbia.

The firm is paid per customer. This means that when the number of food stamp recipients goes up, so do JPMorgan profits. Talk about perverse incentives. JPMorgan is taking its responsibility to keep the U.S. unemployment rate high by offshoring the servicing of many of these contracts to India, according to ABC News.

Michael Snyder of the Seeking Alpha blog put it best: “There are just some things that are a little too creepy to be outsourced to private corporations.“

Covering Up Fraud at Bear Sterns

Another lawsuit filed in 2008 by mortgage insurer Ambac Assurance Corp against Bear Stearns and JPMorgan was recently unsealed. A trove of documents reviewed by Atlantic Monthly suggest that Bear Stern executives cheated clients out of billions by double dipping on securities sales they knew to be flawed. The lawsuit also alleges accounting fraud by JPMorgan Chase (which bought Bear in 2008) in an effort to cover-up the problem.

In a stack of damning emails, Bear Sterns top executives crow over selling investors a "sack of shit." Now those these same stellar businessmen are senior executives at Goldman Sachs, Bank of America, and Ally Financial. JPMorgan, of course, denies any wrongdoing.
"Not Fair," says Dimon

At last week's World Economic Forum in Davos, Switzerland, Jamie Dimon lambasted the media and politicians for portraying all bankers as greedy evil-doers. “I just think this constant refrain [of] ‘bankers, bankers, bankers,’ - it’s just a really unproductive and unfair way of treating people. It’s not fair to lump all banks together,” he steamed. Don't worry Jamie, you are on a level all of your own.

CEO Salaries vs. Company Profits

By Focus Editors

America is still picking up the pieces of the worst financial disaster in decades, and the bulk of the damage struck in the financial market. In a time where you might think banks would be keeping their money internal to repair and rebuild their organizations, we have instead gaped in horror as some of these same executives receive multimillion dollar bonuses year after year. In fact, a study performed by the Associated Press in 2008 found that $1.6 billion of total government bail out money (money provided to fledgling organizations intended to keep them from total collapse) went straight to various executives pockets. Today we explore where some of that morally-questionable money went.

Ken Lewis of Bank Of America
The Huffington Post reports that Bank Of America received $25 billion in bail out money in 2008, and an additional $20 billion in 2009 to cover the loss they took when they acquired Merrill Lynch. This massive infusion of government money came only one year before Ken Lewis stepped down from the office of CEO with $83 million in compensation packages. The bank was more eager than some other bailed out companies to pay back its debts to the government, and succeeded in doing so late last year. But thePost makes clear that this was not out of any moral or ethical dedication to their duty, but mostly so that their executives would not be hindered by government pay restrictions imposed on bailed out companies.

Vikram Pandit of Citigroup

In 2008, the same year that Citigroup accepted a $45 billion government bailout, MarketWatch reports that former CEO Vikram Pandit took home a benefits package worth $38.2 million. This package consisted mostly of stocks and options, combined with a $958,333 annual salary. Interestingly enough, Pandit declined the opportunity to be considered for huge bonuses, and committed to working for $1.00 in base pay until the company was back to profitability. Additionally, the CEO reimbursed Citigroup over $170,000 for personal use of the company aircraft.

Martin Sullivan of AIG
CNBC reported that Martin Sullivan retired from the collapsing offices of AIG, but not before pocketing a $47 million stock and benefits package. Only a few months later AIG was approved for $85 billion in government bailout funds. Slate.com reports that this king's ransom was raised from selling off federal securities, bringing the fed down below $200 billion in reserves.

Being the world's largest insurance company, the US government saved AIG to avoid the disastrous outcome on the financial market that would have occurred if the company collapsed. If AIG was allowed to go under, NPR reports that it would have resulted in $185 billion worth of damage to the world financial market, a blow that would have resulted in "substantially higher borrowing costs, reduced household wealth, and a materially weaker economic performance."

Richard Wagoner of General Motors

According to the New York Times, former General Motors CEO Richard Wagoner received a $14.4 million dollar "goodbye" package in 2008. That same year, the US government appropriated $50 billion in bailout money to save the auto manufacturer from tanking. CommonCause.org reports that the majority of this money came from pension and stock benefits, along with a $1.55 million salary.

Daniel Akerson was brought in as Wagoner's replacement, and has gone on record saying that he took the job because he believes in the government's decision to save General Motors. "[The bailout] was absolutely the right decision for this company, for this region, for the manufacturing base of the United Sates," Akerson told the Washington Post. "I wouldn't have agreed to go on the board...if I hadn't agreed with that decision."

Frederick Waddell of Northern Trust
Northern Trust received one of the smallest government bailout appropriations of 2008, totaling just $1.6 billion. This is why it was so shocking to see CEO Frederick Waddell recieve a compensation package of over $6 million that same year. As reported By CommonCause.org, this money came mostly in the form of stock, options, and salary. Under Waddell's leadership, Northern Trust succeeded in paying the off the government bail out in full in under a year. In 2009, the institution issued a press release proudly announcing this accomplishment, and that same year Forbes reported that Waddell's compensation has nearly doubled, increasing to $11.89 million. The raise was no doubt justified by his quick action in repaying the debt.

Lloyd Blankfein of Goldman Sachs

Lloyd Blankfein, CEO of the recently indicted Goldman Sachs, reportedly took home over $70 million in 2008 alone. That same year, Goldman Sachs was bailed out to the tune of $10 billion, leading many to question the rationale behind Blankfein's massive compensation. The Huffington Post claims that that this compensation makes over $125 million over the past 10 years.

In 2009, the company was brought up on charges of sub prime mortgage fraud by the Securities and Exchange Commission, who claimed that the organization deliberately marketed bad loans in a deceptive manner. The Post reports that Blankfein settled with the SEC in July to the tune of $550 million.

Jamie Dimon of JPMorgan Chase

In what feels like a total slap in the face, JPMorgan Chase CEO Jamie Dimon somehow found the budget room to snag a $28 million bonus package in late 2007 despite JPMorgan Chase being in such poor financial shape that they needed a $25 billion government bail out a mere year later. As if this wasn't bad enough, CNN reports that 2009 brought about another round of bonuses for Dimon, this time in the amount of $16 million.

BusinessWeek announced that President Obama was having dinner with Jamie Dimon to dinner to discuss financial reform at the White House. Since the meeting, no official reports have been released disclosing what was discussed.

More Banker Outrage at the Evil Protesters, We the People

You know what? If the poor yiddle banksters are getting upset at all the protests and rage coming at them, then obviously we are doing the right thing! If you become aware of any bank protest in your area, go to it, if only for a few minutes to make a louder unified voice. Screw those corrupt greedy bastards. If we're getting to them, keep at it!-jp

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More Banker Outrage: Protesters Plan Marches on Wall Street Banks
Activists, Union Members Will Take to the Streets Again, but Are They Having any Impact?

by Alice Gomstyn and Rachel Humphries

Outrage over bonuses, bailouts and home foreclosures have prompted angry demonstrations at bank office buildings, bank conferences and even bankers' homes since the financial crisis began. With Wall Street reform proposals up for debate in Congress and bank shareholder meetings taking place later this month, protest organizers say they're getting ready to rally the troops again with several new demonstrations expected to draw thousands.

"There's something fundamentally wrong with an economic and political system that allows the big banks to rewrite all the rules to stay afloat while allowing entire communities to collapse in the wake of the disaster caused by Wall Street," Anna Burger, the secretary-treasurer of the Service Employees International Union, said on a conference call with reporters Thursday. "That's why we're escalating and expanding this campaign."

The SEIU, one of the most vocal critics of Wall Street and big U.S. banks, is part of a coalition of at least six groups -- including the AFL-CIO; the National People's Action, a racial and economic justice advocacy group; PICO National Network, a faith-based group; and North Carolina United Power, an organization of religious and community groups -- planning demonstrations across the country later this month.

Organizers are calling on banks to help people stay in their homes, offer more small business loans, stop offering financing to payday lenders and stop attempts to block financial reforms. They say they're targeting their demands at the country's biggest banks: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.

The American Bankers Association, one of the banking industry's top lobbying groups, declined to comment on the planned protests. Last October, an ABA conference in Chicago drew 5,000 protesters, organizers say.

A spokeswoman for Bank of America, which will be the target of at least two demonstrations scheduled for later this month, said of the protesters: "While we understand their passion on the issue, we don't necessarily agree with some of their statements and approaches."

On Wall Street itself, news of the planned protests was met with disdain by some of the street's rank and file.

"I mean, there is a lot of excess on Wall Street, you know, with the bonuses, but there are people that deserve it," said Michael Maresca, an information technology employee at JPMorgan Chase. "People down here work very, very hard ... I think there's also a lot to blame outside of Wall Street, with the Federal Reserve, politicians, the Federal Reserve, all those guys that have been involved -- there's a lot of blame to go around, I think. It's directed at the wrong place."

Wall Street Workers Weary of Bank Protests

Alan Valdes, a trader with DMC Securities, said he didn't think bank protests help anyone and have kept people from taking advantage of a lucrative rebound in the stock market.

"We've still got problems, and we've still got a lot of headwinds ahead -- there's no question about it. But (for the market) to be up 75 percent in a year -- that's a great market," he said. "To keep bashing Wall Street, I think, is wrong. It sends the wrong message to the public ... With all this bashing that's going on, a lot of people, I think have stayed away from the market."

Jerry, an employee at a Wall Street law firm who did not want his last name used, said he didn't see the new protests accomplishing much.

"They protest down there all the time," he said, "but it's not going to do nothing."

How effective previous protests have been remains in question.

When it comes to changing public policy, behind-the-scenes moves, including lobbying politicians and bureaucrats , typically work better than "outsider tactics" like demonstrations, said Dean Lacy, a professor of government at Dartmouth College.

While much attention is paid to the massive amounts of cash that banks and lobbying groups pump into political campaigns, Lacy said lobbyists also have an advantage over grassroots protesters because they can make more targeted moves, such as urging a Congressional committee to block a specific provision in a bill or influencing an agency to change its enforcement of an existing policy.

"Protests tend to not have precise targets but seek broad-based change," Lacy said.

Single protests, he said, tend not to be effective. A series of demonstrations like those of the civil rights movement, however, can successfully draw media attention and raise public awareness, which may ultimately lead to policy changes, he said.

Bank protests thus far, he said, "have probably raised public awareness about executive pay and the bailouts of banks and other financial institutions."

Protests are planned for the last week of the month at the Wells Fargo shareholder meeting in San Francisco; at the Bank of America shareholders' meeting in Charlotte, N.C.; outside a Bank of America building in Kansas City; and on Wall Street. Next month, the groups will also converge on K Street in Washington D.C. to protest banks' lobbying of elected officials.


PR Campaign by JPMorgan's Dimon?

When asked about the expected protests at their bank buildings, both Wells Fargo and Bank of America representatives cited their banks' track records in addressing some of the issues raised by activists.

A Wells Fargo spokeswoman said the bank recognizes that "Americans are demanding more from their financial institutions during these difficult economic times" and that it is "committed to serving the financial needs of businesses and individuals, keeping credit flowing, and working to help those in financial distress find solutions."

The bank, she said in an e-mail, provided $711 billion in loans and lines of credit last year.

A Bank of America spokeswoman said that BofA last year extended $758 billion in credit in both the consumer and commercial sectors, more than any other bank, and that it has invested more than $8 million in grants to tackle hunger and housing needs. Information about the Bank of America's work in these areas, she said, is available in its quarterly impact statement on the bank's Web site.

In Thursday's call, Burger singled out JPMorgan Chase CEO Jamie Dimon as "leading the PR campaign to rebrand Wall Street," noting that the bank spent $6.2 million on lobbying last year.

"The American people aren't buying Jamie's PR campaign," she said.

A JPMorgan Chase spokeswoman declined to comment.

JPMorgan Chase is known, along with Goldman Sachs, for avoiding many of the pitfalls of the financial crisis.

In his annual letter to shareholders earlier this month, Dimon said "punitive efforts" against banks hurts ordinary shareholders and that"vilify(ing) whole industries" denigrates "much of what made this country successful."

"When we reduce the debate over responsibility and regulation to simplistic and inaccurate notions, such as Main Street vs. Wall Street, big business vs. small business or big banks vs. small banks, we are indiscriminately blaming the good and the bad ? this is simply another form of ignorance and prejudice," Dimon wrote.

The Most Dangerous Man In America

Jamie Dimon: The Most Dangerous Man In America
By Simon Johnson, Huffington Post
April 5, 2010


There are two kinds of bankers to fear. The first is incompetent and runs a big bank. This includes such people as Chuck Prince (formerly of Citigroup) and Ken Lewis (Bank of America). These people run their banks onto the rocks -- and end up costing the taxpayer a great deal of money. But, on the other hand, you can see them coming and, if we ever get the politics of bank regulation straightened out again, work hard to contain the problems they present.

The second type of banker is much more dangerous. This person understands how to control risk within a massive organization, manage political relationships across the political spectrum, and generate the right kind of public relations. When all is said and done, this banker runs a big bank and -- here's the danger -- makes it even bigger.

Jamie Dimon is by far the most dangerous American banker of this or any other recent generation.

Not only did Mr. Dimon keep JP Morgan Chase from taking on as much risk as its competitors, he also navigated through the shoals of 2008-09 with acuity, ending up with the ultimate accolade of "savvy businessman" from the president himself. His letter to shareholders, which appeared this week, is a tour de force - if Machiavelli were a banker alive today, he could not have done better. (You can access the full letter through the link at the end of the fourth paragraph in this WSJ blog post; for another assessment, see Zach Carter's piece.)

Dimon fully understands -- although he can't concede in public -- the private advantages (i.e., to him and his colleagues) of a big bank getting bigger. Being too big to fail - and having cheaper access to funding as a result -- may seem unfair, unreasonable, and dangerous to you and me. But to Jamie Dimon, it's a business model -- and he is only doing his job, which is to make money for his shareholders (and for himself and his colleagues).

Dimon represents the heavy political firepower and intellectual heft of the banking system. He runs some of the most effective -- and tough -- lobbyists on Capitol Hill. He has the very best relationships with Treasury and the White House. And he is determined to scale up.

The only problem he faces is that there is no case at all for banking of the size and form he proposes. Consider the logic he presents on p.36 of his letter.

He starts with a reasonable point: Large global nonfinancial companies are an integral and sensible part of the American economic landscape. But then he adds three more steps:

1. Big companies need big banks, operating across borders, with large balance sheets and the ability to execute a wide variety of transactions. This is simply not true - if we are discussing banking at the current and future proposed scale of JP Morgan Chase. We go through this in detail in 13 Bankers - in fact, refuting this point in detail, with all the evidence on the table, was a major motivation for writing the book. There is simply no evidence - and I mean absolutely none - that society gains from banks having a balance sheet larger than $100 billion. (JP Morgan Chase is roughly a $2 trillion bank, on its way to $3 trillion.)

2. The US banking system is not particularly concentrated relative to other OECD countries. This is true - although the degree of concentration in the US has increased dramatically over the past 15 years (again, details in 13 Bankers) and in key products, such as credit cards and mortgages, it is now high. But in any case, the comparison with other countries doesn't help Mr. Dimon at all - because most other countries are struggling with the consequences of banks that became too large relative to their economies (e.g., in Europe; see Ireland as just one illustrative example).

3. Canada did fine during 2008-09 despite having a relatively concentrated financial system. Mr. Dimon would obviously like to move in the Canadian direction - and top people in the White House are also very much tempted. This is frightening. Not only does it represent a complete misunderstanding of the government guarantees behind banking in Canada (which we have clarified here recently), but this proposal - at its heart - would allow, in the US context, even more complete state capture than what we have observed under the stewardship of Hank Paulson and Tim Geithner. Place this question in the context of American history (as we do in Chapter 1 of 13 Bankers): If the US had just five banks left standing, would their political power and ideological sway be greater or less than it is today?

For a long time, our leading bankers hid behind their lobbyists and political friends. It is most encouraging to see Mr. Dimon come out from behind those layers of protection, to engage in the intellectual fray.

It is entirely appropriate -- and most welcome -- to see him make the strongest case possible for keeping banks at their current size and, in fact, for making them bigger. We should encourage such engagement in public discourse, but we should also examine carefully the substance of his arguments.

As we point out in the Washington Post Outlook section this week, Theodore Roosevelt carefully weighed the views of J.P. Morgan and other leading financiers in the early twentieth century - when they pushed back against his attempts to rein in their massive railroad and industrial trusts. Roosevelt was not at that time against big business per se, but he insisted that big was not necessarily beautiful and that we also need to weigh the negative social impact of monopoly power in all its economic and political forms.

If we don't find our way to a modern version of Teddy Roosevelt, Jamie Dimon -- and his successors -- will lead us into great harm. It's true that, after another crash or in the midst of a Second Great Depression, we can reasonably hope to find another Roosevelt -- FDR -- approach. But why should we wait when such a disaster is completely preventable?