In some parts of the world, a business leader who dares criticize his government would quickly find his company shut down or nationalized.
In America, we pride ourselves on doing things differently. Here we operate by the rule of law.
The $13 billion settlement announced Tuesday between JP Morgan Chase and the Department of Justice makes us wonder whether we’re really so different after all.
On so many levels, the JP Morgan deal gives off a malignant odor. Why have an IRS if the government can generate billions simply by threatening a private firm with expensive, damaging and ongoing litigation?
And why go through the bother of getting Congress to approve a pet program when it’s so much easier just to direct a bank to spend billions on a constituency you want to please?
Even the grounds for action is dubious. The main claim against JP Morgan is that it led others to believe its mortgage-backed securities were financially stronger than they in fact were. But this is a rich accusation coming from the government, for two big reasons.
First, the idea this settlement promotes — that Fannie Mae and Freddie Mac were naifs victimized by big bad JP Morgan — is absurd. According to the press release put out by the Federal Housing Finance Agency, investors such as Fannie and Freddie “suffered enormous losses” because they had purchased mortgage-backed securities from JP Morgan, Bear Stearns and Washington Mutual “not knowing” that they were defective.
Let’s be clear: If these quasi-government entities were as unsophisticated about mortgage-backed securities as DOJ and the Federal Housing Finance Agency would have us believe, they ought to be put out of business altogether rather than get more taxpayer dollars to keep them afloat.
Second, most of the alleged misbehavior was done by Bear Stearns and Washington Mutual before JP Morgan got them. During the 2008 financial crisis, JP Morgan bought Bear Stearns outright, as well as some of the assets and liabilities of Washington Mutual. This was done at the behest of Uncle Sam, which assured JP Morgan it would be understanding if irregularities later turned up.
Not only is Justice now holding JP Morgan liable, in the case of Washington Mutual it has made the settlement contingent on JP Morgan’s giving up its right to have its claims heard by a judge. What does it say about a government so determined to keep an objective judge from looking over its work?
All of which only adds to the impression that JP Morgan’s real sin was that its CEO, Jamie Dimon, once hailed as “Obama’s favorite banker,” criticized the Obama administration over policies he said were dragging down the economy. In response, the government went after its earnings the way Dracula goes after blood. Hard to see how these actions will do anything except discourage investment.
In its own announcement of the deal, the Justice Department notes JPMorgan “was not the only financial institution to knowingly bundle toxic loans and sell them to unsuspecting investors,” and that “no firm, no matter how profitable, is above the law.”
Message: If we can get JP Morgan, we can get you. No Third World government could have said it better.