Eric Schneiderman last week pulled a stunt so remarkably absurd as to rival the lows of Eliot Spitzer.
No, the New York attorney general didn’t cavort with hookers; he filed a high-profile lawsuit against JPMorgan, alleging that the big bank committed securities fraud — the type of heavy-duty, sleazy risk-taking at the heart of everything that’s wrong with the financial system.
I don’t have the space to list all the problems with Schneiderman’s sad excuse for law enforcement. But start with this glaring hole: The suit doesn’t name any individual banker or trader for the alleged crimes.
If we’re to believe Schneiderman, Morgan is guilty of something really bad that no one person is responsible for committing.
Plus, Morgan had nothing to do with the alleged criminality. Zero. The problems relate entirely to the actions of Bear Stearns, the bank Morgan took over in 2008 at the start of the fiscal meltdown.
Mind you, Morgan bought Bear at the federal government’s behest, a move designed to avoid a deepening of the financial crisis.
So, Schneiderman has all but guaranteed no help from the business community the next time the feds ask a company to do something good for the country.
Back in 2008, Bear Stearns was nearly insolvent, having bet big on the housing market and lost. Treasury Secretary Hank Paulson and a host of other regulators, fearing that Bear could be the first domino in a broader banking collapse, came up with a plan: Rather than let Bear totally implode, put it in the hands of a stronger player, a bank that would survive the worst that the crisis could throw at it.
That strongest player was (and still is) JPMorgan, which under CEO Jamie Dimon steered clear of much of the excess that contaminated the other banks.
People involved in the negotiations at the time tell me Dimon rejected the offer as many as five times, worried that Bear’s problems would infect his bank. But in a matter of three days, the two sides came to an agreement, averting at least one doomsday scenario.
As part of the deal, Dimon demanded a letter from the Securities and Exchange Commission stating that the feds would take into account that he and his people had nothing to do with any sleaze at Bear if the SEC later decided to take enforcement action. But he didn’t have time to negotiate a letter with every law-enforcement agency in the country; with the meltdown under way, time was too tight.
Now, more than four years later, Schneiderman has come up with the brilliant idea that Morganshould indeed pay for the sins of Bear Stearns — specifically, for Bear’s selling of crappy housing bonds to allegedly unsuspecting investors. His rationale? He doesn’t really say, but it sure is nice to get some TV time, even if the target of his ire is entirely guiltless.
OK: JP Morgan is a very profitable bank, and its acquisition of Bear is largely regarded as a modest success, thanks in part to the federal aid he got to complete the deal. Nor did Dimon agree in the end to buy Bear for purely altruistic reasons; he did it to turn a profit.
And Morgan and the other big banks are bracing for massive liabilities over things they actually did do wrong in the sale of housing bonds — possibly the biggest financial-crisis-related settlement case that the SEC has brought so far.
But that’s no justification for screwing the company for at least trying to help out during the meltdown (Schneiderman’s suit opens the possibility of billions of dollars in fines) and hammering a major New York employer for a crime it had no role in committing.
Wall Street execs believe that Schneiderman — one of the most liberal officeholders in the country — filed his charges to boost President Obama’s chances in the November election, since the left sees nothing but votes in banker-bashing. I hear that SEC officials are bristling over the fact that Schneiderman put out his half-baked case so he could beat them to the punch, or, more precisely, the cameras.
All of which is, why in regulatory and banking circles, the New York state AG’s office is better known as the office of “Almost Governor.”
Here’s hoping Schneiderman never gets there.
Charles Gasparino is a Fox Business Network senior correspondent.