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Dimon, JPMorgan Chase and $13 Billion

Blood Money

by NORMAN POLLACK

Blood money is money obtained at the cost of another’s life.  Webster’s Collegiate is not known for Left-inspired definitions, yet even to include the entry is tacit recognition the practice is widespread.  Let’s add, however, it is also (using that strict definition, “at the cost of another’s life”) institutionalized by the modern US banking system, if not indeed capitalism per se—the transfer of wealth from working people and the bottom strata of society steadily upward through the class system, until much that has been generated finds its way to the top.  The result may not always be “at the cost of another’s life,” but stagnant wages, widespread unemployment, foreclosure, malnutrition, and yes, despair, on the societal and not just individual level, for fully one-half the population.  If we were being frank, we would term this process legitimated violence, having, by and large, the sanction of authority, ideology, the law, and, in the case at hand, liberalism, the Department of Justice, the Obama administration.  Some unreconstructed radicals might be churlish enough to call it, class warfare, what upper groups, heavily sanctioned by all that society holds dear, practice on those below.  More modestly, I’ll call it, economic violence, as practiced by a business civilization, largely unrestrained (and then, only restrained for its own good) in its operations.

Since at least the 1960s, as American capitalism became more internationalized (the precedent for this in its gradual development going back a century before, and already turning the corner by World War I), we see a qualitative change in its internal composition, the slow evaporation of the domestic industrial base, fueled by the movement of manufacturing in a bottom-fishing search to the cheapest labor costs, to what is now clearly the financialization of US capitalism.  With that forward edge, a re-contouring of the political economy, several points are evident (I name only a few): within banking, a higher degree of concentration; within that, a single giant; that achieved, a closer relationship created between the bank, speaking foremost for itself, but also the financial sector in general, and, yes, government, a sweetheart-relationship (Masao Muryama, describing parallel dynamics for Japanese business consolidation, called it the “close-embrace” system); and the foreign-policy repercussions and necessities to make it work, i.e., a determinative voice or role in the economies of all other, or as many as possible, countries.  The operable word in an American-dominated global economy in the ’08 financial crisis is contagion.  US exotic financial instruments caused and still causes incalculable damage insinuated into banking systems worldwide, pension-fund investments, life-savings of people now devastated, yielding such outcomes as austerity measures ripping holes in previously sturdy social safety nets and expenditures on health and education.

To understand the proposed $13B settlement between JPMorgan Chase and the US Government it is useful first to describe the American regulatory framework, of which this “deal” represents a perfect example.  America has never had, not unexpectedly, a system of business regulation, if by that one means government, here chiefly federal, acting in the public interest, adversarial in posture, freed from collusive influences, amply staffed with, and mandated to utilize, investigative powers, administratively supported, and having The Law at its back—not unexpectedly, given the evolution of American capitalism as in fact puristic in its institutional formation and growth and in its ideological content and influence.  As uncomplicated a capitalism, as compared, e.g., with nations possessing a feudal past (and for that reason carrying the potential of a socialist future), as one can imagine, running roughshod over antithetical values and practices.  Regulation did not mean regulation, but rather the shield government threw around business both to protect it from the public and to promote internal monopolization sector by sector, therefore protection from internal competition.   Theodore Roosevelt’s trust-busting is quite possibly the biggest scam in US historiography, the record pointing directly the other way and serving as excellent introduction to today’s Morgan-DOJ folderol.  At least this can be said for TR, unlike Obama; he may have imbibed capitalism with his mother’s milk, but he did not worship it for its own sake—actually maybe worse than that.  Roosevelt had a well-thought out if not completely articulated framework, in which he wanted a strong economic base, predicated, for him, on the consolidation and monopolization of the business system, because that would provide the best foundation for projecting military power in the world arena.  Capitalism, naturally, but power not only to implement the goals of capitalism, but as an independent consideration beyond markets to prestige as such.  Obama worships at both shrines, capitalism and power, yet lacks TR’s candor about each, and, failing to possess the same integrative powers of mind, melds the two in a knee-jerk militarism known by its global paramilitary operations and program of armed drones for targeted assassination.  The difference is subtle, but real: TR is the partner, on an equal plane, with business, Obama, if not the servant of power, than so predisposed to business as to be readily manipulated, as witness his intensification of Clinton deregulation and partiality to every aspect of corporate wish-lists, whether oil drilling, Big Pharma profit-taking, climate-change avoidance, maintenance of unemployment rates, or now, Pacific trade agreements, further destroying regulation as affecting US interests.

Gabriel Kolko made the analytical breakthrough on the interpenetration of business and government, in his book Triumph of Conservatism, which demonstrates the system of détentes, blessed by Roosevelt, between the Bureau of Corporations and the House of Morgan, a pattern which served to define later the Federal Reserve System in the warm relationship between government regulators and bankers.  No camouflage was necessary—the rule of thumb being, gentlemen talking to gentlemen, or, TR to Morgan, one or the other speaking, If I’m wrong, convince me of that, no prosecutions, penalties, opprobrium.  In TR’s day the revolving-door principle was not named; it didn’t have to be, for Morgan men staffed the Bureau.  In this respect, Obama’s appointees, practically to a person, in Treasury, SEC, Interior, up and down the line, acceptable to the interests allegedly and ostensibly to be regulated.  And now we have DOJ–Attorney General Holder, like Philander Knox in Roosevelt’s day, experienced in and sympathetic to business–open to Jamie Dimon’s stall tactics and circuitous negotiations, in which the principals held five private telephone conversations to reach this point, itself dressed up as a major victory for the public interest.

Dimon’s celebration of the progress being made, described by Ben Protess and Jessica Silver-Greenberg in their excellent New York Times article, “U.S. Deal With JPMorgan Followed a Crucial Call” (October 21), is enough to warm the cockles of the hardest heart: “At a museum [‘the Museum of the City of New York, a mansion with a marble staircase and French doors’] on Fifth Avenue, in a sparkling reception hall overlooking Central Park, Jamie Dimon convened his top executives and their spouses last month for the Wall Street equivalent of a pep rally.” (Italics, mine)  Last month: already confident both in the scope of the settlement and the security of his own position.  Let the celebration go on; Fitzgerald was right, they are different from the rest of us.  Dimon: “I’m proud of the company.  We’ll get through all of this”—the this being, peddling toxic mortgage investments and, the reporters note, “the regulatory and legal woes dogging the nation’s biggest bank.”  The peddling in 2007 was not vaguely related to the financial crisis the following year.  It was central, particularly having acquired Bear Stearns and Washington Mutual and their respective loads of manure.  A pile now of Everest-proportions.

So then the minuet, Dimon on 24 September calls a Holder lieutenant—to all and sundry an amazing act of statesmanship because Wall Street CEO’s don’t deign to call, they are called by, Washington—perfectly timed to cancel a news conference in which DOJ was to announce a civil, not a criminal, suit against the bank.  More negotiations: $1B then $3B—not enough said the government “to settle [in the reporters’ words] an array of state and federal investigations into the bank’s sale of troubled mortgage securities before the financial crisis.”  As one views the details, it seems that Holder needed something to show for the government’s prestige, a slap on the wrist JPMorgan Chase could easily absorb, and not such a paltry sum.  Dimon then comes down to Washington to meet with Holder and raises the offer to $11B (one wonders here why the government did not independently calculate the damage done, vastly more than the $13B finally agreed on—and with it, criminal prosecution, but the answer, by the logic of interpenetration, is self-evident), afterward “talking five times in the last two weeks,” striking a deal on Friday (Oct. 18) and with no promises on heading off “an investigation from prosecutors in California, who were scrutinizing the bank’s mortgage securities.”  Protess and Silver-Greenberg did write an excellent factual article, but their judgment, possibly reflecting the NYT ambience, is wide of the mark: “For JPMorgan, once known as Washington’s favorite bank, the deal would be a stunning reversal of fortune.” [Italics mine.]

How so?  The choreographing, near as I can make out, was flawless.  For example, some of what awaits Dimon, as they recount, seems formidable, but without USG actively pressing, and by the settlement, giving JPMorgan a certificate of good conduct so to speak, these cases will probably not get far, and if they do, will not bankrupt the firm—or if conceivably it creates a pain-in-the-side government subsidies to its star performer will be forthcoming.  Everyone wants to investigate, several federal agencies and state regulators, two foreign countries, and, in addition, [t]he multifront campaign includes everything from a $6 billion trading loss in London last year to the hiring of well-connected employees in China.”  It appears the firm, with a finger in every catastrophic hole, is getting off lightly, especially, the reporters point out, when the “politically charged issue at the center of the financial crisis: the mortgage bubble” is considered.  One further point–thus far, no admission of guilt; as the reporters laconically observe: “Banks are typically loath to acknowledge wrongdoing, fearing it could expose them to shareholder lawsuits.”  Also thus far, no comment from either JPMorgan or Justice.  (Incidentally, much of the $13B would go to settle the suit brought by the Federal Housing Finance Agency because of the loans Morgan and Bear Stearns sold to Fannie Mae and Freddie Mac—chutzpah of the first water in cheating the government, never mind private investors.)

As for the possible criminal case, Protess and Silver-Greenberg capture the thinking well: “It was not until Friday [Oct. 18] that JPMorgan backed down from its demand that the criminal case go away.  Rather than resolve the case now, JPMorgan decided to let it play out.  One person close to the bank noted that bank lawyers were skeptical it would actually produce charges.”  Dimon nicely sized up Holder and Obama behind him, and confidently rode the wave of American political-financial history.

My New York Times Comment (Oct. 21) on the aforementioned article (same date):

This is an exact historical parallel to the DETENTE created by TR in 1903 between the Bureau of Corporations and the House of Morgan, an important step in the interpenetration of government and business, in which the US regulatory framework is based on nonregulation (TR’s reputation for trustbusting notwithstanding). Now, Holder-Dimon, $13B sum the bank can easily absorb and nowhere near the financial losses and human misery its actions brought about on a global basis. 

DOJ provides a buffer protecting JPMorgan Chase from the kind of prosecution–including criminal charges directed to Dimon and other bank executives–which, from a public standpoint, would reveal the whole ANATOMY of favoritism shown the banking industry and its questionable (moral-legal) practices. $13B does not begin to scratch the surface of the damage done and the criminal activity pursued. Holder and the Obama administration beginning with Geithner’s appointment proved to be a shill for Wall Street, and Dodd-Frank hardly rectified matters in an administration gone deregulation raving-mad (the Clinton-Rubin-Summers influence).

Thus I’m not impressed nor surprised by the settlement, a cheap and easy solution to grievous wrongs shielded from scrutiny, let alone prosecution, by the Obama administration. Plus a federal settlement will most probably prevent, under the principle of preemption, action taken by the states. A neat little trick performed by the Dimon-Holder “negotiations.”

Norman Pollack is the author of “The Populist Response to Industrial America” (Harvard) and “The Just Polity” (Illinois), Guggenheim Fellow, and professor of history emeritus, Michigan State University. His new book, Eichmann on the Potomac, will be published by CounterPunch in the fall of 2013.