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Too Big to Behave, Not Too Big to Be Punished

One can only hope that Ohio's proposed legal action against JPMorgan Chase will be the beginning of a punishing lesson for one of the Too Big To Behave banks for its deceptive business practices. 

In the now-infamous London Whale case, the bank deceived over 100 embedded examiners from three federal regulatory agencies about the parameters of its internal investment operations. Then, it invested excess, government-insured deposits in high-risk, proprietary trading in synthetic credit derivative securities, which it disguised as benign, risk-management hedging. Then, between the time that Bloomberg reported the disaster in the disguised trading operation and the time the bank acknowledged the growing losses, senior management deceived investors as to the 'material nature' of the problem.    

Were this the only example of such questionable activity, one might be persuaded to give the banks a pass — much as members of Congress and representatives of the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Securities and Exchange Commission did in last month's hearings.

However, according to published reports, JPMorgan is also being investigated for alleged improprieties in the municipal securities market, the electric power market and in setting Libor, the basic index for corporate and consumer financial instruments worth hundreds of trillions of dollars.

At some point in time, one might think that all but the most rabid banking industry sycophants would wonder why a government-insured financial institution is allowed to perpetrate these "nefarious" activities against countries, states, municipalities, companies and consumers on a global basis, without consequence. 

So, much as it has fallen to the state attorneys general to address questionable mortgage servicing practices, and to the federal court in Florida to address questionable bank overdraft practices, we must hope that Ohio Attorney General Mike DeWine can round up sufficient class-action participants to address JPMorgan's deplorable investment practices, its disregard of regulatory compliance and its disrespect for customers.

 Jim Wells is president of Wellspring Consulting International, which seeks to expand access to financial services for consumers who do not use traditional financial institutions.


(3) Comments



Comments (3)
I have to say: Wow! That's pretty vitriolic. The sad fact is that much of what you said is correct! I do however disagree with the direction of your corrective action. let me make some small suggestions.

First let's take away the leverage from Government secured deposits you so correctly identified and; lets take away the ability for disguised trading practices. Then lets take away the ability for the banks to trade synthetics disguised as hedges in an improper consumer setting.

The only way we correct most of what you've discussed is to recreate and completely separate Consumer Banks from Proprietary hedge Fund Trading Banks with no attachment to government guarantees or consumer accounts below a certain income level. The whale traded very intricate Econometric-ally driven trades using models that would make our collective heads spin. Then they used a probable collection of classic markets like futures to balance the movement and called it a hedge. All of this was probably predicated on Derivatives, Credit Default Swaps (CDS's or sovereign CS's.) These markets ($700 trillion) should be made Public with margin calls and daily Mark to Market. Sadly a State Attorney General will not complete that correction.
Posted by hedger | Thursday, July 26 2012 at 12:02PM ET
Well Jim Wells, this is a very deep subject, been the topic topmost at the mind of the International Bank Activities Reform Commission for a long time. IBARC, WEBARC, THEYBARC, but no one hears the bark of the silent dog that goes woof in the knight. The King of Pennies has risen and the blight of humanity is about to bite JPM in the arse whole! BAC and JPM should both be denied banking licenses in the United States under current laws due to repeated violations of fraud and anti-money laundering and anti-trust laws. But enforcement must come at the end of a nuclear bomb barrel if there is to be change...real change requires the use of legal forces of nature at work to put them out of their misery.
Posted by alex s gabor | Friday, July 20 2012 at 4:16PM ET
After all the abuses SINCE 2008 with no significant prosecutions and no jailings, when is Washington going to get serious about attacking such activities as Mr. Wells just cited? The list of offenses goes on and on, and JPM seems like only one of many offenders. It's high time the Federal Govt did it's part and made punishments more than the cost of doing business. An Elliot Spitzer zealot at the Federal level needs to be sicked on the crowd of perps. This should have happened years ago.
Posted by j.doe | Friday, July 20 2012 at 3:25PM ET
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