September 30, 2013
MICHAEL S. GREVE: Government for Profit: The NAFI Regime.
J.P. Morgan paid $920 million to settle investigations over its “London whale,” who managed to lose something like $6 billion in exotic trades. There’s no allegation that J.P. Morgan defrauded anyone in those transactions; nor any contestation of the fact that the bank lost a lot of its own money; nor any doubt that Mr. Dimon was livid, fired everyone in shouting distance of the fiasco, and tried to get to the bottom of it. The settlement is mostly over whether Mr. Dimon’s decision to withhold certain information from the bank’s audit committee and the authorities until he was sure he knew the whole story violated federal law. I’m no securities lawyer, but I know the answer: $920 million. The same day, J.P. Morgan also agreed to a $389 million settlement for alleged marketing abuses in its credit card agreements and debt collection. Bear in mind that the “settlements” settle practically nothing—not a pending SEC civil investigation in the London whale matter, and not pending or impending actions by the CFPB, a gaggle of state AGs, and class action lawyers in the marketing abuse matters. Mr. Dimon should consider the combined $1.3 billion an annual dividend. Remember: the government is your No. 1 client.
Inasmuch as this form of tax farming is becoming standard m.o. across the wide range of regulators (from financial agencies to HHS and the FDA), maybe we should ask where the money winds up, and with what effect.
Start with the $389 settlement: it consists of $309 million in customer “refunds” and $80 million in penalties, with most of it going to the Office of the Comptroller of the Currency (OCC). You have to be nervous about a form of law enforcement that amounts to a government-sponsored class action without the (Rule 23) protections defendants would get in a private lawsuit. Plus, the government need not show that any customer actually relied on or was harmed by the defendant’s conduct. “Restitution” in these kinds of cases is basically cash dropped from a helicopter. As it turns out, that’s the highest and best use.
Read the whole thing. Money taken in by law enforcement should always go to the general fund, never to the enforcing agencies. This would be a good general legislative proposal for Congressional Republicans — they might even get some significant support from the left.