The Case Against Chase, Another "Bad Bank"

One of the more bizarre features of political life over the past two years has been the sense on Wall Street that it has been unfairly demonized in the wake of the financial crash. Top bankers have famously soured on President Obama because of his occasional criticisms of Wall Street -- despite the Administration's record of going easy on an arrogant financial elite who blew up the economy.

No banker has more frequently complained about being wrongly picked on than JP Morgan Chase CEO Jamie Dimon. JP Morgan emerged in a much better position than most banks and Dimon has suggested that his bank was one of the good guys and should not be lumped in with, say, Countrywide or AIG

“It’s never fair to punish everybody regardless of their behavior,” Dimon told the New Republic last year. “There are good banks and bad banks just like there are good politicians and bad politicians, and I’m not going to sit here and accept that somehow it’s OK.”

A year earlier, right after Obama took office, Dimon said something similar: "It's unfair to talk about us as one. . . . Not every company was responsible."

But, of course, JP Morgan was hardly a saint during the go-go years. According to a recent SEC settlement, it engaged in truly deplorable behavior around mortgage-backed securities. Specifically, in late June, the bank agreed to pay $154 million to settle charges by the SEC that it peddled a toxic derivatives product known as "Squared" to unwitting investors even as it knew the product -- designed by a hedge fund, Magnetar, who then bet against it -- would fail to perform.

This deceptive behavior was very similar to the case involving Goldman Sachs that resulted in a settlement last year with the SEC for $550 million. In that case, too, a major bank desperately peddled a a doomed financial product to investors that was designed by a hedge fund which then bet against it.

So who were the suckers who JP Morgan convinced to buy Squared? They included a faith-based non-profit membership organization in Minneapolis, an insurance and retirement company in Kansas, and the GM pension plan -- all the sorts of investors with obligations to individuals who tend to buy lower risk securities. 

JP Morgan Chase has also been sued in a case involving another investment vehicle where pensions lost money. As the New York Times reported in April:

In the summer of 2007, as the first tremors of the coming financial crisis were being felt on Wall Street, top executives of JP Morgan Chase were raising red flags about a troubled investment vehicle called Sigma, which was based in London. But the bank chose not to move out $500 million in client assets that it had put into Sigma two months earlier.

Sigma collapsed a year later. Now, new documents unsealed late last month as part of a lawsuit by bank clients against JPMorgan show for the first time just how high the warnings about Sigma went — all the way to the office of the bank’s chief executive, Jamie Dimon.

While the clients lost nearly all their money, JPMorgan collected nearly $1.9 billion from Sigma’s demise, according to the suit. 

Beyond these episodes, JP Morgan Chase has faced a blizzard of allegations that it was involved in just about every kind of misdeed associated with greed-driven banking excesses of the boom. Indeed, the track record of this one bank presents a case study in why the new Consumer Financial Protection Bureau is so badly needed.

Thus, for example, JP Morgan Chase is being sued for misleading consumers about the terms of credit card balance transfers -- jacking up minimum payments on consumers after they made transfers.

JP Morgan has also been accused of misleading homeowners about home modifications -- including one California suit that accuses the bank of "a breathtaking array of unfair, deceptive, and misleading practices and breaches. . . ."

In addition, JP Morgan has been sued by Irving Picard, the trustee in the Madoff case. Picard's lawyer David Sheehan said in a statement that JPMorgan "was an active enabler of the Madoff Ponzi scheme," and that the bank "not only should have known that a fraud was being perpetrated, they did know."

I could go on, listing more lawsuits and numerous other allegations of wrongdoing against JP Morgan Chase. To be sure, some of these allegations may prove to be groundless. But if even half are true, Jamie Dimon sure has some nerve to have spent the past few years complaining about unfair treatment.

And Dimon has some nerve to be openly criticizing Dodd-Frank, since it's banks like his that made this law necessary.