“US Debt Default Would Be a Moral Disaster”

Author: 
John Fullerton

 

So declared JPMorgan CEO Jamie Dimon regarding the prospect of a US default on its debt, after which he received a standing ovation at the University of Colorado’s Denver School of Business.  Hmm…Let’s do a little press review - the following items quoted from recent news articles:

  • JPMorgan Chase recently lost a class-action lawsuit brought upon the bank for illegally foreclosing on military members’ homes while they were on active duty. 
  • J.P. Morgan had declined to address the matter until Wednesday. But in a sworn deposition, one of the bank’s employees, Beth Ann Cottrell, admitted that she and her team signed off on about 18,000 foreclosures a month without checking whether they were justified.
  • The federal bankruptcy court judge presiding over the Bernard Madoff case has revealed the JPMorgan Chase employees who allegedly suspected they were doing business with a Ponzi schemer.
  • J.P. Morgan Chase agreed to a $722 million settlement with federal regulators over accusations that the bank and two former executives made illegal payments to win municipal bond business from Jefferson County, Alabama.
  • Deutsche Bank AG, JPMorgan Chase & Co., UBS AG and Hypo Real Estate Holding AG’s Depfa Bank Plc unit were charged with fraud linked to the sale of derivatives to the City of Milan.
  • JPMorgan Chase is being sued by Allstate insurance company for fraud, in the latest example of a big bank being accused of knowingly selling a poor-quality product.
  • The lawsuit alleges that J.P. Morgan Chief Executive James Dimon and other top executives used inside knowledge to take advantage of Lehman as its financial state worsened. J.P. Morgan, the suit alleged, coerced Lehman to turn over $8.6 billion in collateral in September 2008, triggering a liquidity squeeze that contributed to Lehman's collapse.
  • The latest settlement brings J.P. Morgan's total bill to settle regulatory and other lawsuits related to its role in the Enron collapse to more than $3.3 billion, including the $2.2 billion the bank agreed to pay in the class-action lawsuit that has the University of California as the lead plaintiff.
  • A former JPMorgan Chase & Co. banker pleaded guilty to rigging bids for municipal-bond investment contracts, becoming the eighth person to admit joining the biggest conspiracy in the $2.8 trillion market’s history.

These settlements and allegations (and there are more) collectively paint an unattractive picture of the firm I dedicated 18 productive years of my life to (although it bore no resemblance to the JPMorgan of 2011). 

And this is the picture of the bank headed by America’s “least hated banker” according to the New York Times.  It’s a bank whose dividend has been slashed, and whose stock price has not once seen the high fifties it was trading at when I left ten years ago.  This is also despite massive implicit and explicit government subsidies worth billions over that time, a derivative book that has ballooned to a ludicrous $87 trillion in notional contracts outstanding that provides unchecked oligopoly power and alone makes the firm too big to fail and impossible to liquidate in an orderly fashion no matter what Dodd-Frank would like us to believe, a business model that would fail if true resiliency inducing capital reserves and liquidity mismatch limits were demanded by regulators not captured by the banking lobby, and grotesque compensation going to senior management along the way despite all its legal and ethical challenges and business failures. 

As I contemplate unemployment of nearly 10% in the United States and far worse in places like Greece, Iceland and Ireland, made worse by crushing austerity, the violence and permanent human damage it represents, unemployment and underemployment of college graduates 25 and under of nearly 50% in the US, layoffs of good teachers in already failing schools, the economic induced suicides, the universal stress, all part of the rolling fallout of the finance-triggered Great Recession, I’m left with a simple question: 

What exactly constitutes “moral disaster” Mr. Dimon?