Siding with Wall Street’s “Winners”

A piece by William D. Cohan in the current issue of Vanity FairWall Street Executives from the Financial Crisis of 2008: Where Are They Now?, is pretty harsh on the bankers who lost their top positions in the 2008 meltdown (Jimmy Cayne of Bear Stearns, Stan O’Neil and John Thain of Merrill Lynch, Ken Lewis of BoA, Angelo Mozilo of Countrywide, Dick Fuld of Lehman), chronicling their downfalls, their enormous severance packages, much smaller amounts in fines and penalties they had to pay, the ginormous mansions or penthouses they now live in, and their refusal to speak with Cohan about the financial crisis. In contrast, the “survivors” of the meltdown (Gary Cohn and Lloyd Blankfein of Goldman Sachs and Jamie Dimon of JPMorgan) did speak with Cohan, and Cohan is a bit easier on them. Cohan quotes Dimon in ways that make him sound wise and high-minded, e.g., when he says that there was a better approach than TARP and the bailout of the banks, which tarnished the whole banking industry:

In retrospect, Dimon says, a better way to rescue the system may have been to dismantle the banks that screwed things up. “If management ruined their companies, their boards should have been fired, management should have been fired,” he continues. “I support the clawbacks. I think that’s perfectly fine. The American public would have received some sense of justice being done.” He thinks there should have been some differentiation between well-run banks and poorly run banks: “If you said to me, how do I feel about some of these C.E.O.’s who walked away with $50, $100, $150 million and their company blew up? Terrible. It’s outrageous. I agree with them. Everyone says that’s bad. If this company went bankrupt, we should all give back the money we earned in the last five years or more. You wouldn’t have to ask me.”

And the article ends with an account of how “Dimon’s world was turned upside down last June” when he was diagnosed with throat cancer and underwent treatment, including radiation:

He also had six full days of chemotherapy. He lost 35 pounds. His body was burning some 4,000 calories a day because of the treatment. “It was hard to eat,” he says. “Your throat hurts. You have no appetite. Everything tastes just absolutely terrible. So you literally just search for the foods that you can get down.” Into this group fell oatmeal, scrambled eggs, and milk shakes.

By December, he was declared cancer-free. Whew!  But the experience made him confront his own death:

He is not yet sure how the bout with cancer has changed him. He believes the way he can still make the most difference for the world is at JPMorgan. “I really mean that,” he says. He talks about jobs that can be created through providing capital to companies. He talks about how the firm has hired 8,000 military veterans and is investing in Detroit.

So what started as a piece about how various Masters of the Universe have weathered the financial crisis (and what looked like it would be about how many of them made a killing and ended up quite comfortable, despite fraud, recklessness, malfeasance) ended up as a sympathetic piece about the “survivors” (i.e., the winners) of the crisis.  (The URL for the of the online version of the piece even reflects this shift, mentioning Dimon’s cancer when the title of the article doesn’t: It’s a little surprising, since Cohan has been harsher on Dimon and the bankers (e.g., in this NYT Opinionater piece from May 2011, which anticipates the Occupy movement, in which he speaks favorably of Nicholas Sarkosy’s excoriation of Dimon at Davos that year).

You wouldn’t know, from Cohan’s piece, that JPMorgan has been fined more than $35 billion in the three-and-a-half-year period ending at the end of 2014, according to (JP Morgan’s Fines to Date: A Brief History), or that “[n]early all of the penalties were tied to the financial crisis and the company’s promotion and use of mortgage-backed securities.” Maybe Cohan assumes that his readers know or remember this, but wouldn’t it have been a good rejoinder to Dimon’s high-minded claim that the poorly-run banks should have been dismantled and their executives punished? (As the LA TImes‘ Michael Hiltzik points out (The Myth of the Obama ‘Attack’ on JPMorgan’s Jamie Dimon), it is pretty rich that Dimon whines about being persecuted by the Obama administration when the fines have come from many directions besides the federal government, including “several state attorneys general, the European Commission, the British Financial Services Authority and the government of Switzerland” (for LIBOR manipulation), the British Financial Services Authority and other regulators (for the “London Whale” losses), the Madoff securities estate (for complicity in Madoff’s Ponzi scheme), and from the California Independent Independent System Operator, the government of the city of Milan, and the attorneys general of New York and Florida. And this is putting aside any disagreement we might have with what appears to be the Obama administration’s policy of pursuing fines against the banks instead of criminal prosecution of the bankers.

And you wouldn’t know, from Cohan’s piece, that Dimon told the Federal Crisis Inquiry Committee in 2011 that “In mortgage underwriting, somehow we just missed, you know, that home prices don’t go up forever and that it’s not sufficient to have stated income.” As Bill Black puts it in a great recent blog post, we’re supposed to think that “JPM just forgot that lenders need to underwrite their loans and that financial bubbles cannot continue indefinitely.  JPM is the world’s largest bank.  Tens of thousands of people would have to simultaneously forget the same points that had been drilled into them over the course of their education and professional employment.  Tens of thousands of JPM employees would also have to forget that their loan manuals existed.  Dimon’s claim is the stuff of bad science fiction.” As Black points out, on 2012, in JPM’s annual letter to shareholders (where he seems to say different things than what he says to financial journalists and government commissions), Dimon indicates that he understands underwriting a little better than that:  “Low-quality revenue is easy to produce, particularly in financial services.  Poorly underwritten loans represent income today and losses tomorrow.” Black again: “Dimon’s statement is pithy and captures the essence of the fraud recipe and its sure things.”

An extreme case of celebrating and sympathizing with the victors is the recent scandal of SEC offical Andrew “Drew” Bowden, who was caught on camera issuing fawning praise for the private equity industry and even joking that he’s encouraging his teenage son to go into the industry (see video above, or here). The story was broken by Yves Smith at Naked Capitalism (The SEC’s Andrew Bowden: A Regulator for Sale?), and covered by Matt Taibbi at Rolling Stone (Regulatory Capture, Captured on Video) and by the LA TImes‘ Hiltzig (Bankers Are Complaining Again–About Too Much Regulation).

The remarks he made at Stanford are bad enough on their own; joking about his son entering the field was bad, but it’s the attitude toward Wall Street’s wrongdoing vs. its “success” that is really appalling. Bowen said:

Like what, who else out there is in a business that’s that good? And I reckon, it’s sort of interesting for me for private equity in terms of all we’ve seen, and what we have seen, where we have seen some misconduct and things like that, ’cause I always think like, to my simple mind, that the people in private equity, they’re the greatest, they’re actually adding value to their clients, they’re getting paid really really well, you know…

Taibbi remarks: “it reveals an attitude that’s absolutely poisonous among regulators, this fawning worship of people on Wall Street who maybe break a few rules, but that’s okay, because they make tons of money! Can you imagine Elliott Ness giving a speech gushing over what nice cars Al Capone drives? It’s revolting.”

And what is especially damaging for Bowen is that he was highly critical of the private equity industry just last May (see Spreading Sunshine in Private Equity), especially about the industry’s fees (something Yves Smith at Naked Capitalism has been hammering home on), and told Gretchen Morgenson of the New York Times that “[i]n some instances, investors’ pockets are being picked.” But since then Bowen has backpedaled (e.g., in the interview he did for this piece for Private Equity International), so that the Stanford remarks look like a complete turnaround–which is why the charge of regulatory capture fits so well.

 –Chris Sturr

Wednesday Links


Here are some items I’ve been meaning to post:

(1) ASSA Protests:  My last post mentioned the planned protests at the ASSA;  there was a bit of a buzz about the protests at the conference, and there was pretty impressive coverage in the Washington Post:  The protesters who are trying to upend the ‘fantasy world’ of economics, with the subtitle: At a gathering of America’s top economists, a small group of students is battling for the soul of economics.  The protesters, mostly grad students in economics, did projections like the one in the image above, and did aim to “disrupt” some of the sessions, including some involving Greg Mankiw, Larry Summers, and Carmen Reinhart. (It’s pretty hilarious to read Reinhart claiming that her session was heterodox in the Post article.) Mankiw’s blog had an odd post titled “An Odd Question,” in which he spoke of hecklers, one of whom apparently asked a question about Mankiw being funded by the Koch brothers. But one of the organizers of the protests, Keith Harrington, said that the hecklers weren’t from the protesters. Mankiw’s blog doesn’t take comments, so Keith emailed him this:

Thank you for sharing the Washington Post article about our initiative on your blog. Since there is no place to leave comments on any of your posts, I just wanted to send this quick note pointing out that the heckler that you mentioned was not a part of our group. We made a point to only challenge you and your colleagues on the substance of your work and viewpoints, and to avoid any purely provocative, conspiratorial commentary such as the Koch Brothers remark.
Keith Harrington

Mankiw’s response:

Thank you for your note.


Polite, but not so self-reflective.  Reminds me of the response I got when I emailed James Poterba about a weird remark he made at an American Academy of Arts & Sciences event in 2010 (recounted here).

(2) Let Us Now Praise Corporate Personsby Kent Greenfield in the Washington Monthly. ARthur MacEwan raised some of the same issues on corporate personhood in an “Ask Dr. Dollar” column a couple of years ago: How Important Is Citizens United?.

(3) Political Cartooning Is Almost Worth Dying For, by the wonderful Ted Rall in the LA TImes, about the horrific Charlie Hebdo attack.  (Hats off to all the Twitter folks who have been pushing mainstream outlets to cover the #NAACBombing.)

(4) Piketty Responds to Criticisms from the Left, an interview by Potemkin Review.

(5) Several Items on #BlackLivesMatter and the NYPD that I’d meant to mention here but hadn’t had time: Andy Cush at Gawker, The NYPD Is an Embarrassment to the City of New York; Ari Paul at Jacobin, Smash the Lynch Mob;  Corey Robin at his blog, A Weimar-y Vibe (about the NYPD and PBA/Patrick Lynch after the shooting of two NYPD officers); Max Blumenthal at Alternet (nice redesign!), Emails and Racist Chats Show How Cops and GOP Are Teaming Up to Undermine de Blasio; and flawed, but worth reading, Matt Taibbi at Rolling Stone, The NYPD’s Work Stoppage Is Surreal (<–this one from Taibbi was itself kind of surreal, for his saying he “understood” (i.e., sympathized with?) why the cops are mad at de Balsio, and that de Blasio’s reference to his son Dante was “clumsy”–which led to an unfortunate Twitter fight between Taibbi and Blumenthal). And two segments from Doug Henwood’s wonderful Behind the News have been great on the Ferguson/#BlackLivesMatter protests:  the interview with Alex Vitale (second half of the December 4 show), and the interview with Kevin Alexander Gray (first half of the October 30 show).

That’s it for now.