David Dayen: Elizabeth Warren, Tom Coburn Introduce “Naked Capitalism Was Right About the Corruption of Financial Regulators Act” (Not Actually Called That)
Posted: 08 Jan 2014 10:00 PM PST
By David Dayen, a lapsed blogger, now a freelance writer based in Los Angeles, CA. Follow him on Twitter @ddayen
I’ve been going out of my mind the past few days seeing the easily duped traditional media uncritically printing statistical analysis from JPMorgan Chase’s roundelay of get-out-of-jail-almost-free settlements. The gist of it, and this must have been in a Department of Justice release somewhere, is that JPM has “paid” $20 billion over the last calendar year to resolve a variety of disputes, the most recent being their admission that they knew the bogus nature of Bernie Madoff’s business and never generated any suspicious activity reports or raised red flags for regulators (the fact that they took their money out of Madoff feeder funds right before he was arrested being a smoking gun).
Peter Eavis at the New York Times scratches his head and wonders how the bank has “taken in stride” all this hemorrhaging of cash in fraud settlements. Well first of all, considering that shareholders effectively pay the fines and nobody in the executive suites has to go to jail, I’d say taking it in stride is a pretty proper reaction. But just as important is that $20 billion is a FAKE NUMBER. I’m going to go ahead and quote Matt Yglesias on this, mostly because he quotes me:
That’s just one piece of the puzzle. Most of the aforementioned MBS settlement was tax-deductible. The big National Mortgage Settlement and others allowed JPM to write off their penalty with investors’ money. They’re suing the FDIC to stick them with the bill for WaMu losses even though they assumed them in the acquisition. The games are notable and legendary. JPMorgan Chase isn’t worried about paying $20 billion because there is no such number. That the media reports this speaks to their incurious nature, and allows the Justice Department and people like Eric Schneiderman to get away with claiming a “get tough” approach when the settlements look more like back-door bailouts.
Along comes Elizabeth Warren with a bill to attack this corruption directly. Warren and Tom Coburn introduced the Truth in Settlements Act, which uses disclosure to force these little games into the open.
Under the law, any settlement with federal agencies over $1 million would have to be completely disclosed to the public, with all relevant details out there, including how the topline number gets applied in reality. This is from the fact sheet:
Loving the shout-out to the National Mortgage Settlement (they could have added that the IRS confirmed that at least $12 billion of that relief, for short sales in non-recourse states, was completely worthless). On a conference call about the bill, Warren brought up another issue with the OCC “foreclosure review” settlement that I forgot about:
In the end this is an incremental step. Eventually this information gets out most of the time, it’s just buried in legalese and details. If anything, the Warren/Coburn bill is a signal to the media to stop being so slavish in uncritically reporting the bogus headline numbers on settlements handed to them by DoJ.
I see this as complementary to Warren’s effort to get agencies to STOP settling and actually enforce the law; she’s just trying to give them nowhere to hide. As she said on the call, “Agencies argue that these settlements are in the best interest of the American people. If the enforcement agencies are truly confident that a settlement agreement is a good deal, hang it out there so we can all see it. And if the agreements can’t stand up to scrutiny, they should toughen up enforcement.”
Regulators are basically getting a free ride from the press for their inadequacy in enforcing the law, and this bipartisan bill puts a big red target on their back. Maybe they’ll think twice about the largesse given to banks in the form of a fake penalty; I’m skeptical, but at least they’ll feel the eyes on them. I am happy to see a Senator basically calling the regulatory agencies liars (on the call, she said “They shouldn’t be able to advertise a high sticker price that they know is untrue”), and moving to produce legislation to stop them from lying. Who knows where it will go – Congress doesn’t pass many laws anymore – but this is a case where the mere potential for embarrassment could spur better behavior.
P.S. I asked Warren on the call about something I was tipped to in the Justice Department’s year-end IG report. It appears that after announcing these fines, the MO of the Justice Department is to “take in stride” the fact that they go unpaid:
So I said to Sen. Warren, does your bill include something on the timeliness of payment? Her answer: “This one is about the disclosure. You have identified another problem, and one that’s worth talking about… we’ll see what kind of effect we get from sunlight.”