<http://schema.org/articleBody>
"  This story appeared in our February 2014 issue When the Justice Department announced a $13 billion settlement with JPMorgan Chase &amp;amp;amp; Co. over its sales of residential-mortgage-backed securities (RMBS) in November, it held JPMorgan accountable for &amp;quot;the mortgage meltdown,&amp;quot; &amp;quot;a financial storm that devastated millions of Americans,&amp;quot; &amp;quot;an international financial crisis,&amp;quot; and putting &amp;quot;our economy on the path to destruction.&amp;quot; In case anyone missed the message, the DOJ press release used the words accountable and accountability 11 times. Despite its numbing effort to stay on message, the settlement was a jumbled mess, devoid of any attempt to identify wrongdoers, explain what they did wrong, or tie them and their conduct to the resolution. &amp;quot;Accountability&amp;quot; was its least likely outcome. In fact, this settlement seemed to relieve JPMorgan of accountability, an alarming development in corporate governance and for the prospect of large banks as a good investment. CEO Jamie Dimon, this generation&amp;#039;s most admired banker, is actually getting credit for shifting the cost for wrongdoing to JPMorgan shareholders. His board of directors has been completely cowed. This is a bad sign for everyone who invests: bad for JPMorgan shareholders, bad for shareholders in Bank of America and other banks in Eric Holder&amp;#039;s sights, and bad for shareholders of any company whose directors will throw them under the bus when the Gang of Attorney Generals, federal and state, comes sniffing around. The Era of Colossal Fines has begun. Of course, most of JPMorgan&amp;#039;s wrongdoing\u201470 to 80 percent of the exposure\u2014was committed by two companies, Bear Stearns and Washington Mutual, it acquired in 2008 at the request, to the point of command, of then-Treasury secretary Henry Paulson. JPM acquired those companies as acts of mercy during a crisis. In any case, the $13 billion DOJ settlement was the biggest piece of the nearly $19 billion in settlements JPMorgan agreed to pay in late 2013. The company repeatedly has shrugged off the cost, with comments like &amp;quot;The Firm is appropriately reserved for all of these matters.&amp;quot; Since 2010, JPMorgan has increased its litigation reserve from $3 billion to $23 billion. The reserve is a bookkeeping device, not a hat from which Dimon can pull a magical $19 billion. At best, a reserve warns investors of an upcoming expense and spreads the effect on income over several reporting periods. In fact, it crystallizes that the amount is coming out of reported income: the shareholders&amp;#039; money. That $19 billion equals approximately a year of net income. The company can afford it, in the sense that it can pay $19 billion and continue in business. It is likely keeping compensation flat, so it can continue paying employees $30 billion. But those employees, whose ability to use the company assets is what shareholders have purchased, have $19 billion less with which to do that. Naturally, JPMorgan has compensation expenses that it can&amp;#039;t eliminate just because one year of net income is wiped out. Unfortunately, this is the accountability problem of JPMorgan: It wasn&amp;#039;t JPMorgan&amp;#039;s money. Dimon and his board of directors are making those deals with shareholder money, not their own. They could at least have staged a fight so the shareholders\u2014their bosses\u2014could believe he cares about their interests. What does it say for corporate governance in the Era of Colossal Fines? First, it obviously makes JPMorgan a less attractive investment. The company has all those billions less to invest in expanding profitability. Even if the RMBS liability crisis passes, shareholders cannot reasonably expect the board to stand on their behalf against management. Those shareholders are the same people those settlements were supposed to help. California attorney general Kamala Harris said of the fines, &amp;quot;This settlement returns the money to California&amp;#039;s pension funds that JPMorgan wrongfully took from them.&amp;quot; That would be laudable, except that California&amp;#039;s largest pension fund, Calpers, also owns 12.6 million shares of JPMorgan Chase stock, worth $700 million in December. Nearly everybody who owns stock owns JPMorgan Chase. Among its largest stockholders are household names for investors: Vanguard, Fidelity, Franklin, T. Rowe Price. Anyone with pension or retirement money, or even an index fund, owns JPMorgan. And their investment is going to suffer. Second, other banks are sure to follow JPMorgan in paying what amounts to a government tax on shareholder income. Bank of America now faces even greater pressure: The Federal Housing Finance Agency (FHFA), which JPMorgan is paying $5.1 billion, clearly expects the same tribute from the other 14 suits it is pursuing in connection with private-label RMBS purchased by Freddie Mac and Fannie Mae. Third, this settlement sets a terrible precedent. Companies with strong balance sheets can expect to become targets of the government, with the assumption being that the companies and their boards can save the company from &amp;quot;risk&amp;quot; and &amp;quot;uncertainty&amp;quot; by soaking the shareholders. The brilliance of Jamie Dimon has always been exaggerated, a myth he has tended with great care, from the Uncle Claudius coup that brought him to power eight years ago to the phalanx of henchmen who protect him from ever speaking extemporaneously to journalists or shareholders. But it&amp;#039;s one thing to be overrated. It&amp;#039;s another to hand over $20 billion without a fight. "^^<http://www.w3.org/2001/XMLSchema#string>
<http://www.esquire.com/news-politics/news/a26871/black-dimon-0214/>