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Should individuals also be held accountable for the 2008 financial meltdown?

October 21, 2013 at 12:00 AM EDT
JP Morgan Chase is close to striking a reported $13 billion settlement with the government over the sale of troubled mortgage securities. Gwen Ifill talks to Dennis Kelleher of Better Markets and Bert Ely, a banking consultant, for reaction on the penalty and how the government is seeking accountability for the 2008 crisis.

GWEN IFILL: Now we consider the government’s approach toward accountability in the wake of the financial crisis.

J.P. Morgan Chase, the nation’s largest bank, is on the verge of a reported $13 billion settlement with the Obama administration to avoid civil charges over the sale of troubled mortgage securities. It would be a record penalty and by far the biggest punishment — the biggest punishment yet for players involved in the 2008 meltdown — still unclear whether J.P. Morgan will admit to wrongdoing as part of the deal.

Even though the reported agreement is not yet final, it’s generating strong reaction.

We get a sampling of that now with Dennis Kelleher, the president of Better Markets, a not-for-profit group promoting financial reform, and Bert Ely, a banking consultant. For the record, he doesn’t advise J.P. Morgan.

I will start with you, though.

What are the outlines of this deal?

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BERT ELY, banking consultant: Well, what J.P. Morgan Chase is trying to settle are a variety of claims arising from some of its past actions, but also from actions particularly in the mortgage area by two companies it acquired, Bear Stearns and Washington Mutual.

GWEN IFILL: So, do you think that this was a good deal for them?

BERT ELY: Well, I think that what J.P. Morgan Chase is trying to do is to just get these issues behind it, and so that it can move on with its business. This has been hanging over the company.

And I think, like any kind of problem situation, you want to get it revolved and move on.

GWEN IFILL: How about that, Dennis Kelleher?

DENNIS KELLEHER, Better Markets: Well, it’s a darn good deal for them.

Unfortunately, it’s not so much a good deal for everybody else. In the first instance, the headline number gets a lot of attention. And it is a big number, $13 billion, which is a lot of money to everybody except Wall Street.

Last year, J.P. Morgan’s revenue was more than $97 billion. Today, it has more than $23 billion reserved for legal problems. And what’s most troubling is that not only are they apparently going to extinguish almost all civil liability for innumerable, egregious violations and wrongdoing relating to compliance in mortgages and other things, but not a single individual is being held accountable, yet again, for all this wrongdoing.

And, unfortunately, if we don’t hold individuals responsible and accountable, then these things are going to happen again and again and again.

GWEN IFILL: Let me ask, Bert Ely — I will get your name right this time.


BERT ELY: Thank you.

GWEN IFILL: Let me ask you this question. J.P. Morgan is one of the companies, one of the — that actually went in and helped rescue troubled properties. And for their — for their effort, they get this kind of prosecution or potential for prosecution.

Did they — does that discourage anybody else from even trying?

BERT ELY: I think if definitely does, that in effect J.P. Morgan Chase is being tagged for problems that it didn’t cause, that happened under the management of the companies that they acquired.

And that, frankly, is just fundamentally unfair. And Morgan is now stuck with this situation. But it definitely is going to discourage acquirers in the future of troubled companies, because we will have financial crises in the future and the government is going to be faced again, some time in the future, with having to sell a troubled company that has a lot of problems.

And potential buyers are just going to stand back and say, no thanks.

GWEN IFILL: What about Dennis Kelleher’s point that $13 billion isn’t really a lot of money?

BERT ELY: Well, it is a lot of money.

And Dennis talked about the revenue of J.P. Morgan Chase, but there are an awful lot of expenses. The $13 billion is roughly equal to half of the profits that they made last year. It’s been a very expensive transaction for them. If they had to do it again, I suspect they wouldn’t.

DENNIS KELLEHER: Well, that’s just not true. Those are the talking points of Wall Street.

But the acquisition of Bear Stearns and Washington Mutual were at fire-sale prices. They bought Bear Stearns for $1.3 billion. The headquarter building alone of Bear Stearns on Madison Avenue in New York was worth $1.1 billion. And Jamie Dimon refused to do the deal until taxpayers picked up the risk of $30 billion.

They got these operations at fire-sale prices, and they have been spectacularly successful for J.P. Morgan. Jamie Dimon is not some rube in the pumpkin patch. He knew what he was doing and what he got.

And I will just give you one fact. In 2007, if you take the book value, what you could get for J.P. Morgan Chase if you just sold its assets, you take its book value and you straight-line it to 2012, and you compare it to what its book value is today, there is a $39 billion difference.

And that means the value of J.P. Morgan Chase is up $39 billion. That’s not as a going enterprise. They have made spectacular amounts of money from these two enterprises.

GWEN IFILL: Bert Ely, what about Jamie Dimon? He is kind of a unique figure in all of this.

BERT ELY: Well, he’s the guy who stuck his neck out to do this deal. He’s been a leader in the industry.

And he’s the one who is taking the heat for having done this deal. I do believe that he will continue to run the company. I know there are a lot of people that think he ought to resign. And I simply don’t think that’s going to happen. What he needs to do and his management team needs to do is to get this problem behind them so they can run their business.

GWEN IFILL: Does the company have to admit wrongdoing? This has never happened. Does there have to be an individual heads that rolls, as Dennis Kelleher is suggesting, in order for this to ultimately be resolved?

BERT ELY: Well, first of all, there have been a lot of people who have lost their jobs over this.

The real question of personal accountability is going to come down to whether or not there are going to be any criminal charges brought in this situation.

GWEN IFILL: That’s still unclear.

BERT ELY: That’s still unclear. And we may not know for months as to how that aspect of it is going to get resolved.

GWEN IFILL: And, in fact, California, among other states, probably is pursuing this potential for criminal action.

DENNIS KELLEHER: Well, the U.S. attorney in California, one of them, is conducting an investigation.

But the likelihood of criminal charges against executives and supervisors here are as remote as possible. The standard is so high and exacting, as it should be for criminal charges, and that’s why it’s so important to go after executives and supervisors on the civil side, so that they have to pay real, meaningful penalties and that they are held to account for their wrongdoing.

Let’s get back to Jamie Dimon.

GWEN IFILL: This isn’t a real, meaningful penalty?

DENNIS KELLEHER: Well, first of all, it is the bank that is paying it, OK, which means it is shareholders that are paying it. Essentially, J.P. Morgan Chase is buying a get-out-of-jail-free card today for its executives and supervisors by using shareholders’ money, essentially other people’s money.

Not a single individual is being held accountable.

GWEN IFILL: Does any of that money go to homeowners, for instance?

BERT ELY: As I understand it, $4 billion of it is going to be set aside to help resolve problem mortgages. Whether it be buying down mortgage balances or compensation to people whose homes were foreclosed is yet to be worked out.

But, supposedly, $4 billion of the $13 billion will go to assist homeowners that had problems of one kind or another.

GWEN IFILL: I take you don’t see it as a get-out-of-jail-free card?

BERT ELY: I do not see it as a get-out-of-jail-free card by any means.

And, again, I think the real concern is, what happens in the future? There will be a future financial crisis. The government will be faced with having to deal with a large financial institution. And if they have a situation where there is no buyer because of unresolved liability issues, then the cost and the disruption of liquidating a large firm, instead of selling it, is going to be very significant.

GWEN IFILL: Final word.

DENNIS KELLEHER: Well, I think that if you don’t hold people accountable for egregious, systemic wrongdoing, then they are going to do it again.

And there shouldn’t be a double standard of justice, one for Wall Street, where they get treated with kid gloves because they are wealthy and well-connected, and one for Main Street, where you get the book thrown at you if you steal $100. It is wrong. It is corrosive to democracy that actually rewards and incentivizes crime on Wall Street.

So you could have them pay a little less money if you would hold some of the individuals actually accountable. That’s what we need to see in this country.

GWEN IFILL: We will leave it there.

Dennis Kelleher, Bert Ely, thank you both so much.