Bill Black: Dimon Does Davos, and His Board Gives Him a Raise

Yves here. It’s become tough work keeping up with the continuing large gap between Dimon hagiography in the media and his dubious accomplishments. So hats off to Bill Black for staying on this beat.

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Cross posed from New Economic Perspectives

If, as an effort at satire, I had written the story that the New York Times’ “DealBook” has just written about what JPMorgan’s board of directors has just actually done, people would have dismissed my piece as absurdly over the top. The board has decided to increase Jamie Dimon’s compensation substantially. The reason the board gives (in leaks to DealBook) must have resonated with Deal Book because it is the theme song that Deal Book has been singing for months, another “‘somebody done Dimon wrong’ song.”

Recall that the title of Andrew Ross Sorkin’s country-western lament was that Dimon was the victim of “bloodlust” because Dennis Kelleher, the head of the NGO “Better Markets,” believed that Dimon should be fired for poor performance.

As a slight reality check, which DealBook religiously avoids, Dimon led JPMorgan while it committed what government investigators have identified as over 15 frauds, most of them massive. As I’ve explained, Deal Book’s graphic laying out (very tersely) these frauds goes on for pages. These frauds represent the greatest financial crime spree the government has ever identified. I am not counting the frauds of Bear Stearns and Washington Mutual (WaMu).

Note, because Deal Book never will, the fact that Dimon’s key defense – Bear and WaMu were worse than JPM – confirms that senior leaders of three of the largest and most elite U.S. banks were serial criminals whose frauds are (we pray) without equal. If one were not familiar with Deal Book’s pathologies, one might suspect that Dimon’s defense would cause the Nation’s leading paper of record to be alarmed about the ethics, criminality, and safety and soundness of our financial systems. That alarm would lead to Deal Book demanding that the boards of directors, regulators, and prosecutors go into overdrive with far more vigorous efforts that would clean the Augean stables of Wall Street and the City of London. Instead, DealBook never mentions the word “ethics” in the article.

DealBook declared itself an “ethics free” and a “smoke free” zone. They refuse to discuss ethics or the cloud of oily smoke that has engulfed Wall Street and the City of London for over a decade. Similarly, the Deal Book article uses the word “fraud” only once – to describe Madoff’s frauds. JPMorgan, Bear, and WaMu’s frauds never get labeled frauds.

The DealBook article is composed entirely of howlers – because it faithfully reports without any critical thought the (always anonymous) comments of JPM’s board. DealBook reports that anonymous JPM board members say that Dimon’s “star has risen” as JPM’s frauds mounted.

He has also solidified his support among board members, according to the people briefed on the matter, by acting as a chief negotiator as JPMorgan worked out a string of banner government settlements this year.

So, the greater JPM’s frauds under Dimon’s leadership and the larger the settlements, the greater Dimon’s value as a negotiator in getting the government to settle cheap, and the more money that JPM should pay Dimon for helping it keep a big chunk of the fraud proceeds from the crime spree. Dimon and the board’s real rage is that the government disputes their demand that JPM should keep all of the fraud proceeds from Bear and WaMu’s even more intense crime sprees. DealBook quotes Dimon as claiming that it is “unfair” that the government is seeking recovery from JPM of Bear and WaMu’s fraud proceeds.

The reality is that the fraud proceeds went largely to the senior officers and directors of JPM, Bear, and WaMu in the form of bonuses. What JPM’s board is really delighted about in Dimon’s performance as a negotiator is that not a single JPM director or senior officer has had to repay a penny of the huge fraud proceeds that made them wealthy (or far wealthier). The directors don’t bear the cost of Dimon’s bonuses. Dimon negotiations with the government ensure that the shareholders bear all the losses of the obscenity of giving Dimon a raise to reward the crime spree that occurred while he was both the CEO and chairman of the board of JPM.

Another side-splitting line from the anonymous board leaks is: “Yet cutting Mr. Dimon’s pay would, some board members feared, alienate the chief executive.” This too passes without analysis through Deal Book’s haze.

Question: would an honest bank run by an honest board “fear” “alienat[ing]” a CEO who had led the bank into such a crime spree? JPM’s board has proven for years that it is spineless, unethical, and dedicated to Dimon’s interests. They should submit their resignations immediately, effective in eight weeks. DealBook, unintentionally and unknowingly, demonstrates that the best members of JPM’s boards are hopeless.

The debate pitted a vocal minority of directors who wanted to keep his compensation largely flat…

What would it take for the “vocal minority” to make a motion to fire Dimon for cause and claw back his past compensation? Why didn’t they resign in protest when the majority to reward Dimon with a raise?
The banking regulators should have demanded the board’s resignations – and that includes Dimon – over a year ago based on the facts that the regulators have found. JPM demonstrate how abject the failure of governance and supervision remain over five years after the acute phase of the crisis at our most elite and essential institutions.

DealBook, unintentionally and unknowingly, gives away the plot in this wondrous sentence.

It is not unheard-of for chief executives to lose their jobs when their companies have been battered by regulators.

First, JPM has been battered by its officers and directors, who have disgraced their offices – and became wealthy by doing so by presiding over the world’s most epic financial crime spree.

Second, DealBook has no clue how competent banking regulators function. In the sentence I just quoted, Deal Book talks about “companies” (i.e., banks) “battered by regulators.” DealBook writers cannot grasp the difference between the bank and the controlling bankers and the fact that bad bankers act in their interests, often at the expense of the bank and its shareholders, creditors, and customers. Our paramount function as financial regulators is to protect the banks from fraudulent officers and directors. Our goal, if we are competent, is never to batter the “bank.” The bank’s shareholders, creditors (which includes the FDIC), and customers are the people we are seeking to protect.

The regulatory and prosecutorial response to JPM’s crime spree has failed to hold a single senior officer or director personally accountable either civilly or criminally. The regulators have used feather dusters when it comes to elite bankers – and only actions against elite bankers matter. Fines against banks cannot deter frauds by officers. The officers who control the bank are delighted to use bank funds to negotiate deals in which there are large fines – but the government does not prosecute the officers or seek to claw bank their compensation and seek damages from them.

During the S&L debacle, we put officers and directors in prison. We bankrupted officers and directors through civil suits and enforcement actions that removed their fraud proceeds and fined them.

But do not lose sight of Deal Book’s admission, even when the regulators present evidence to bank boards that the CEO is looting the bank the central problem remains that the CEO handpicked the board for its loyalty to him and hostility to “the government.” It is child’s play for the CEO and his cronies to keep the support of such directors. Sure enough, DealBook tells us that the anonymous board members most dedicated to further enriching Dimon believed that Dimon was the victim of “overzealous federal prosecutors.” Fraudulent CEOs are so good at playing the directors they select that Deal Book admits that it is rare (“not unheard-of”) for a fraudulent CEO to be forced to resign. Deal Book doesn’t mention that even in these rare cases the overwhelming norm is for the board to make the fraudulent CEO even wealthier by giving him a “golden parachute.”

But DealBook, unknowingly and unintentionally, let another cat slip out of the bag in discussing this subject. Here is the fuller context of the quotation I have been discussing.

It is not unheard-of for chief executives to lose their jobs when their companies have been battered by regulators.

But a crucial difference is that JPMorgan’s legal travails have not threatened the bank financially.

What DealBook let slip was the devastating role that “too big to fail” and “too big to prosecute” play in allowing Dimon to stay in power after a record that at any normal company would have seen him forced out by competent regulator years ago. Of course JPM’s settlements “have not threatened the bank financially.” The DOJ’s position is that it will not put large businesses into bankruptcy, regardless of how fraudulent their controlling officers are. JPM is the biggest bank in America. The DOJ’s position is that it will not “cause” any large bank to fail – no matter how fraudulent its operations. (Note that the fraud causes the failure, not the government sanction, but DOJ is a shambles when it comes to elite white-collar crime, particularly at systemically dangerous institutions (SDIs). JPM is the mother of all SDIs.) DOJ’s position requires that it will never fine a large bank a sum so large that it poses even a minor risk to the bank’s solvency.

Everyone on Wall Street knows that DOJ treats JPM as “too big to fail.” Everyone on Wall Street understands that this means that the DOJ will never require JPM to pay the full cost of its frauds and disgorge the full extent of its fraud proceeds if doing so could even come close to creating a concern that JPM would lack adequate capital. This gives Dimon a crushing negotiating leverage – the equivalent of always holding a Royal Flush while playing poker. JPM’s board is so impressed that Dimon wins when he always holds a Royal Flush that it is giving him a raise.

DOJ’s termination of the rule of law for SDIs removes any chance that they could ever impose a fine against them that would have any deterrent effect. They could, of course, avoid this trap by taking action against the officers rather than JPM. DealBook has implicitly revealed the fraud that is “corporate governance” on Wall Street. Deal Book has also implicitly revealed why DOJ’s betrayal of the rule of law for SDIs and virtually total refusal to sue or prosecute elite bankers will prove so criminogenic and so destructive of ethics and integrity on Wall Street and at DOJ.

Because DealBook and the banking industry are dedicated to constantly proving the truth of our family rule that it is impossible to compete with unintended self-parody, Deal Book and its anonymous board sources save the best for last.

Mr. Dimon is also benefiting, the people say, from a view among some board members that the government’s assault on JPMorgan is driven less by the bank’s actual transgressions and more by a desire, stoked by anti-bank sentiment, to appear tough against Wall Street, the people said.

This passage is another illustration of why sleazy bankers chose sleazy board members predisposed to hate “the government.” That hate makes it easy for the CEO to manipulate the board members when regulators or the FBI detect insider fraud. The next falsehood is to describe the incredibly weak regulatory and prosecutorial response as an “assault” much less an “assault on JPMorgan.” However, by failing to hold JPM’s officers and directors personally accountable for their frauds DOJ makes it harder for citizens to see why such a statement is incoherent. DealBook expands this error by referring to “the bank’s actual transgressions” rather than to the officers and directors’ transgressions.

Who are “the people” in the DealBook quotation? “The people” overwhelmingly know that JPM and Deal Book’s memes are hilarious. Let’s get serious. There are zero prosecutions of any elite JPM officer or director. There are zero civil actions or enforcement actions that could claw back any elite JPM officer or director’s pay or remove and prohibit them from the industry. JPM’s frauds are huge, diverse, and target the weak.

The premise of this fantasy meme is that “anti-bank sentiment” (presumably they mean “anti-fraudulent banker sentiment”) has become so powerful that it has become essential for DOJ to “appear tough” against “banks.” The reality is that Attorney General Eric Holder has not secretly converted to supporting Occupy Wall Street rather than trying to destroy it. Holder knows that if he wants to “appear tough” the way to do it is to prosecute criminally and civilly elite JPM, Bear, WaMu, Bank of America, Citicorp, Wachovia, Wells Fargo, etc. officers and directors.

Calling Holder’s non-prosecutions “tough” and terming Kelleher’s call for Dimon to be fired “bloodlust” demonstrate that Deal Book desperately needs to purchase a dictionary and consult it for word meanings. I think Better Markets could do DealBook and the Nation a service by delivering a Funk and Wagnall’s to Deal Book with the words “bloodlust,” “tough,” “ethics,” and “fraud” tabbed for easy reference.

Holder has zero prosecutions of the elite bankers whose frauds drove the three most destructive financial fraud epidemics in world history. Holder has zero civil cases, and the banking regulators have zero enforcement actions, that bankrupted an elite bank officer or director whose frauds helped drive those epidemics. When I played baseball as a kid, we didn’t consider anyone to be a “tough” hitter who batted .000 and who repeatedly left the bat on his shoulder and was called out on strikes. To sum it up, only corporate directors could call zero elite fraud prosecutions excessive. DealBook has, unintentionally and unknowingly, revealed one of the most destructive pathologies that make even “independent” directors fraud allies instead of “independent controls.”

JPM’s, WaMu’s, and Bear’s boards of directors made the officers who led the frauds wealthy for over a decade through their executive compensation programs. JPM’s board has learned nothing positive from that experience. The question is whether the banking regulators will call an immediate “come to Jesus” meeting with the board and explain that they have lost confidence in the board and Dimon and require their resignations and waivers of any claims for golden parachutes. I fear that things have deteriorated to the point that no one at the OCC, the Fed, and the FDIC even thinks about taking such an act.

Print Friendly, PDF & Email


  1. down2long

    Thank you Mr. Black for your eloquence and Yves for sharing it.

    The Dealbook piece and the Board’s action are an abomination.

    That we saved this scoundrel’s hide and now will not put the beast in its cage is the most galling part to me. Slimon’s and the Board’s acts are predictable. I am no fan of D’Souza but the fact that on this very day Preet Bahara is after him over $20K donations to ba swmped Senate candidate, while this vermin Dimon wails from Davos about his unfair fate is simply too much to stomach.

  2. Luxtexente

    While it is obvious that these are government sanctioned crimes, what most people don’t understand is why they are sanctioned. Does anyone remember Bill Clinton? “its the economy, stupid”. I am absolutely convinced that Clinton and the Federal Government made a back room deal with the biggest banks to loosen credit requirements. Remember the mortgage option payment arms, 7/1 arms, no doc loans, stated income loans, and all the other crazy things that started happening in lending? No right minded banker would institute such stupid programs without some assurance that losses would be covered. The back room deal was that if the banks and lenders would do this they would be protected and compensated. Of course the bankers took advantage and ran the extra mile. They all realized that what the government wanted was crazy. They also knew that whatever they did in any field of investing was now open to anything they wanted to do. Why? Because the deal was made, No deal existed for the S & L’s. But now the government has a deal and if they put the criminals in jail they will blow the lid off of this scheme and a lot more people will go to jail than just bankers. It would be like Don Corleone turning in his own hit men and enforcers. The deal was made and now we are playing out the rest of the game. Flag football and all the flags are tied on to the belts. Of course it all depends on the definition of “is”.

    1. arby

      Does one detect a suggestion that president Clinton and his Housing Secretary Andrew Cuomo and his Treasury Secretary Robert Rubin may have colluded in enriching the one percent on the rentier income derived from the American poor and middle class through elaborate paper frauds? The S and L prosecutions happened in an era of largely state based banking institutions operating under limited lines of business with many competitors. The Clinton era reforms killed that model of plentiful and limited financial institutions. It also, it would appear, killed the ability to prosecute crimes.

      1. James Levy

        Even if the fix was in, the problem was in the commodification of the debt and the swaps that followed. In essence, this was an $800 billion dollar problem turned into a multi-trillion dollar problem because of the way about 25 firms globally chopped up, sold, and then insured that $800 billion in bad loans. As culpable as Clinton et al. were, it is impossible to imagine that they thought the bankers would fuck up this badly. And from a close relative who was an is well situated in the banking world I can tell you they were obsessed with the size of the big Euro banks and thought that we had way too many small, globally non-competitive banks here in the US that were going to be run out of town and/or gobbled up by the big Euro banks. That those same European banks are today effectively bankrupt and living on extend and pretend doesn’t change the fact that they were perceived as a huge threat that could only be handled if Glass-Steagal went away.

        1. usgrant

          Absolutely. To state that the banksters knew that were going to be bailed out is not to question their ethics(sadly lacking) but to tranform them into supermen, or in this case supervillains. That they invested in a bankster friendly Gov. through legal bribes and revolving door was smart money but no guarantee of the massive gift handed to them at our expense. The fact that some of them were trying to back pedal through increased CDS purchase indicates no foreknowledge.

  3. Banger

    JPM and the other big players on the Street are criminal gangs pure and simple and I’ve known both kinds, though I much prefer the company of mafiosi to the really big criminals on the Street who aren’t all bad, to be sure, but almost always poor company.

    Dimon earns his keep, as far as I’m concerned–he and the others have managed to have their people in key positions in the administration and are parts of the new criminal class that is, unlike their Italian-American counterparts, immune from prosecution. Why Americans support Obama is beyond me–they have perhaps the most blatantly corrupt AG’s office we’ve ever seen in our history and still Democrats continue to support our Wall Street President and Wall Street Democrats. The AG’s office is happy busting marijuana growers and ignores real threats to our society–cause for a complete break with the DP.

    1. Teejay

      While I too am extremely critical of Obama’s DOJ wrt white collar prosecution, do the names John Mitchell and Ed Meese mean anything to you?

      1. Teejay

        How could I forget AG Richard Kleinsdienst as well.
        “[…] the most blatantly corrupt AG’s office we’ve ever seen in our history […]” ?
        Not even close even with your caveat “perhaps”.

    2. participant-observer-observed

      “Why Americans support Obama is beyond me–”

      Nevermind Obama, they love Dimon too, thinking nothing of opening new retail Chase accounts day by day, after this bank made so many people just like themselves sick with suffering. On the other hand, it is hard not to blame them for not having too (m)any pure alternatives.

  4. Teejay

    Is there merit to the claim posited in Arron Sorkin’s “Newsroom” that DOJ funding for white collar crime was underfunded by Congress (read Republicans) and that played a roll in undermined them going after Wall Street? Were resources a factor?

    1. NotTimothyGeithner

      So the DoJ was underfunded by the GOP minorities in 2009 and 2010?

      One might think in the stimulus splurge there would have been some cash, or the President who has a certain amount of leeway could have moved some funding to white collar prosecution away from his own efforts to throw as many people in prison as possible so he could run as “tough on crime” by siccing the DoJ on pot users and illegal immigrants.

      Or could Aaron Sorkin just be making an excuse? Jeb Bartless was pretty much an advocate of every neo-liberal policy regime imaginable even when the show was decent.

      Even if this was true, did the President want to put the GOP on the record as voting against funding for white collar prosecution? Does this seem odd?

    2. Strangely Enough

      Pretty sure Republicans would have given them money to prosecute Corzine, if for nothing else, the political theater of it.

      There’s plenty of money for investigations and prosecutions (of anything and everything else). Will was the only thing lacking.

  5. Sierra7

    Like, Blankfein …….
    JD is, “Just……doing God’s work…….

    (This is all just so disgusting!)
    Thank you, again Bill Black for saying what has to be said.
    when corruption rules, fate becomes the hunter!

  6. EoH

    Thank you, Dr. Black. When the inmates are running the asylum, they give themselves free rein to pillage, to declare themselves too good to restrain or punish, not for their fantasies, but for their actions. What do good villagers do when when the night falls, the darkness looms, and the patients come out to seek their families, their farms, their futures?

  7. Avg John

    This article represents the type of information that we are uncomfortable with. It invokes a mixture of disgust, anger and even a little fear to be truthful. How did we ever get to this state? Nonetheless, like the cough syrup we take for a bad cold, we need to hold our nose and swallow if we want our health back, or in this case our representative government. Thanks for the article Professor.

  8. Jackrabbit

    As Matt Taibbi at Rolling Stone has pointed out, stroking Wall Street comes easy to NYTimes’ Sorkin and Dealbook:

    DealBook will also feature news and insights on deal-related topics from Business Day’s well-known roster of leading business reporters, which includes recent hires in addition to a veteran stable of Wall Street’s most highly-regarded journalists.

    Barclays Capital, Goldman Sachs, Sotheby’s and Tata Consultancy Services are charter advertisers for the relaunch of DealBook.

Comments are closed.