November 19, 2013
Three Themes For The Government's JPMorgan Settlement
Posted by David Zaring

The $13 billion dollar settlement with JPMorgan over violations made by companies it bought during the financial crisis appears to be all but final.  You may think it is a much-awaited example of finally getting tough with financial institutions, but you may also be wondering about the fairness of it all.  Were these bankers doing things that are different from other bankers?  Why aren't those other bankers paying commensurate fines?  Is this like the LIBOR scandal, where many banks were involved but only one, Barclays, paid with the loss of its CEO?

It is like that.  But if you want to make peace with this sort of government enforcement, here is how you do so:

  • Making an example.  These sorts of enforcement actions tend to amount to a form of the original meaning of the term decimation.  The idea is that the dramatic punishment of a few will deter the many, which means that those singled out can expect - maybe reasonably, even as they bemoan their bad luck - severity.
  • Limited resources.  But building a case is difficult, and so the government is wise to concentrate on the famous, given that it cannot hope to enforce against everyone - the Wesley Snipes principle, if you like.  JPMorgan is the most famous of the banks, the most in the news, and therefore the most tempting target if your goal is to maximize the impact of a necessarily limited set of enforcement actions.
  • Contract misrepresentation damages.  Half the settlement is not so much a fine as it is compensation to misled investors.  In this sense, part of that big number is very much simply a measure of an expectancy not realized.  It is that sort of remedy that you'd think would most likely be paralleled in proceedings, perhaps initiated by private parties, against other banks.

Financial Crisis, Financial Institutions | Bookmark

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