The scandal at Wells Fargo continues to grow by the day revealing an institution that is corrupt to the core. As Bethany McLean writes, fraud was baked into the very culture of the bank, as the internal dynamics and the pressure placed on employees to meet unrealistic goals almost guaranteed that fraud would happen, and then top management ignored warnings that the fraud was occurring.
Meanwhile, we have a brand new financial scandal as the credit reporting company Equifax reveals, after a lapse of nearly two months, that its servers were breached and that the personal information of millions of people have been accessed by cybercriminals.
Instead, the company revealed on Thursday, the personal data of 143 million U.S. consumers in its care — nearly half the country — was potentially compromised. The data now at large includes names, Social Security numbers, birthdates, addresses and driver’s license numbers, all of which can be used fraudulently to validate the identity of someone trying to open a bank or credit account in another person’s name.
That is not all. The company waited six weeks before revealing the breach during that time three top executives sold $1.8 million worth of shares in the company just three and four days after the company learned about the breach. After the news of the breach was revealed, the share value plunged by 13%. What is worse, it seems that the protections on the data were nowhere near the necessary levels for a company that had so much information.
So will the government crack down hard on Wells Fargo and Equifax and send its top executives to jail? Ha! That’s a good one! The government and the justice department have long been captured by the financial sector and operate with almost complete immunity, except for the occasional Kabuki theater put on for the benefit of the public. Kevin Drum writes about how credit reporting agencies like Equifax have successfully fought common-sense measures that would protect consumers because it would impinge on their profits.
The control by the financial sector was apparent just after the financial crisis of 2008, when there was great anger at the reckless behavior of the big banks that ruined the lives of so many people and communities, and the Obama administration was under great pressure to take punitive action against the banks and break them up and prosecute the top officials.
The problem was that president Obama and the top people in the justice department like attorney general Eric Holder and his deputy Lanny Breuer, the person responsible for such prosecutions, were entirely in the pocket of the big banks. Holder and Breuer went directly from the justice department to the big law firm Covington and Burling that represents those same big banks and its client list includes Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo. In addition Obama was a huge admirer of Jamie Dimon, the head of JP Morgan Chase, and the latter was known as “Obama’s favorite banker”
So how to solve the problem of appearing to punish the banks while not really doing so? The Obama administration took the route of fines on the banks that looked large to ordinary people but were a pittance to these huge banks and would be included as the cost of doing business, while letting them not acknowledge guilt for wrongdoing. These slaps on the wrist were accompanied by huge press conferences that masked the fact that none of the people actually responsible would be prosecuted.
There was one case that was curious because a fine was levied but the complaint that was drafted against JPMorgan Chase was kept secret. William D. Cohan explains that we now have some information about what went on there.
In November 2013, JPMorgan Chase, the nation’s largest bank, agreed to pay a then-record $13 billion fine to federal and state authorities in order to settle claims that it had misled investors in the years leading up to the financial crisis. JPMorgan Chase’s settlement raised many eyebrows on Wall Street. The huge settlement appeared inconsistent with the oft-repeated narrative of the bank’s heroism during the crisis.
But people wondered why one of Wall Street’s ostensible white knights would pay $13 billion—$9 billion of its shareholders’ cash, plus another $4 billion in mortgage relief—in a government case.
As I reported in The Nation in 2014, JPMorgan Chase’s settlement came at the end of an intense series of negotiations with a wide range of government officials. Perhaps the most pivotal moment in the conversations occurred in September 2013 when D.O.J. lawyers shared with Dimon and his attorneys a draft of a 92-page civil complaint that Benjamin B. Wagner, the then U.S. attorney in the Eastern District of California, and his colleagues were prepared to file in federal court.
No one knew precisely what Wagner’s investigation had uncovered about JPMorgan Chase, however, because his brief was never filed publicly. Within weeks of Wagner sharing a draft copy of the complaint with Dimon—and following a tense face-to-face meeting at the Department of Justice between Dimon and Eric Holder, then the U.S. attorney general—the two sides agreed to the $13 billion settlement, at the time the largest ever. (It has since been surpassed by Bank of America’s $16.65 billion fine, settling similar claims.) In return, the Department of Justice agreed with Dimon and JPMorgan Chase that, among other things, it would not file Wagner’s complaint. Instead, an anodyne 11-page “Statement of Facts” was released.
To keen observers, though, it also seemed that he and JPMorgan Chase appeared intent on keeping Wagner’s unfiled complaint out of the public record.
Now, nearly four years later, as part of a Freedom of Information Act lawsuit initiated by Daniel Novack, an enterprising First Amendment attorney in New York City, the D.O.J. sent Novack a partially redacted copy of Wagner’s curiosity-stoking draft complaint against JPMorgan Chase. Novack provided a copy of the partially redacted complaint to me. “By this action,” the draft complaint begins, “the United States seeks to recover civil penalties” against JPMorgan Chase and its investment banking arm “for a fraudulent and deceptive scheme to package and sell residential mortgage-backed securities” that the bank “knew contained a material amount of materially defective loans.” As the unfiled complaint continued, “JPMorgan knowingly securitized and sold billions of dollars of mortgage loans that were originated in material violation of underwriting guidelines and law.” (When reached for comments and responses to the various allegations in Wagner’s unfiled brief, a spokesperson for JPMorgan Chase told me, “These allegations have been addressed, resolved, or refuted years ago.”)
Cohan then goes through the contents of the draft complaint that lists an extensive series of willful wrongdoing by JPMorgan Chase and its head Dimon:
Worse, the unfiled brief notes, the bank continued to sell mortgage-backed securities even though Dimon himself was worried that the residential mortgage-backed securities market was about to crash. According to Wagner, during the second week of October 2006, Dimon allegedly told King, the co-head of the Securitized Products Group, that he needed to “watch out for subprime”—a reference to low-quality mortgage-backed securities—because he feared that the market “could go up in smoke.”
Dimon had harsh words, of course, for the Obama administration over his belief that his bank was treated unfairly by the Department of Justice in the $13 billion settlement. Instead of penalizing the bank for its bad behavior, Dimon argued, it should be celebrated for helping to save the financial system from its further free fall. That may be true to some degree, but Wagner’s 92-page draft complaint puts the wood to Dimon’s spin machine and shows that he and his colleagues at the bank were no different than the rest of the Wall Street banksters who received big bonuses for packaging up mortgages they knew would not be repaid into securities that they could sell to investors for big fees. Dimon’s pay package for 2013, the year of the big government settlement, was $20 million—a raise of 74 percent from the year before.
The big banks and their executives are clearly above the law and have been so for a long time.