The rise of Elizabeth Warren and Bill de Blasio — both of whom have been buoyed largely by their anti-finance cred — has shown there is a powerful desire among the Democratic base to hold Wall Street to account. Obama’s first term was notably easy on the big banks. And since the 2012 election, Democrats have only taken a few timid steps towards a more substantial economic populism — nothing close to what the Dem grassroots would like to see.
Here’s one possible sign that may be changing: The colossal fine JPMorgan Chase is about to pay, the biggest in the history of Wall Street, with a headline figure of some $13 billion. It’s a small, but somewhat encouraging, indication that Democrats might just about be ready to start getting serious about Wall Street accountability, five years after the economic meltdown.
If this settlement is merely the first part of a broad push against Big Finance, the Dems might harness some of the grassroots energy that Warren and deBlasio have tapped.
The financial press has largely risen to Wall Street’s defense. Here’s a Dealbook post: “Some on Wall Street have portrayed JPMorgan Chase as a victim of government zealotry.” Or consider Andrew Ross Sorkin with a post headline portraying JPMorgan CEO Jamie Dimon as swirling in a fog of pundit “bloodlust.” Or Charlie Gasparino, who portrays Dimon as little short of Nelson Mandela.
This level of obliviousness can only be achieved in a financial bubble which has utterly lost touch with everything except flattering and valorizing the prejudices of the Wall Street elite. This was on particularly naked display when Alex Pareene was on CNBC a few weeks ago. When he argued that huge fines mean that management is incompetent and ought to be replaced, both his debate opponent and both the hosts reacted with spluttering, incoherent outrage. “But JPMorgan is churning out huge profits!” they yelled. It was completely incomprehensible to them that anyone would not consider huge profits their own justification.
As Felix Salmon points out, megabanks’ very profitability is evidence that there is terrific rent-seeking going on somewhere. But the principal fact that CNBC hosts never mention is that the vast majority of people don’t own any stock in JPMorgan. In fact, more than half of Americans (like me) don’t own any stock of any kind. The top 10 percent of the income distribution owns more than 80 percent of all stocks; the top 1 percent accounts for almost half of that.
Instead, the primary way JPMorgan could affect the lives of ordinary people is if the bank gambles itself into oblivion, either requiring another government bailout or causing another financial crisis. Which is easy to imagine — just last year they already lost over $6 billion on a single trade (plus almost a billion in fines for lying about the size of the losses). Ordinary people might also be directly victimized by a megabank, also: JPMorgan has already been investigated and fined for a staggering list of criminality and fraud, and that has to add up to thousands or millions of people hurt.
The obvious truth papered over by the lickspittle financial press is that Wall Street got preposterously generous treatment, especially when compared to the punishment the marginal worker has endured for the last five years. When Wall Street, through a combination of greed, arrogance, and stupidity, poisoned itself nearly to death with its own toxic waste, Uncle Sam leaped to the rescue with $700 billion. But five years later unemployment is still over 7 percent.
The primary consideration with JPMorgan and the other megabanks — really, the only consideration — is how to keep the collateral damage from these bloated monstrosities to a minimum. In fact, I would prefer smaller fines and more criminal prosecutions. Though the Justice Department will almost certainly never fine JPMorgan beyond its ability to pay, these are really big numbers and it’s possible their balance sheet might be endangered by accident. The best option would be blunt rules limiting the size of financial institutions which would break up all the megabanks into multiple parts, but that’s probably not in the cards right now. Still, colossal fines are better than nothing.
There is still real anger over the special treatment Wall Street received, and the Dems could find a real vein of electoral gold — in addition to solving some real problems — if they start taking financial regulation seriously.