Wilberne Persaud, financial Gleaner COLUMNIST
Economists, moralists, liberals, sceptical members and supporters of the Democratic Party in the United States have been critical - sometimes hypercritical - of the Obama administration's handling of the Wall Street meltdown of September 2008.
They argue, quite correctly, that big Wall Street banks never had their feet held to the fire.
The Troubled Asset Relief Program (TARP), which the US Congress passed in the final moments of the Bush administration, gave Wall Street banks and the world's largest insurer, AIG, in excess of US$700 billion to encourage and inspire calm in financial markets.
Under the gun of frozen financial markets and what may have morphed into a second Great Depression, Congress didn't insist on necessary changes in laws and behaviours.
Quite unlike the bail out of the automobile manufacturers, these institutions create money, oversee the lubricant of world capitalism and they had become 'too big to fail' - TBF - if they did, the whole system would go down with them.
Moral hazard is the concept used in discourse on problems of innovative finance, reckless behaviours of principals and CEOs of TBF institutions.
Principals and CEOs know that they shall be rewarded for decisions that bankrupt their companies. There exists, ironically, a perverse incentive for these decision makers to 'loot their companies' while ever so often, defrauding their clients.
Last week's news that JPMorgan Chase faced a potential US$13-billion settlement was an alarming development, particularly when viewed against the backdrop of Wall Street institutions that, instead of being made smaller since the great recession, grew bigger through acquisitions of bankrupt entities.
USA Today rap sheet
Our alarm should deepen if we consider the rap sheet USA Today produced as this news broke:
June 2010: US$48.6 million to settle allegations by UK financial regulator that JPMorgan failed to maintain required separation of the bank's and clients' funds.
April 2011: US$56 million paid to settle claims the bank overcharged active-duty service members on their mortgages. The agreement included US$27 million in cash to approximately 6,000 military personnel. It also included lower interest rates and return of improperly foreclosed homes.
June 2011: US$153.6 million paid to the SEC in settlement of allegations of misleading investors about collateralised debt obligations with underlying assets chosen by a hedge fund which had made bets against its soundness - that it would fail!
July 2011: US$228 million to the SEC settling allegations that it had rigged 93 municipal bond transactions in 31 states, which generated millions of ill-gotten gains for JPMorgan.
November 2012: US$296.9 million paid to settle SEC allegations of misstated information of delinquency associated with mortgages that served as collateral underlying a securities offering by JPMorgan, which made $2 million in fees while investors lost at least US$37 million.
Here's a catalogue of fines linked with terrible behaviour seemingly more associated with Mafia operations than pin-striped-suited bankers.
As it stands, JPMorgan paid only US$5 billion but criminal charges have not been ruled out. Commentators have roamed all across the ballpark, some in support of JPMorgan and its CEO Jamie Dimon, whose compensation over the past two years is said to be US$61 million, others quite critical.
They echo Congressman Barney Frank's quip: "If you take the greed out of Wall Street all you've got left is pavement!"
Beyond the humour though - and there's a lot of it, just google Jon Stewart's The Daily Show - grave outcomes appear to be not too farfetched possibilities for the future. Wall Street banks have become even too bigger to fail.
This catalogue of big fines voluntarily agreed, evidence of settlements from Wall Street's flagship brand, make awful advertising copy. It's impossible for one not to view these settlements as akin to the cost of doing business.
If CEOs walk away from such encounters with a view of the game, the playing field, the referee as weak, incompetent or biased on their side, it will not be long before hubris and unbridled greed plunge the world financial system into turmoil once again.
Glass-Steagall version two seems so much more necessary today.
Wilberne Persaud, an economist, currently works on impacts of technology change on business and society, including capital solutions for innovative Caribbean SMEs.Email: email@example.com