Wednesday, March 12, 2014

Want to know the oak? Look at the acorn. A banking parable.

Here's the oak:
Before Bernard L. Madoff was charged with stealing billions of dollars from his clients, and before he received a 150-year prison sentence for those crimes, JPMorgan Chase missed its chance to warn federal authorities about his Ponzi scheme.

On Tuesday [January 7, 2014], five years after Mr. Madoff’s arrest set off a panic on Wall Street and in Washington, Mr. Madoff’s primary bank received a punishment of its own.

Federal prosecutors in Manhattan imposed a $1.7 billion penalty on JPMorgan for two felony violations of the Bank Secrecy Act, a record payout under that 1970 law, which requires banks to alert authorities to suspicious activity. The prosecutors, essentially accusing the nation’s biggest bank of turning a blind eye to Mr. Madoff’s fraud, will require JPMorgan to pay the $1.7 billion to his victims. The bank cannot write off the sum as a tax deduction.


Prosecutors did not charge any JPMorgan employees with wrongdoing. And the bank itself could have faced a harsher punishment, according to people briefed on the settlement talks, with prosecutors considering last year whether to demand a guilty plea from the bank. Ultimately, prosecutors concluded that a deferred-prosecution agreement was more appropriate for a case that began as a civil investigation, without a criminal component.

And here's the acorn:

J. P. Morgan had started before the war as the son of a banker who began selling stocks for the railroads for good commissions. During the Civil War he bought five thousand rifles for $3.50 apiece from an army arsenal, and sold them to a general in the field for $22 each. The rifles were defective and would shoot off the thumbs of the soldiers using them. A congressional committee notied this in the small print of an obscure report, but a federal judge upheld the deal as the fulfillment of a valid legal contract.

Morgan had escaped military service in the Civil War by paying $300 for a substitute. So did John D. Rockefeller, Andrew Carnegie, Philip Armour, Jay Gould, and James Mellon.

Howard Zinn,
A People's History of
the United States

Or, if you prefer a different parable: Every barbecue has its winners and its losers.

No comments: