Why You Should Be Mad at the Latest JPMorgan Lawsuit
By Sasha Cekerevac for Investment Contrarians |
We all know that politicians are willing to do anything to get into the limelight, gain favor among the citizens, and then use this leverage for their own gain. The latest lawsuit against JPMorgan Chase & Co. (NYSE/JPM) is so stupid and ridiculous that it would be funny if it weren’t going to cost taxpayers millions of dollars to pay for all of the lawyers involved.
To begin with, we all know that for an attorney general to move up the rungs of the political ladder, to Governor for example, they need a high-profile case to catch the public attention. With bank stocks being Public Enemy Number One, New York Attorney General Eric Schneiderman has decided to use the public’s anger against bank stocks to his favor. The New York Attorney General’s office has just filed a civil lawsuit against The Bear Stearns Companies, Inc., now a unit of JPMorgan, for alleged fraud.
When bank stocks were in the middle of the financial crisis several years ago, market sentiment for the group was extremely poor. No one was willing to lend or help out other bank stocks with such a negative market sentiment. The federal government essentially forced JPMorgan to take over Bear Stearns. Initially JPMorgan balked, stating that it didn’t have enough time to conduct due diligence. The federal government essentially said, “Don’t worry; we’ll cover you.”
Now that the political tide on bank stocks has shifted with market sentiment, the bull’s-eye is on the back of JPMorgan, among other bank stocks. Obviously, this is a lesson: if you are a business leader, you can never trust the word of the government. As market sentiment shifts, so too will the support of the government.
JPMorgan stepped in to help prevent a collapse of the U.S. financial system, and what they get in return is a lawsuit over an entity that they had nothing to do with. These alleged crimes were for actions that took place before JPMorgan took over Bear Stearns. I should know better, but I am still surprised that politicians will do anything once the market sentiment shifts to gain favor among potential voters.
This is nothing but an attention-grabbing shot at bank stocks by an Attorney General who wants publicity. And he is missing the point. I am all in favor of punishing illegal behavior, but why is he launching this attack against bank stocks and not against the individuals who perpetrated the fraud? Even if he is successful, no one will go to jail; the bank stocks will simply pay a fine and the Attorney General will have a “win” to sell to the public when he runs for governor as a politician who “cleaned up Wall Street”—it’s a joke.
I suggest that criminal actions be punished on an individual level. If you were forced to commit a crime while working for one of the bank stocks and you knew that you wouldn’t go to jail but the company would simply pay a fine, you wouldn’t care that much. But, if you knew you could go to jail for 10 years, I’m sure more people would speak up and refuse to conduct illegal actions.
Let’s stop these ridiculous headline-grabbing actions against the bank stocks and start prosecuting individuals that commit crimes. If bank stocks employ hundreds of thousands of people, not all of them are committing fraud. Let’s target the specific criminals. How many senior executives at bank stocks would encourage illegal behavior if they knew that the lower-level person could testify against higher-level employees and put them in jail for over a decade?
I would suggest that the incentive structure would dramatically shift and there would be a massive inclination to conduct business properly. Bank stocks aren’t the problem; the incentive structure is the true culprit.