Wall Street favors one kind of socialism
By ROBERT REICH
JPMorgan Chase CEO Jamie Dimon took aim at socialism in his annual letter to shareholders, distributed last week, warning that it would be “a disaster for our country,” because it produces “stagnation, corruption and often worse.”
Dimon should know. He was at the helm when JPMorgan received a $25 billion socialist-like bailout in 2008, after it and other Wall Street banks almost tanked because of their fraudulent loans.
Dimon subsequently agreed to pay the government $13 billion to settle charges that JPMorgan overstated the quality of the mortgages it was selling to investors in the lead-up to the crisis. According to the Justice Department, JPMorgan acknowledged it had regularly and knowingly sold mortgages that should have never been sold. (Presumably this is where the “stagnation, corruption and often worse” comes in.)
The $13 billion penalty was chicken feed to the biggest bank on Wall Street, whose profits last year alone amounted to $32.5 billion. Besides, JPMorgan was able to deduct around $11 billion of the settlement costs from its taxable income.
To state it another way, Dimon and other Wall Street CEOs helped trigger the 2008 financial crisis when the fraudulent loans their banks were peddling — on which they made big money — finally went bust. But instead of letting the market punish the banks (which is what capitalism is supposed to do), the government bailed them out and eventually levied paltry fines that the banks treated as the cost of doing business.
If this isn’t socialism, what is it?
Yet it’s a particular form of socialism. Millions of homeowners who owed more on their homes than the homes were worth didn’t get bailed out. Millions of workers who lost their jobs or their savings, or both, didn’t get bailed out. No major banker went to jail.
Call it socialism for rich bankers.
It’s a gift that keeps giving. Dimon took advantage of the financial crisis to acquire Bear Stearns and Washington Mutual, vastly enlarging JPMorgan. America’s five biggest banks, including Dimon’s, now control about 40 percent of all deposits.
And because they’re so big, JPMorgan and other big Wall Street banks are now considered “too big to fail.” This translates into a hidden subsidy of some $83 billion a year, because creditors who face less risk accept lower interest on deposits and loans.
More socialism for rich bankers.
After the financial crisis and bailout, Congress enacted a milquetoast version of the Glass-Steagall Act, a banking law from the Great Depression that bankers killed off in the 1990s. The eventual replacement was the Dodd-Frank Act, which was enacted in 2010.
Ever since, Dimon has pushed to weaken Dodd-Frank. When Barack Obama’s regulators wanted to extend Dodd-Frank to the foreign branches and subsidiaries of Wall Street banks, Dimon warned it would harm Wall Street’s competitiveness.
This was the same Jamie Dimon who chose London as the place to make highly risky derivatives trades that lost the firm some $6 billion in 2012 — proof that unless the overseas operations of Wall Street banks are covered by U.S. regulations, giant banks like Dimon’s will move more of their betting abroad, hiding their wildly risky bets overseas so U.S. regulators can’t see them.
More recently, Donald Trump’s bank regulators have heeded Dimon and rolled back Dodd-Frank.
Dimon was also instrumental in getting the big Trump tax cuts through Congress. They saved the JPMorgan and the other big banks $21 billion last year alone.
Dimon was paid $31 million last year. He is estimated by Forbes to be worth $1.3 billion.
Ironically, a few weeks ago Dimon warned that income inequality is dividing America.
“A big chunk of [Americans] have been left behind,” he said, unveiling a new $350 million program to train workers for the jobs of the future. “Forty percent of Americans make less than $15 an hour.”
True, but $350 million over five years isn’t even a drop in the ocean of Americans left behind.
Wall Street bonuses totaled $27.5 billion last year, more than three times the combined annual earnings of all American workers employed full-time at the federal minimum wage. That’s more than 600,000 low-wage workers.
If Dimon were serious about the problem of widening inequality, he’d use his lobbying prowess to help raise the federal minimum wage. He’d also try to make it easier for workers to unionize, and he’d endorse higher taxes for the super-wealthy like himself.
But, of course, Dimon isn’t really concerned about widening inequality. He’s not really concerned about socialism, either.
Dimon’s real concern is that America may end the kind of socialism he and other denizens of the Street depend on — bailouts, regulatory loopholes and tax breaks.
These have made the banks a fortune, but they’ve brought the rest of America stagnation, corruption and often worse.
Robert Reich served under four U.S. presidents.