Sorry CNBC, but the $13 Billion JPMorgan Fine Was No Shakedown

Garrett Baldwin

This week, the financial media has been up in arms about the record $13 billion fine levied on JPMorgan Chase & Co. (NYSE: JPM) for its connection with mortgage-backed securities.

While some voices have called for Chief Executive Officer (CEO) Jamie Dimon's departure from the bank, defendants have stated that JPM was a victim of government pressures to purchase Washington Mutual and Bear Stearns in 2008. Both acquired companies were responsible for 80% of the liabilities within this settlement.

CNBC talking heads argued that the government had engaged in a shakedown of Dimon, the pseudo-folk hero to emerge from the financial crisis.

In September, CNBC's Maria Bartiromo went far off the deep end – and then dug a hole beneath the pool concrete – to defend the company. She stated that "JPMorgan remains one of the best, if not the best performing major bank in the world today," before citing the company's profits, near-record stock prices, and accusing an opposing view of lying about the bank's well-documented actions in China.

Then The Wall Street Journal publishedthis a few days ago: The JPMorgan settlement "needs to be understood as a watershed moment in American capitalism. Federal law enforcers are confiscating roughly half of a company's annual earnings for no other reason than because they can and because they want to appease their left-wing populist allies."

JPM very well may be a great performing bank. But at the same time, it's emerging as one of the most troublesome businesses in America over the last six years for its ethical boundaries.

I'm convinced that the events that have transpired with regard to JPMorgan are the result of something bigger than a shakedown – like JPMorgan's repeated, alleged behavior. [More on that key word "alleged" in a bit.]

In fact, by doing a modicum of research, this $13 billion settlement doesn't look to me like an anti-capitalist shakedown at all.

Instead, it's a reminder of what's going wrong with Wall Street, and how we should proceed moving forward…

What Business Journalists Can't Forget…

An important part of this story comes from day 4 of the average Business Law class, when students learn about assets and liabilities.

When a company buys another company, the purchaser assumes all assets and liabilities of the target, whether they are known or unknown at the time. When a company is sold, the purchaser doesn't get to pretend that any past actions suddenly disappear.

JPMorgan recognized there were risks in buying Bear Stearns and Washington Mutual.

In fact, the company set aside $28 billion starting in 2010 in order to address potential liabilities from the purchase.

But it wasn't the government who held a gun to Dimon's head and made him do the deal…

Garrett Baldwin

About the Author

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Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.

Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.

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