Conventional Wisdom Upended – Somewhat

The conventional wisdom is crime pays. The conventional wisdom is that in the wake of the nation’s most severe financial crisis since the Great Depression – a crisis brought on in large part by individual and institutional greed – nearly no one has been held personally or professionally responsible for what happened. Instead the rich got richer, the middle class dwindled, and the poor as usual got left behind.

I do not quarrel with this overarching assessment. The evidence confirms that what some allude to as “the filthy rich” broke away from the merely rich, that the middle class took a significant hit (it dwindled in size and income), and that the poor continue to struggle.

What I do however posit is that the picture is more complicated than what the conventional wisdom suggests. At least some of the high fliers are flying way, way less high than they did even a year ago. And slowly but certainly some stakeholders – especially the government and large, activist shareholders – are getting their pound of flesh. Hardly a day goes by without stories of one or another corporate executive having to pay the piper – if not necessarily in dollars, then in time and trouble, and in at least one other precious possession, reputation.

To make my point I provide two examples – both obvious as to be beyond dispute. But my overarching argument is far larger. It is that time will upend the conventional wisdom at least somewhat. Ten years from now we will be able to see in hindsight what we cannot easily see now – that a good number of corporate leaders were made to pay for their hubris and greed, if not, at least not necessarily, for crimes or misdemeanors.

First, the ever-newsworthy Jamie Dimon continues, well, to make news. For a long time he was seen as one of a handful of good guys – which is precisely why every time his company, JPMorgan Chase, is “in another pickle,” the press pounces. Here three recent headlines, the first two from the Huffington Post, the last from the New York Times:

• “JPMorgan Chase Nears Record Settlement Over Energy Market Manipulation Charges”
• “JP Morgan: We’re Being Investigated by DOJ Over Mortgages”
• “JP Morgan Reveals It Faces Criminal and Civil Inquiries”

An excerpt from the last of these articles, from an article written by Jessica Silver-Greenberg and Ben Protess:

“…Once a darling in regulatory circles, JPMorgan has become a magnet for scrutiny in recent years, drawing attention from at least eight federal agencies, a state regulator and two European nations. The authorities are investigating the bank in connection with its financial crisis-era mortgage business and a $6 billion trading loss in London last year, among other issues. As the investigations drag on, the bank is racking up significant legal costs. To help cushion against potentially hefty payouts to the authorities, JPMorgan recorded a $678 million expense of additional litigation reserves in the second quarter, up from $323 million in the same period a year ago…..”

Second case in point is the previously reclusive, now pervasive wizard of Wall Street, head of SAC Capital Advisors, Steven A. Cohen. For years, most of us knew nearly nothing about Cohen except what was rumored – he was as brilliant as Buffet, as rich as Croesus, and as fabled for his collection of art as for his money. But, things change.. Now Mr. Cohen is a fixture of the financial pages; now his face is familiar to anyone who pays attention; and now his pursuit by the government is relentless. Here three recent headlines, the first two from the Wall Street Journal, the last from the New York Times.

• “SAC Hit With Criminal Case”
• “SAC Braces for Investor Exit”
• “Towering Fine for Naught, as the S.E.C. Tracks Cohen”

An excerpt from the last of these articles, from an article written by Andrew Ross Sorkin:

“… ‘We’re willing to pay $600 million because we have a business to run and don’t want this hanging over our heads with litigation that could last for years.’ That’s what Steven A. Cohen’s lawyer told a judge just four months ago to justify why Mr. Cohen had agreed to pay $616 million to… settle civil accusations that his firm was involved in insider trading without admitting or denying guilt…. But it didn’t work. The S. E. C., having been shamed by critics for making what seemed like a deferential deal, returned with a new civil action against Mr. Cohen individually on Friday, seeking to bar him from the industry.”

Neither Mr. Dimon nor Mr. Cohen will ever go hungry. In fact, no matter what happens, both men will be forever be fabulously wealthy – among the 1 % of the 1%. Still how you judge the quality of their lives depends on how you assess success. At a minimum, it can never be said of them they escaped from the mess they made unscathed.

Leave a Reply

Your email address will not be published. Required fields are marked *