A power has risen up in the government greater than the people themselves, consisting of many and various and powerful interests, combined into one mass, and held together by the cohesive power of the vast surplus in the banks.
—John Caldwell Calhoun, Speech 1835
For the last quarter of 2010, JPMorgan Chase (JPMC) had a 47% jump in profits and since 2010 was such a good year it set aside $9.73 billion for its investment bankers’ bonuses. It is easy for pundits to decry such bonuses and at the World Economic Forum in Davos the bank’s president, Jamie Dimon, struck back at critics. He deplored what he described as “banker bashing” and said that bankers have become political whipping boys. He doesn’t seem to know why that is. To figure it out he could go back to JPMC’s actions in the early days of the foreclosure crisis and its unwillingness to help homeowners, whose homes were in foreclosure, modify their mortgages, an unwillingness described here and in countless other publications.
Alternatively Mr. Dimon might have considered events that would be described by Stephanie Mudick, an executive vice president in JPMC’s Office of Consumer Practices when testifying before the House Committee on Veterans Affairs on February 9th. She testified that the bank had overcharged approximately 4,500 members of the U.S. military on mortgages and had “accidentally” foreclosed on 18 service members’ homes. Stephanie expressed the bank’s “deepest regret over the mistakes we’ve made in applying these protections [for service members]. I commit to you that we will get this right.” (On February 15th it was announced that the bank would make amends by, among other things, not foreclosing mortgages on any active-duty military personnel. This will, of course, not help those who “accidentally” lost their homes or were overcharged. As one lawyer representing service members who had been cheated by the bank observed: “When I was prosecuting cases, I never had a defendant who got caught breaking the law that didn’t want to give back what they took and promise to lead a better life.”)
When berating his critics, Mr. Dimon knew about the lawsuit that was filed against the bank by Irving H. Picard in early December 2010. Mr. Picard is the bankruptcy trustee who is making claims against those who were unjustly enriched by their dealings with Bernie Madoff. According to Bloomberg News, in his suit against the bank, Mr. Picard alleges that the bank knew of Madoff’s fraudulent operation and was, according to Mr. Picard’s attorney, “willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff. JPMC was at the very center of that fraud, and thoroughly complicit in it.” Some people might think the allegations in the suit would have chastened Mr. Dimon. On the other hand, maybe not. After all, a plaintiff can say anything he or she wants in court pleadings and that does not make them true, even when Bernie Madoff says the banks knew what was going on. And if those episodes did not help Mr. Dimon understand why people bash banks, he might consider the matter of the Blackstone Hotel in Chicago and New Markets Tax Credits (NMTC).
The Department of the Treasury describes the NMTC program saying it “permits taxpayers to receive a credit against Federal income taxes for making qualified equity investments in designated Community Development Entities (CDEs).” The credit totals 39 percent of the cost of the investment and is claimed over a seven-year credit allowance period. An organization that wants to receive money under NMTC must demonstrate “a primary mission of serving, or providing investment capital for low-income communities or low-income persons as defined by the Department of the Treasury. The determination as to whether an area meets the requirements is based on the most recent census which is the year 2000. As Bloomberg Markets Magazine reported on February 11, 2011, because of the use of old census data many high-end developments have occurred with NMTC funds that were not supposed to be the beneficiary of those funds. The Blackstone hotel is one of them. It opened in 2008 after a $116 million dollar renovation. Rooms at the Blackstone today go for up to $699 a night. Very few low-income persons stay there.
Prudential Financial Inc. developed the property and got $15.6 million in tax credits. JPMC was the lender and handled construction financing receiving fees and interest from the project. A spokesman for JPMC told Bloomberg Markets Magazine “We think these projects help the community.” He’s probably thinking of employment opportunities since when it opened it hired 200 workers.
As Cliff Kellogg, a former senior policy advisor at Treasury discussing the Blackstone project told Bloomberg, “Things like luxury hotels are entirely contrary to what we set out to do.” It’s probably contrary to what Mr. Dimon’s bank set out to do when it participated in the project, helped Bernie Madoff cheat investors, cheated soldiers or accidentally threw them out of their homes. As the saying goes, bad things happen. That’s no reason to bash those who received $9.73 billion in bonuses. Just ask Mr. Dimon.