gReg Becker, the former CEO of Silicon Valley Bank, sold $3.6 million worth of SBV stock on February 27, just days before the bank disclosed a major loss that triggered the fall and collapse of his actions. In the previous two years, Becker sold nearly $30 million worth of stock.
But Becker won’t make the most of this mess. Jamie Dimon, chairman and CEO of JPMorgan Chase, Wall Street’s biggest bank, will likely earn a lot more.
Indeed, depositors at small and medium banks are now fleeing to the safety of JPMorgan and other giant banks that were deemed “too big to fail” because the government bailed them out in 2008.
Last Friday afternoon, Deputy Treasury Secretary Wally Adeyemo met with Dimon in New York and asked if the Silicon Valley Bank failure could spread to other banks. “There is potential”, Dimon replied.
Presumably, Dimon knew such a contagion would mean a lot more business for JPMorgan. In a note to clients on Monday, banking analyst Mike Mayo writing that JPMorgan is “battle-tested” in volatile markets and “embodies” how America’s biggest banks have reduced risk since the 2008 financial crisis.
Recall that the 2008 financial crisis generated a gigantic transfer of assets to the biggest banks on Wall Street, with the result that JPMorgan and the other giants became much bigger. In the early 1990s, the five largest banks accounted for only 12% of US bank deposits. After the crisis, they represented almost half.
After this week they will be even bigger.
Their giant size has already given them a huge but hidden effective federal subsidy estimated at $83 billion per year – a premium that investors and depositors willingly pay to these huge banks, in the form of higher fees and lower returns, precisely because they are considered too big to fail.
Part of this hidden federal subsidy goes into the pockets of bank executives. Last year alone, Dimon made $34.5 million.
Dimon was at the helm in 2008 when JPMorgan received $25 billion from the federal government to help stem a financial crisis that had been caused in large part by the negligent and fraudulent lending practices of JPMorgan and other major banks. Dimon earned $20 million that year.
In March 2009, Barack Obama summoned Dimon and other senior bank executives to the White House and warned them that “my administration is the only thing between you and the pitchforks.”
But the former president never publicly reprimanded Dimon or the other big bankers. Asked about the generous pay Dimon and other Wall Street CEOs continued to rake in, Obama defended them as “very shrewd businessmen” and said he “doesn’t balk at the success or wealth of folks. It is part of the free market system.
What free market system? The taxpayers had just bailed out the banks, and the bank CEOs were still raking in big paychecks. Yet 8.7 million Americans lost their jobs, pushing the unemployment rate to 10%. The total net worth of American households fell by $11.1 billion. House prices fell by a third nationally from their peak in 2006, causing some 10 million people to lose their homes.
Rather than defending CEO paychecks, Obama might have demanded, as a condition of being bailed out, that the banks help the Main Street submarine owners.
Another sensible proposal would have been to let bankruptcy judges restructure precarious home loans so borrowers don’t owe so much and can stay home.
However, the big banks, led by Dimon, opposed it. They thought they would do better by squeezing distressed homeowners as much as possible, then collecting as much as they could from foreclosed homes.
In April 2008, Dimon and the banks succeeded: The Senate rejected a bill that would have allowed bankruptcy judges to modify mortgages to help struggling homeowners.
As the 2020 election approaches, Dimon warned against the policies that Bernie Sanders and Alexandria Ocasio-Cortez advocated then, including Medicare for All, paid sick leave, and free public higher education. Dimon said they amounted to “socialism”.
“Socialism,” he said. writing“inevitably produces stagnation, corruption and often worse – such as authoritarian government officials who often have a growing ability to interfere with both the economy and individual life – which they frequently do to maintain power,” adding that socialism would be “a disaster for our country”.
Dimon also warned against “over-regulation” of the banking industry, warning that in the next financial crisis, big institutions like JPMorgan won’t be able to provide the loans they provided in the last crisis.
“When the next real downturn begins,” he wrote, “banks will be forced — both psychologically and by new regulations — to lend freely in the market, as many of us did in 2008 and 2009. New regulations mean banks will need to maintain more liquidity in a downturn, be prepared for the impacts of even tougher stress tests and hold more capital.
But, as demonstrated again last week, American capitalism needs strict safeguards. Otherwise, it is subject to periodic crises that call for bailouts.
The result is socialism for the rich while everyone else is subject to severe penalties: bankers are bailed out and the biggest banks and bankers do even better. Yet average people who can’t pay their mortgages lose their homes.
Meanwhile, nearly 30 million Americans still don’t have health insurance, most workers who lose their jobs don’t qualify for unemployment insurance, most don’t have sick leave paid, child labor is on the rise and nearly 51 million households cannot afford basic monthly expenses such as housing, food, childcare and transportation.
Is it any wonder that many Americans see the system as rigged against them? Is it any wonder that some are becoming susceptible to the dangerous snake oil peddled by power-hungry demagogues?