In the opening paragraph of his multi-volume, quasi-official History of the Federal Reserve (2003), monetary policy scholar extraordinaire Allan H. Meltzer wrote: “The founders did not intend to create either a central bank or a powerful institution; had they been able to foresee the future accurately, they might not have acted.” They might not have acted—given a little time, those who started the Fed back in 1913 could well have looked upon the result and found it undesirable.
The much-ballyhooed $13 billion settlement between the Department of Justice and J.P. Morgan looks like an EU Treaty: pages of burble, plus various annexes. DoJ press release with full text etc. here. As near as I can tell, JPM admits to having had sex in a federally sponsored whorehouse—with private parties, government parties, and parties in between (Freddie and Fannie). JPM’s partners had no idea what was happening to them; they innocently relied on JPM’s assurances that the firm was at all times wearing its due diligence condom. I express no view on the merits (except that in my book they’re all guilty and deserve what’s happened to them). Two questions, though:
Richard Epstein has a terrific piece on the various investigations and prosecutions of J.P. Morgan here. “The Department of Justice,” he writes, “ is bringing to heel a bank that came into two major mistakes. First, the bank did business with the federal government. Second, it was regulated by it.” That just about sums it up. The piece is a wonderful expose of the sordid, extortionate practices that have come to characterize “law enforcement” in the financial sector.
You begin to wonder whether there can still be a legal practice called “white collar defense.” Given the hammers the government wields over the targeted entities, there is no viable defense; it’s more like begging for mercy, which is best conducted by people who are good at waving white flags and have personal friends at the various government agencies. This may help to explain the fantastic sums that are now flowing in the direction of federal agencies, Fannie, and Freddie. The targeted companies have to settle at almost any price.
Hillsdale College has kindly invited me to deliver a talk on Dodd-Frank and its aftermath (November 4--I’ll post a transcript afterwards). An early draft of that speech imagines a dystopia in which government produces sheepish obedience not with storm troopers or a propaganda apparatus but through nominally private banks. I’m glad I discarded that draft—not because it’s paranoid, but because it’s, like, so yesterday. “J.P. Morgan to Cull Business Clients,” today’s Wall Street Journal informs us. “Bank Reviews Cutbacks in Loans to Pawn Shops, Payday Firms, Others Viewed as Risky to Reputation,” reads the subhead. As for pawn shops and payday firms,…