Andrew Ross Sorkin uses his column today to highlight to troubles of those suffering the most from the downturn: the CEOs of major banks who bought up failing competitors in the midst of the financial crisis. Jamie Dimon, J.P. Morgan’s CEO, gets center stage for having to deal with Bear Stearns’ legal liabilities, but Sorkin also has some tears for Wells Fargo, which bought up Wachovia, and Bank of America, which took over Merrill Lynch.
While Sorkin apparently feels sorry for the burdens imposed on these banks and their bosses, those of us who are less sentimental might remember that these are people who all draw 8 figure paychecks. They are supposed to know what they are doing. For example, Sorkin presents Dimon’s perspective:
Mr. Dimon is clearly frustrated. Had Bear Stearns filed for bankruptcy, he said, there ‘would be no money. There would be no lawsuits. There would be no stock-drop lawsuits, there would be no class actions, there would be no mortgage lawsuits because there would be no money. But we bought it.’
“When the government helped save General Motors by providing money and guarantees as part of its bankruptcy, ‘they absolved G.M. of all prior legal liability,’ Mr. Dimon said in an earnings conference call with investors and analysts on Friday. ‘So the government’s being a little inconsistent here.’
Actually, there is no inconsistency here whatsoever. Mr. Dimon negotiated the terms under which he took over Bear Stearns. He did not arrange for a bankruptcy of the latter or some other measure that would have absolved J.P. Morgan from the companies legal liabilities. Presumably Dimon understood this fact at the time of the takeover, as did the CEOs of the other banks.
If CEOs of our largest banks do not understand such simple concepts perhaps the remedy is remedial education. Maybe we should require CEOs of banks with more than $500 billion in assets to take course on legal liabilities for acquired companies. Or, perhaps they need the equivalent of a Consumer Financial Products Protection Bureau which will ensure that they do not stumble into deals that turn out to be bad for them.
One last point that is worth remembering. Had it not been for the special assistance provided by the Fed, the Treasury, and the FDIC at the peak of the financial crisis, it is likely that all of the major Wall Street bank CEOs would be among the nation’s unemployed today. It is understandable that they would want more from the government (“job creators” always do), but it can be a bit difficult for those who are less sentimental than Mr. Sorkin to take their whining seriously.
Dean Baker is co-director of the Center for Economy and Policy Research. He also writes a regular blog, Beat the Press, where this post originally appeared.