This video (click here), published by the Bernie Sanders campaign, concludes that “The greed of Jamie Dimon and JP Morgan Chase is destroying the social fabric of America.”, actually, Jamie Dimon and Chase have both been doing a great job for America. The lie about Wall Street told by Bernie Sanders and much of the press, that the bailout was a gift and not a loan, has been “destroying the social fabric of America”.
If the bailout had been a gift and not a loan, that would have been 100 times more outrageous than what really happened. Yes, the bailout was bad, people should be upset about it. It’s like if I broke into your house and stole your TV, that’s bad and I deserve criticism. But I don’t deserve to have everybody believe that I stole your TV and raped your wife.
That lie, believed by most of the public, has caused the public to believe that American society is 100 times more corrupt than it is. It fueled the rise of the Tea Party, the rage of the poorly educated against the educated “elites”, and a culture of outrage and hatred in American politics at both ends of the political spectrum, driving voters into the arms of lying, hateful demagogues promoting idiotic ideas, such as Donald Trump and Bernie Sanders.
One argument is that what went on during the financial crisis was so profoundly deplorable, that no amount of hyperbole or exaggeration is excessive — that whether the loan was paid back was a minor detail, it’s the difference between infinitely bad and infinitely bad. I disagree. Facts matter. A hundred times awful is worse than awful.
This lie is very widely believed. None of the professional fact checkers, like Snopes, flag it when it is told. Nobel Prize winning economist Josef Stiglitz told it, over and over again, in his book “Free Fall”, about the financial crisis.
In the video, the Sanders campaign is so hateful that they take one statement by Dimon, “A recession could be good for JP Morgan” and take it way out of context to vilify him.
Let’s look at some of the claims by the video:
- “Wall Street crashed the financial system”.
- “Chase was bailed out.”
- “Chase is 70% bigger than it was before the financial crisis.”
- “The business model of Chase and all of Wall Street is fraud, pure and simple.”
- “Chase has admitted to wrongly foreclosing on thousands of people and overcharging them for their mortgages.”
- “The greed of Jamie Dimon and JP Morgan Chase is destroying the social fabric of America.”
Here’s what really happened: Chase was one of the best-run banks prior to the financial crisis, and it was in good enough shape to rescue two other huge banks, Bear Stearns and Washington Mutual. Chase did not particularly need to be bailed out, but the Fed’s policy was that all the banks had to be bailed out, to avoid particularly stigmatizing those banks that were bailed out. Banking regulations are so complex and byzantine that if they are all stringently enforced, they can basically make it impossible for a bank to do business, and those banks that tried to refuse the bailout loans were threatened with exactly that unless they took the loan. So all the banks took the loan.
Let me repeat that: loan. The “bailouts” were loans, not gifts. But the press widely reported them to the public as gifts, and in the 2016 campaign, half the time Bernie’s lips were moving he was talking about the bailout, and when he did, he always chose his words, always phrased it, to make it sound like the bailout was a gift and not a loan, and the press never called him on it. Most of the public thinks Bernie’s a regular “Honest Abe” while half the time his lips were moving in 2016 he was lying his ass off.
After forcing the banks to take loans in the fall of 2008, the government did “stress tests” on the banks to determine if they were fit to pay back. In June of 2009 several banks, including Chase, were permitted to pay back, which they did immediately, which did get mentioned in the press, but not with enough attention for most people to notice. Note that claim 2 of the video “Chase was bailed out.” true to form, fails to mention that Chase was forced to take a loan which it did not want, and that it was one of the first banks to pay it back, which it did immediately when permitted to, with a profit for the government.
So claim 2 “Chase was bailed out.” is a profound lie of omission. Bernie must know that it was paid back. Somebody must’ve told him.
The Democrats used their near-filibuster-proof majority in congress to pass Dodd-Frank, a 2000-page monstrosity, because Democrats always believe that anything bad that happens Is because of a lack of regulation. The result of this was that only the biggest banks, such as Chase, could afford the armies of lawyers needed to figure out how to comply with it, let alone to make any money at the same time. This resulted in a period, for the next several years until the current administration wisely watered-down Dodd-Frank, where small banks were constantly being acquired by the bigger ones. The video cites the growth of Chase this decade as something sinister, when it’s just what happens when the government strangles the smaller banks so badly with regulation that they are all acquired by the best-run big banks. This is the correct interpretation of claim 3 “Chase is 70% bigger than it was before the financial crisis.”.
Claim 5 of the video mentions some “illegal forecloses” and “overcharging”. Any business at that scale is going to make some accounting mistakes, and they’re not telling the whole story. I remember reading in about 2011 that Chase was sitting on over 100,000 home loans that hadn’t received a single payment in 2 years. Those days, lots and lots of people were choosing to walk away from their underwater homes, especially in non-recourse states, and many of them were squatting in the homes for free rent until forcibly evicted. Banks had a huge backlog of foreclosures to process in a short time, and some of the banks failed to dot some ‘i’s or cross some ‘t’s in the paperwork. But according to Bernie Sanders, the banks were foreclosing just to be mean.
Regarding claim 1 “Wall Street crashed the financial system”, it is a misrepresentation of reality. Wall Street did not cause the financial crisis by itself. Nearly everyone in the country, not just Wall Street, but also the homeowners and the politicians, believed, before the crisis,
- That it was a fundamental law of physics that real estate prices nationwide would always rise.
- That the best investment that anybody could make was to buy the dwelling that they lived in.
I remember this very clearly, because I believed neither of these things at the time and would talk about them to anybody who would listen, and almost nobody else could be reasoned with at all about either of these points. The politicians did everything they could to have every Tom, Dick, and Harry buy their home, including lean on the banks to encourage them to make subprime loans to poor and minority home buyers. And legions of home buyers lied their asses off on their loan applications, but somehow its the banks who are the bad guys for believing them (and while the banks had to pay billions of dollars in fines for misrepresenting the quality of bonds, I never heard of any home owners prosecuted for lying on loan applications).
Any time everybody believes that a price can only rise, there will be a bubble, and when bubbles burst, it’s painful, especially when the bubble is being sustained with loans. Fraud is not a necessary ingredient of a bubble and its catastrophic end.
The other thing about the over-optimistic (supposedly “fraudulent”) bond ratings is that a lot of that optimism was based on the reliability of rising real estate values. If the home buyer didn’t pay, the home would be worth more than the outstanding value of the loan, so the bank could recover everything through foreclosure and the bonds would not default. So if real estate prices had continued to rise as nearly everybody was expecting, most of those bonds would have performed as rated.
Regarding claim 4 “The business model of Chase and all of Wall Street is fraud, pure and simple.”, oft-repeated by Bernie Sanders (and he always shouts the word “FRAUD!” when he says it) is a flat out lie. Some fraud occurred in the lead up to the financial crisis, but the real estate bubble, its bursting, and the financial crisis, all still would have happened had there been no misrepresentation of the quality of the bonds. And the occurrence of fraud in some instance at some point in the past hardly makes it Wall Street’s “business model”. Most of the public, in most of their interactions with Wall Street, do not experience any fraud at all. They get credit cards and checking accounts and home and car loans, and they know exactly what they’re getting into, get money when they need it, pay off the loans, and lead better lives as a result. In the meantime, many home buyers still lie their asses off on loan applications, secure in the knowledge that, no matter how severe the consequences for anyone else, they will never be held accountable in any way.