News Journal: Nation’s banks desperately need real reforms

“Our integrity and reputation depend on our ability to do the right thing, even when it’s not the easy thing,” is the first sentence in the high-minded official code of conduct of JPMorgan Chase.

I immediately recall the famous advice of Attorney General John Mitchell about the Nixon administration: “Watch what we do, not what we say.”

No matter what they say, it gets harder and harder to believe what the Wall Street megabanks have been doing in the past few years. But the revelations just keep coming. Here are the latest about JPMorgan Chase, until very recently generally acknowledged to be “the best-managed bank on Wall Street.”

On July 30, JPMorgan Chase agreed to pay $410 million to settle U.S. Federal Energy Regulatory Commission allegations that the bank manipulated power markets, enriching itself at the expense of consumers in California and the Midwest from 2010 to 2012. It was the largest settlement in FERC history.

On Aug. 7, JPMC disclosed in a regulatory filing that it was the target of a civil investigation by the U.S. Attorney for the Eastern Division of California into the sale of securities based on subprime mortgages from 2005 to 2007. Press reports indicate the U.S. Attorney is also looking into potential criminal charges. New York State’s Attorney General hit JPMC with similar charges late last year.

On Aug. 8, the New York Times reported that federal prosecutors in Philadelphia were looking into whether JPMC took advantage of investors in the sale of mortgage-backed securities.

On Aug. 13, under a headline that read “Charges Against 2 Traders Fault JPMorgan for Lack of Oversight,” the New York Times reported federal prosecutors had filed criminal charges in the infamous “London Whale” scandal that cost JPMC $6.2 billion.

Coming up shortly in Manhattan Federal Court is a case concerning billions of dollars in sales by JPMC of mortgage-backed securities to Fannie Mae and Freddie Mac. Many legal observers believe that any settlement or judgment in this case could be for bigger numbers than anything to date.

But hey –who cares? In its most recent quarterly report, JPMC showed net income of $6.5 billion, up from $5 billion a year ago. Maybe paying a few hundred million in fines now and then is just the price of doing “the right thing, even if it’s not the easy thing.”

Sarcasm intended. I am angry about the behavior of the megabanks that still depend on the U.S. taxpayer to bail them out at the same time they are paying fines for ripping those taxpayers off. What is it with these people?

A few weeks ago, the Labaton Sucharow law firm released the results of a survey about ethics it took among Wall Street professionals. Just a few of its findings tell you a lot about the culture we are dealing with:

•52 percent of the respondents believed their competitors engaged in illegal or unethical behavior;

•23 percent reported they had observed or had firsthand knowledge of wrongdoing in the workplace;

•28 percent felt the industry does not put the interests of clients first;

•24 percent admitted they would engage in insider trading if they could get away with it;

•26 percent believe the compensation plan or bonus system at their company incentivizes employees to compromise ethical standards or violate the law;

•24 percent fear retaliation if they were to report wrongdoing in the workplace;

•17 percent felt that leaders in their firm were likely to look the other way if they suspected a top performer had engaged in insider trading;

•15 percent doubted these leaders would report actual insider trading violations to law enforcement authorities if a top performer was involved.

As dismaying as this survey is, keep in mind it still concludes that the majority of Wall Street professionals are honest and ethical in their dealings with clients and each other. I continue to believe in free markets and the capitalist system. But there is no question that, to protect the long-term interests of both the financial industry and those of us who depend on it, we need real, fully funded regulators and real law enforcement. We need to reduce the size of the monster banks, stop risky investing by FDIC insured banks, bring real transparency to our derivative markets, and insist on adequate capital requirements.

Until we get those reforms, remember to still watch what they do, not what they say.

Ted Kaufman is a former U.S. senator from Delaware.