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Collusion of Disrepute



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Gretchen Morgenson and Louise Story have a piece today about how prosecutors go easy on banks. I still think that better civil regulations — and letting failed banks fail — would work better in constraining bad financial behavior than would a lock-’em-all-up strategy. (Although since we’re trying neither, it’s hard to tell.)

Nevertheless, I did find this part of the article disturbing:

Even as companies cooperate with the government, they also work closely with one another, creating industrywide strategies in response to investigations. Legal representatives for Goldman Sachs, Morgan Stanley, JPMorgan Chase and others talk regularly about what they hear from the government, according to lawyers in the industry. They have long held these conversations — known as joint-defense calls — but given the increased cooperation of the government with companies, lawyers can exchange more information.

Goldman’s recent battle against the S.E.C. — in which it agreed to pay $550 million to settle claims that it had misled investors in a mortgage security it sold — was helpful to other banks, according to one lawyer who participates in these calls. 

One would think that if Bank X were embroiled in a big legal scandal, Bank Y would be happy — Bank X might go out of business, in which case more business for Bank Y! Less dramatically, clients might shrink from Bank X’s bad reputation, flocking to Bank Y instead. 

But it seems that these days, large financial companies all but admit that collectively being in a chronic state of ill repute is just a generic cost of doing business. They’re not competing on reputation, because it doesn’t seem to matter anymore.

Speaking of which, JPMorgan Chase just forked over $211 million to settle a muni-finance bid-rigging case. Nearly two years ago, the bank gave up $722 million to settle an unrelated municipal corruption scandal.

But I guess it’s not a scandal if it barely makes the news, even the financial news.

— Nicole Gelinas is a contributing editor of the Manhattan Institute’s City Journal and author of After the Fall, now in paperback



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