Thursday, November 20, 2014

JMorgan Chases Profits

Forgive us our debts, as we forgive our debtors.
The Lord’s Prayer

Here are some of the good things JPMorgan has done in recent years. In 2012 it reduced the compensation of Jamie Dimon, its chairman, president and CEO from $23 million to $11.5 million. That was his punishment for all the bad things the bank acknowledged that it had been doing while under his supervision. The bank acknowledged its sins by paying almost $20 billion in fines and penalties. Included in the $20 billion was $13 billion it agreed to pay in November 2013 that was described in the Wall Street Journal as “the biggest combination of fines and damages extracted by the U.S. government in a civil settlement with any single company.” For a bank the size of JPMorgan to pay $20 billion in fines as penance is a bit like the parishioner entering the confessional and seeking forgiveness from the supervisor of the man on the other side of the partition. It has no effect on his future conduct. Nonetheless, paying the fines was a good thing since each fine was an act of contrition and those acts are always welcomed by those sitting in judgment on bad actors. Here, however, are two bad things JPMorgan has been doing since leaving the federal government’s confessional at the end of 2013.

It increased Mr. Dimon’s compensation package by 74%, raising it to $20 million as a result of which Jamie’s compensation went from $31,506.84 per day to $54,794.52 per day. Since much of that is in restricted stock he cannot run out and spend it all. Here is why that was a bad thing for the bank to have done. It turns out that notwithstanding the $20 billion in penance paid, JPMorgan had discovered yet another way to make money at the expense of its customers. It did this by ignoring part of the bankruptcy laws.

Bankruptcy is designed to give the financially distressed a way of getting a fresh start. Subject to some exceptions, the debts of a person who takes bankruptcy are discharged by the court and the bankrupt person gets a fresh start. The Fair Credit Reporting Act requires credit bureaus to keep accurate information about individual’s credit information. The fact that an individual has taken bankruptcy can appear on a credit report for 10 years after the individual has received a discharge, but the discharged debts cannot be described as unpaid or past due. Creditors may not try to collect on discharged debts. The bankruptcy law notwithstanding, some do. Jamie Dimon’s bank is one of them. Just as it bundled subprime mortgages it had issued and sold them to investors at great profit to itself, according to a report in the New York Times, JPMorgan and other banks have been selling debts discharged in bankruptcy to outside investors. Instead of showing that the debt of an individual to the bank has been discharged and is no longer collectible, the bank continues to described the debt as unpaid and that is how it appears on the borrower’s credit report. If the borrower tries to get credit following a bankruptcy and the credit report does not disclose that the debt cannot be collected, a discharged debtor may be unable to get a new loan or a job or be otherwise adversely affected. The bank, of course, makes money by selling the discharged debt to investors who are willing to take the chance that the debtor will continue to pay on the debt in order to get it removed from the credit report.

Judge Robert D. Drain, a bankruptcy judge sitting in White Plains, New York, has confronted the issue of discharged debts being sold to investors by banks. He observed that the buyers of those debts know that a bank “will refuse to correct the credit report to reflect the obligor’s bankruptcy discharge, which means that the debtor will feel significant added pressure to obtain a ‘clean’ report by paying the debt.” In refusing to throw out a lawsuit that has been filed in which the plaintiffs are seeking class action status for their claims against JPMorgan he observed that “the complaint sets forth a cause of action that Chase is using the inaccuracy of its credit reporting on a systematic basis to further its business of selling debts and its buyer’s collection of such debt.” Of course, until the trial takes place we will not know if the judge’s observation is correct. If it is, he suggested in an earlier case involving the same issue, he would refer the case to the U.S. attorney for criminal prosecution. Jamie wouldn’t care. As in the earlier cases, he will not be criminally charged. His absolution comes by permitting the bank he runs to pay a huge fine to obtain governmental absolution. In a worst-case scenario he might even have to see his salary reduced once again. Another opportunity may just have presented itself.

A U.S. Senate report released November 19, 2014, was highly critical of JPMorgan and other banks for, among other things, exceeding federal limits on commodity holdings. Whether the activities described in the report will result in JPMorgan or any of the other banks paying a fine or Jamie Dimon suffering a salary reduction only time will tell. One thing we know without waiting for events to unfold. JPMorgan stock is a good investment. The bank is always looking for creative ways to make money.


Tuesday, November 11, 2014

An Encore

It was déjà vue all over again.
— Attributed to Yogi Berra

That was then-this is now. Thank goodness. It would be a pity if history were to repeat itself. It would suggest we weren’t smart enough to learn from experience.

“Then” began in 1950 with the establishment of the United States Military Assistance Advisory Group that was established to supervise the issuance and employment of $10 million in military equipment to help the French legionnaires who were fighting in Vietnam. By 1953 an additional $350 million had been provided. In January 1955 American advisors arrived in Saigon to help train the South Vietnamese army. From 1955 through 1960 the United States had between 750 and 1500 military advisors helping the South Vietnamese government. On May 11, 1961 President Kennedy approved sending 400 Special Forces and an additional 100 military advisors to South Vietnam. By December 1961 there were 3205 military advisors on the ground supported by $65 million in military aid and $136 million in economic aid. At a news conference on February 14, 1962 President Kennedy said: “The training missions we have [in South Vietnam] have been instructed that if they are fired upon, they are, of course, to fire back, but we have not sent combat troops in [the] generally understood sense of the word.” By December 1962 there were 11,300 military personnel on the ground in South Vietnam. By 1963 the number of U.S. military advisors in that country was 16,000. By 1968 there were 536,100 American troops in Vietnam. The rest is history. The foregoing is, of course, just a very short description of how things went in that country from the time of the United States’ entry into that country’s conflict. It is all brought to mind as one follows events in a completely different part of the world that nonetheless involves the United States and its military.

In early June 2014, 300 advisors were sent to Iraq to assess the condition of the Iraqi army. On August 12, 2014, U.S. Secretary of Defense Chuck Hagel announced that 130 additional advisors were being sent to Iraq’s Kurdish region. The purpose was to halt the advance of Islamic State militants. According to the report, many of the advisors are marines but they are not combat marines, just advising marines. They joined 90 advisors already in Baghdad and 160 advisors working with Iraqi security forces in Erbil and Baghdad. In early September President Obama ordered another 475 troops to be sent to Iraq. By the end of September there were approximately 1500 U.S. military advisors in Iraq.

On October 12, 2014, General Martin Dempsey, the chairman of the Joint Chiefs of Staff explained on ABC’s “This Week” that he had not yet encountered a situation where US air strikes would be more effective if US troops were on the ground. But, said he, that will change when Iraqi forces are ready to take the offensive against the Islamic State. On that same day on “Meet the Press” National Security Advisor Susan Rice said there would be no boots on the ground. “We are not going to be in a ground war again in Iraq. It’s not what is required by the circumstances that we face and even if one were to take that step, which the president has made clear we are not going to do, it wouldn’t be sustainable.”

On November 7, 2014 it was reported that the president authorized the deployment of 1500 additional troops to Iraq. In a statement released by the White House it was said that: “As a part of our strategy for strengthening partners on the ground, President Obama today authorized the deployment of up to 1500 additional U.S. military personnel in a non-combat role to train, advise, and assist Iraqi Security forces, including Kurdish forces . . . . U.S. troops will not be in combat, but they will be better positioned to support Iraq Security Forces as they take the fight to ISIL.” With that deployment the total number of U.S. troops deployed in Iraq will be 3000. That is five fewer than were in Vietnam in December 1961.

All of the foregoing is nothing more than a funny coincidence. With the most recent deployment there is going to be a request to Congress for $5 billion for military operations in the Middle East. That includes $1.6 billion for a new “Iraq Train and Equip Fund.” Five billion is slightly more than the $201 million that was supporting the U.S. effort in Vietnam in 1961.

There are, as always, a few querulous souls. One of them is CODEPINK co-founder, Jodie Evans. Commenting on the latest announcement she said: “For months we’ve been hearing ‘no boots on the ground’ over and over from the administration, but with an additional 1,500 we now have 3,000 American soldiers in Iraq. When will we learn from our mistakes and stop repeating history?” That is actually a very good question. Perhaps someone in the administration will take the time to answer it after signing the orders needed to get more troops back into Iraq.


Thursday, November 6, 2014

Justice Compared and Denied

Ius est ars boni et aequi. (Legal justice is the art of the good and the fair.)
A Latin Saying

The great thing about living in the United States is that if you’ve gotten caught up in the military or criminal justice system you can go to court to seek redress. That’s a lot different from the way it is in places like Iran where you can be arrested and held indefinitely without access to a lawyer or even knowing what charges you face. And while incarcerated in Iran, you may lose weight because Iranians, unlike Americans, are not concerned with weight loss of inmates. Examples of this in Iran are Jason Rezaian and Yeganeh Salehi who were arrested in Tehran.

Jason and Yeganeh were working in Tehran as correspondents for the Washington Post and the United Arab Emirate’s National newspaper when arrested on July 22, 2014. When Yeganeh’s parents visited the couple in prison in September they are reported to have said that the couple had lost a “shocking” amount of weight since their arrest. (Yeganeh has since been released on bail but her husband remains in prison.) The couple does not face any charges although the Iranian government is still looking around for something with which to charge them. While imprisoned they were not permitted to see any lawyers which makes sense since, if they are not facing any charges, there is no need for a lawyer whose goal would be to prove that they are innocent of the charges.

Samir and Jihad are lucky that they live in Guantánamo rather than Tehran. Even though they have not been charged with any crimes and never will be, they have lawyers who are helping them deal with issues that concern them. One of the issues that concerns them is the government’s efforts to make sure that if family members of either of the men come to visit, they will not be shocked at the weight loss suffered by the men.

On April 15, 2013, an op-ed piece appeared in the New York Times% written by Samir. Like Jason and Yeganeh, Samir has never been charged with a crime and, accordingly has never been tried. As of November 3, 2014, he has been held at Guantánamo for 12 years 10 months without charges. In 2010 Samir was recommended for release to Yemen or some third unnamed countries provided certain security conditions were met. They have not been met and so Samir is still at Guantánamo with no prospect of being released. In the op-ed piece Samir described in lurid detail the efforts made by the authorities in Guantánamo to make sure he doesn’t lose weight. Describing what happened when he was in the hospital because he refused to eat he said: “eight military police officers in riot gear, burst in. They tied my hands and feet to the bed. . . . I spent 26 hours in this state, tied to the bed. During this time I was not permitted to go to the toilet . . . . I was not even permitted to pray. . . I am still being force-fed.” The good thing, of course, is that he is not losing weight.

Jihad has been held at Guantánamo for 12 years 3 months as of November 3, 2014. He was recommended for transfer in January 2010 without the conditions imposed on Samir. He has been represented by lawyers in his attempts to drop out of the anti-weight loss program. On May 23, 2014, Judge Gladys Kessler ruled that the federal government could continue Jihad’s participation in the program even though he did not want to participate unless the forced feeding took place in a hospital where it could be humanely administered. As she observed, he was willing to be force-fed if “he could be spared the agony of having the feeding tubes inserted and removed for each feeding, and if he could be spared the pain and discomfort of the restraint chair.” She said if that were done the litigation over whether he could be force-fed or permitted to die could be litigated in a “civilized and legally appropriate manner. The Department of Defense refuses to make these compromises. Thanks to the intransigence of the Department of Defense, Jihad may well suffer unnecessary pain from certain enteral feeding practice and forcible cell extractions.” Another hearing was held before Judge Kessler in early October to once again address the question of the kind of treatment to which Jihad was being subject in connection with his force feeding. In a lengthy piece in the New York Times, Joe Nocera describes some of the testimony given at the hearing to enable the judge to decide whether the force-feeding procedures being used violated medical protocols and might even be considered torture. As this is written, the judge has not yet ruled. Here is what we do know.

Unlike Jason, who is nervously waiting to see what charges, if any, will be filed against him, Samir and Jihad don’t need lawyers to help defend them against charges since none will ever be filed. Unlike Jason, neither man will be losing any weight, thanks to the compassionate concern of the Guantánamo jailers. Here’s one thing all the men have in common even though Jason is being held by Iranian authorities and Samir and Jihad are being held by American authorities. None of them knows if he will ever be released alive from confinement. Some Americans are appalled by this. For good reason.