The New York Times reports that JPMorgan Chase pressured its brokers to steer its retail clients into its own investment funds—even when they were worse than others on the market.
“I was selling JPMorgan funds that often had weak performance records, and I was doing it for no other reason than to enrich the firm,” said Geoffrey Tomes, who left JPMorgan last year and is now an adviser at Urso Investment Management. “I couldn’t call myself objective.”
JPMorgan, with its army of financial advisers and nearly $160 billion in fund assets, is not the only bank to build an advisory business that caters to mom and pop investors. Morgan Stanley and UBS have redoubled their efforts, drawn by steadier returns than those on trading desks.
But JPMorgan has taken a different tack by focusing on selling funds that it creates. It is a controversial practice, and many companies have backed away from offering their own funds because of the perceived conflicts…
“It said financial adviser on my business card, but that’s not what JPMorgan actually let me be,” said Mathew Goldberg, a former broker who now works at the Manhattan Wealth Management Group. “I had to be a salesman even if what I was selling wasn’t that great.”
And the NYT finds that press favorite Jamie Dimon’s firm inflated its funds’ returns in marketing documents.
Very nice piece by Susanne Craig and Jessica Silver-Greenberg.
— British GQ posts another good feature on Alan Rusbridger and the future of the The Guardian, which along with its Sunday paper, The Observer, lost $67 million in its last fiscal year, which was actually an improvement over the previous two (emphasis mine):
“I think it’s being run a bit recklessly, the Guardian,” says a former Observer journalist. “This perpetual ambition to take on America is another concern. I just think it’s a slow-motion car-crash, that particular venture.” (In 2008, the Guardian hired a dozen staff in Washington and leased office space. Almost all of those people were jobless again after two years. Now, former Guardian.co.uk editor Janine Gibson is leading another team in New York.)…
Crucially, GQ was told by both Rusbridger and commercial director Adam Freeman that there are no revenue targets for the America project - just traffic targets. The advertising revenue, Rusbridger believes, will follow the traffic. “This is purely to build the audience.”
Juan Señor, a partner at Innovation Media Consulting, is critical. “It’s the same old strategy of going for volume when they should be going for value. They’re obsessed with volume. They can’t see past the old digital fable that ‘if you build it, they will come’. It’s almost become a messianic mission.”
He also says he thinks the New York Times paywall, which has just under 500,000 paying subscribers, is “an interesting model, which we wouldn’t rule out. But nor is it our priority at the moment.” In fact, profit, for the Guardian, isn’t a priority at all. According to Adam Freeman, the aim is for the paper division of GMG merely to make an annual loss of £15m in five years’ time. “That’s the sustainable point.”
The Guardian’s website reaches a stunning 60 million readers worldwide. But it brings in just $69 million a year, or about $1.15 per unique visitor. And that’s revenue, not profit.
— American Banker’s Jeff Horwitz takes on the Big Lie of the crisis, reporting from the American Enterprise Institute propaganda fest to try to claim that the gubmint, not Wall Street, caused the financial crisis.
This is an actual quote from WSJ op-ed page favorite Peter Wallison: “We still read routinely in the press and hear on television that the financial crisis was caused by Wall Street. It’s stated as a fact as if there really wasn’t any doubt about it.”
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Anyone who has been paying attention to mortgage markets since early in the last decade knows that he claim that Fannie and Freddie (and the CRA) caused the market crash is false.
What some people might not know is that this "Big Lie" is simply an extension of the campaign against the GSEs that the big banks had been waging since at least the mid 1990s--probably much earlier. Back then, the rap was "The GSEs have federal backing and so they can out-price us in the MBS market. It's not fair!"
And this claim was basically true. The big banks then went on to say that the GSE's public purpose--providing credit to people of modest means--was obsolete. "We already do that with our new subprime products," the bankers said. "And (unlike Fan-Fred) we price our products correctly, according to the actual risk."
Well, they were almost half right. It was true that subprime home loans were a big and growing part of the mortgage market in the 90s and early 2000s.
The pricing of these products--and the risk analysis--and the underwriting--turned out to be problematic.
It was problematic much more so for the Countrywides and CitiGroups than for the GSEs.
That the very thing the (supposedly) non-government backed bankers claimed they were doing better and more efficiently than the GSEs turned out to be the keystone of the crisis has hardly been mentioned since.
That these self-same bankers (who now enjoy the same government backing as the GSEs) continue to sing the same tune is simply amazing. It deserves Shakespearian mockery, which should be relentless until the mountebanks are brought into the dock.
#1 Posted by Edward Ericson Jr., CJR on Sun 8 Jul 2012 at 04:43 PM
Are you paying attention, journalists?
It's easy as 1-2-3.
1. Attack the easy targets: AEI and other pseudo-free marketers who in fact are wrong to claim that the GSEs and the CRiA are the sole causes of the meltdown.
2. Ignore the meltdown's root cause: the Federal Reserve's and FedGov's playing God (arbitrarily fixing interest rates, ruining the pricing mechanism, "printing" trillions of unaccounted-for dollars into the economy, guaranteeing loans and bail-outs, fractional-reserve banking, and on).
3. Instead, declare a symptom — "Wall Street," "crony capitalism," etc. — to be the cause. (Because about 99% of us have an ingrained dislike for "Wall Street," "greed," etc., the discussion will almost invariably end here.)
And that is how you carry water for the Glorious anti-capitalist central planners.
#2 Posted by Dan A., CJR on Sun 8 Jul 2012 at 06:40 PM
"2. Ignore the meltdown's root cause: the Federal Reserve's and FedGov's playing God (arbitrarily fixing interest rates, ruining the pricing mechanism, "printing" trillions of unaccounted-for dollars into the economy, guaranteeing loans and bail-outs, fractional-reserve banking, and on)."
The prolonged lowering of interest rates was definitely Greenspan's attempt to inflate the Bush economy after the air rushed out of the tech/stock bubble of the 90's.
The rest?
1. "ruining pricing mechanism" that was the banks who threw out their underwriting standards so they could sell their securitized crap on the market. The fed could have done more to stop that but did nothing. You cannot blame fed action for the results of fed inaction. Blame the fed, but for the right reasons - their thumb twiddling while the housing market was on fire.
2. "printing" trillions of unaccounted-for dollars into the economy" if you are talking about the borrowing that took place as Bush tried to wage guns and butter, tax cuts for everybody wars while watching the current account deficit and the trade deficit explode, you have a point (though that wasn't really the fed). If you're talking about after the crash, yeah the fed did all that after the crash. You can't cause a crash with actions that took place after it.
"guaranteeing loans and bail-outs" more stuff that happened after the crash.
"fractional-reserve banking" which has been around for a century in a tightly regulated form. Now the SEC loosened those regulations and allowed consolidated supervised entities to blow their leverage limits through the roof, but it wasn't the fractional reserve component which wiped out the banks, it was the collapse of lending standards leading to assets that were absolutely crushed in value and jobless homeowners without means to pay back their underwater debts. Again, you want to break the rules for the actions of rule breakers. I blame the rule enforcers, both republican and democrat - but all conservative, who let people break the rules without accountability. When you have a system where cheating is highly profitable and the risk of getting caught and/or paying a penalty is low, you are a chump if you don't cheat.
The government is to blame for making an environment where honest actors are chumps and liabilities. The people who committed the actions which caused the crisis are to blame for... you know... causing the crisis.
#3 Posted by Thimbles, CJR on Sun 8 Jul 2012 at 07:19 PM
In other news, People got no jobs, people got no money and both Paul Krugmeister and Kevin Drum have been pointing us to Konczal who wants us to read an IMF report *takes deep breath*
It's a balance sheet recession.
People got no jobs. People got no money. People got debt payments they're scraping to pay.
Or as Drum put it:
"It's not: Financial crisis ---> recession
It is: Recession + leverage ---> financial crisis"
And if you look at Obama's policies they've been focused on fighting a recession while every attempt to reduce consumer leverage has been compromised, if not broken, from the start. (and the republicans' are even worse since they believe you can fight the recession by beating the poor until they find a job that won't pay enough to make their debt payments, nevermind to live on)
It's going to take some government spending and government employment to dig the economy out of this hole.
#4 Posted by Thimbles, CJR on Sun 8 Jul 2012 at 07:55 PM
Though some people have other ideas.
#5 Posted by Thimbles, CJR on Sun 8 Jul 2012 at 08:00 PM
Thimbles, you're still stuck on symptoms, technicalities, and partisan politics.
The mere existence of a central financial-planning body is the first problem, whether headed by Greenspan, Bernanke, or 10,000 Einsteins.
So long as the Fed and FedGovt play God with the economy — fixing interest rates, prices, wages, regulations, and on — there will always be artificial booms followed by ever-worse busts. That is not free-market capitalism.
Another thing you seem to have wrong is the cycle. The boom is the sickness or unhealthy addiction; the recession is the cleansing or cure. The recession must be allowed to happen unimpeded by the arbitrary actions of the govt and Fed. The more the govt and Fed "fix" things, the worse the reckoning in due time.
Only the govt and its central bank have the monopoly power to make perverse incentives official; they put moral hazard into law. All those technicalities about who did what to whom on Wall Street and elsewhere? Totally irrelevant when there's no central regulatory regime preventing the crooks losing their bets, going bankrupt, getting sued, and going to jail.
#6 Posted by Dan A., CJR on Mon 9 Jul 2012 at 05:36 PM
"Thimbles, you're still stuck on symptoms, technicalities, and partisan politics."
Ahh no. The cause of the financial crisis (deregulation/non-regulation) was not a technicality and I've been as hard on Obama's corruption as I have on the republicans.
This is not a political question. This is almost a mechanical one. "Lost decade, how does one prevent it, how does one repair it?"
You prevent it through strong regulation enforced by strong regulators. You prevent it with penalties that reach the CEO's office for fraud - and by penalty I mean jail. You make the risk and consequence of getting caught a deterent to commuting fraud and sinking the economy.
Failing that, you have to rebuild consumer balance sheets and purge the system of fraudulent actors or else the recovery will be excruiatingly slow in coming and, when it does come, there will be a relapse of fraud. When crime pays, consumers and taxpayers foot the bill.
"So long as the Fed and FedGovt play God with the economy — fixing interest rates, prices, wages, regulations, and on — there will always be artificial booms followed by ever-worse busts. That is not free-market capitalism."
So all the booms and busts pre-fed were caused by agents of future socialism gone back in time. Free market capitalism cannot fail, it can only be failed.
"The boom is the sickness or unhealthy addiction; the recession is the cleansing or cure. The recession must be allowed to happen unimpeded by the arbitrary actions of the govt and Fed. The more the govt and Fed "fix" things, the worse the reckoning in due time."
You forgot to mention how it will purge the rot, Andrew.
"Only the govt and its central bank have the monopoly power to make perverse incentives official; they put moral hazard into law. All those technicalities about who did what to whom on Wall Street and elsewhere? Totally irrelevant"
Moral hazard exists whenever some one else takes the consequences from the actions you profit from. Moral hazard exists whenever there is a gap in information between parties conducting a transaction. When elected power cedes from the democratic processes of the people to the market, you make CEO's and bankers your tyrants. Power corrupts. It is foolish to believe it won't corrupt once you give it all to the free market. The only thing that stops power from corrupting is transparency, which is what conservatives fight against in their governments and in their businesses in demanding less regulation.
There is always moral hazard whenever you rely on trust instead of sight. Liars and frauds frolic in the dark.
#7 Posted by Thimbles, CJR on Tue 10 Jul 2012 at 02:34 PM
"Though some people have other ideas."
Follow up.
"Furthermore, in a global economy multinational corporations will simply continue to do what they already do today: play each nation off one another in a bid to make policy more favorable to themselves, in exchange for desperately needed "investment." This will occur with or without tariffs, as the jet setting elite don't particularly care which country they call home, or where they happen to park their stolen billions.
The only way out of this mess is to make governments and workers more powerful than multinational corporations...
While banning the multinational corporation itself seems impractical and logistically problematic, a coalition of nation states banding together to prevent global labor arbitrage and the theft of energy resources seems more practical.
International treaties enforcing basic wages and worker protections are also an important piece of the puzzle. But in order for them to work, there will need to be credible enforcement on a global scale.
Underdeveloped countries will need to speed along development in order to prevent exploitation by multinational corporations and corrupt politicians. That in turn will necessitate global conventions to limit theocracy and protect the right of women to family planning, including contraception and abortion.
International conventions limiting the power of capital will also be necessary. Taxes on capital gains will need to exceed taxes on labor, and laws should encourage long-term investing in stable companies and organizations over short-term quick profits. Taxes on short-term trading will need to boosted to discourage speculation, and they will need to be implemented at a global level in order to prevent companies from simply moving their trading to a more deregulated stock exchange."
#8 Posted by Thimbles, CJR on Wed 11 Jul 2012 at 12:01 AM
"So all the booms and busts pre-fed were caused by agents of future socialism gone back in time."
Nice try. The Fed was not the first central bank. Nor was 1913 the beginning of fractional-reserve banking, branch-banking regulations, income taxation, monetary inflation, and a host of other anti-capitalist measures in America.
"When elected power cedes from the democratic processes of the people to the market, you make CEO's and bankers your tyrants. Power corrupts. It is foolish to believe it won't corrupt once you give it all to the free market."
Your view of free enterprise and the State is truly bizarre here. The tailor, grocer, or car salesman has undue, coercive control over your wallet, while the State regulator is a broker of voluntary, mutually beneficial exchange? It would be a hoot if it weren't so backward.
The root of the issue can not be ignored. So long as the State is allowed power over enterprise, markets will be ever-more prone to the worst kind of corruption: legalized force and fraud. After all these decades, and thousands of laws — with the trend always toward more laws and bureaucrats, yet worse outcomes — you'd have to be a glutton for corporatism to still insist that we'd be on the right track if only we had better or more-numerous regulators, and better or more numerous regulations.
#9 Posted by Dan A., CJR on Wed 11 Jul 2012 at 03:45 AM
"Nice try. The Fed was not the first central bank. Nor was 1913 the beginning of fractional-reserve banking, branch-banking regulations, income taxation, monetary inflation, and a host of other anti-capitalist measures in America."
Oh I know, it's always something. Perfection is such a delicate thing.
"Your view of free enterprise and the State is truly bizarre here. The tailor, grocer, or car salesman has undue, coercive control over your wallet"
Oh so we've moved away from banking now, hmmn? Okay. Let's take the barber.
The barber is a simple enterprise, a man with a pair of scissors and some razors charges a price for services.
And the barber can shave a few sheckels off his price buy doing things like not sanitizing his tools or replacing his blades when they wear out. Customers don't see the difference, all they see is the cheaper rate. Other competitors are forced by this offer to emulate the cheap barber or perish. When outbreaks of lice, tetanus, other ailments break out the barbers claim "It wasn't us! People should know the risk of getting a shave and a haircut! It's not our fault if some of our customers didn't excercise personal responsibility and clean themselves! How could we have prevented this disaster?"
And why should the barber restrict his practice to grooming? A barber that's good with a razor might be as good at extracting teeth and surgery as he is at perms. They used to do those services. It's a free market! If you're desperate and poor, perhaps the hospital just isn't in your interest. The barber with the rusty blades may be just the right thing for you.
You see, you claim these people control a consumer's wallet, but they don't. They control a consumer's product and when the consumer doesn't know the difference, doesn't care about the difference because the production caused cancer are happening to someone in China, or doesn't have a choice, that's all it takes for the 'free market' to do massive damage to people. You have to have standards and consumers lack the tools and knowledge to set them in many cases. That's not a problem for libertarians who can only see abuses of power when it's coming from an elected body. In every other arena, it's never the provider of product that's at fault, it's always somehow the consumer's responsibility for their own maladies. One can never find fault in the perfect delicate free market, by definition.
#10 Posted by Thimbles, CJR on Wed 11 Jul 2012 at 01:24 PM
Health care, free market insurance style:
http://www.iwatchnews.org/2012/07/09/9337/opinion-health-cares-community-based-beginnings
"Community rating was the original way insurance companies set prices for their policies. The practice began in the late 1920s when the administrator of Baylor University Hospital in Dallas came up with a strategy to deal with his hospital’s mounting expenses. His idea was to have groups of local residents, beginning with the city’s teachers, pay fifty cents a month and receive up to 21 days of hospital care — if needed — during any year. If you were a 21-year-old man who was as healthy as a bear, you paid the same each month as a 42-year-old woman who was not nearly as healthy. It made everybody happy, subscribers and cash-strapped hospital officials alike. Pretty soon, other hospitals began offering similar plans. Eventually they were united under a common name — Blue Cross — and they were all operated on a nonprofit basis.
After a few years, though, life insurance corporations figured out that they could make a sizable profit if they sold coverage to young, healthy people at cheaper rates. That was the beginning of underwriting in health insurance, and it completely changed everything — and, for most of us, not for the better.
Pretty soon, only older and sicker people were staying with the community-rated Blue Cross plans. The younger, healthier people were abandoning the Blues and signing up for the cheaper policies offered by the big corporations. To be able to stay in business, the Blue Cross companies had no choice but to jettison community rating and begin charging older people more than young people, sicker people more than healthier people and even women more than men — just like the for-profit corporations were doing.
Eventually, to limit how much money they had to pay out in claims and to maximize profits, all insurers, including the so-called nonprofit Blue Cross and Blue Shield plans, began to institute the practice of refusing to sell coverage at any price to people with pre-existing conditions. As a result of this steady and ultimately complete shift away from community rating, we now have more than 50 million Americans without coverage. Despite what you might have heard, most of them are not uninsured by choice. Most of them simply can’t afford what insurance company underwriters say they have to pay for a policy, and many of them can’t buy coverage at all because they’ve been sick in the past."
This is, of course, the fault of big government somehow. Nothing is ever the fault of winner-take-all free market economics.
#11 Posted by Thimbles, CJR on Wed 11 Jul 2012 at 06:09 PM
Farce and fallacy do not count as effective refutation. Your Blue Cross/community-rating story conveniently omits that Blue Cross was govt-privileged and virtually run by the AMA, which itself was the biggest medical cartel, monopolized by licensing power, anti-competitive legislation, and other cartelizing devices. And are you suggesting that barbers and hair stylists are not cartelized? Do they not have to be licensed? Are they not "regulated"? Bottom Line: You can't dispute that in a free market, the business man has only positive incentives (profit/loss, lawsuits, lost business, bankruptcy) to please customers, and that when the govt (and govt-connected firms) does "business," the incentives are perverse (fall short>increase budget>hire more bureaucrats>fall short>pass more laws>fail>spend more>etc.), and that the govt's victims get NO legal recourse (unless a politician wants to get brownie points for the next election, etc.). You just sling a "perfection" fallacy, like it actually means something, and some fact-light anecdote about how some egalitarian, price-controlling plan didn't work. Well, duh! People prefer when firms compete jealously for their business: it lowers prices and increases quality, unlike those anti-competitive "community rating" schemes, monetary inflation, subsidies, mandates, and on... I've wasted my time being cordial and intellectually serious with someone who's so determined to champion the state's predation in spite of reality.
#12 Posted by Dan A., CJR on Sun 29 Jul 2012 at 04:01 AM