On Oct. 21, it was announced that JPMorgan Chase is finishing the negotiating of settlements in multiple civil cases with the U.S. Justice Department concerning mortgages during the 2008 financial crisis. The current terms are that JPMorgan will pay a total of $13 billion: $4 billion of which would go to homeowners who hold overvalued mortgages, and $9 billion of which would go to settling civil charges alleging that mortgage-backed securities assembled and marketed by JPMorgan were misrepresented as being less risky than they were.
But most of the cases against JPMorgan also cover misdeeds by investment bank Bear Stearns and savings-and-loan Washington Mutual, which were acquired by JPMorgan in 2008 at the behest of federal banking regulators. Thus, JPMorgan is being made to pay for some crimes it did not commit. “The government begged this company to acquire Bear Stearns and then apparently is about to fine it for doing so. This is the basis of a lawsuit that could be filed in this matter,” said bank analyst Dick Bove. It is therefore possible that JPMorgan's lawyers could use an entrapment defense.
Such government action also risks creating a chilling effect that could cause greater destabilization during the next financial crisis. As economist Peter Morici at the University of Maryland explains, “We will have another financial crisis. The next time around the government is going to want bigger banks to take over smaller banks, to keep depositors whole. Will the bigger banks be willing, with this history? The lesson is: don’t cooperate with federal authorities in a crisis.”
Another problem is that banks are not the source of fault for the housing bubble and the following financial crisis. The bubble was caused by negative real interest rates created by the Federal Reserve under Alan Greenspan, which led to historically low mortgage interest rates. This led to malinvestments in housing, and true to the Austrian business cycle theory, the malinvestment led to a recession. This had nothing to do with the free market, as the government has a violently enforced monopoly on currency. But true to the general form of statists, those who were really responsible for the crisis are engaging in psychological projection by accusing others of the evils for which they themselves are ultimately responsible. While bankers at JPMorgan (and Bear Stearns and Washington Mutual) did act immorally, they did so only because the Federal Reserve created the conditions for them to do what they did.
Perhaps the largest problem with levying fines against a corporation is the fact that a corporation is a legal fiction created by a state to shield executives from liability. A corporation does not exist in and of itself; only its component parts exist, such as each person, each building, each trade good, and so on. Only individuals have volition, and therefore only individuals can truly be held responsible for crimes. To fine some concept created by the state in terms of some monetary unit imposed and controlled by the state has nothing to do with bringing criminals to justice. All such an action can do is to punish stockholders, who may not have been involved with JPMorgan, Bear Stearns, or Washington Mutual at the time when individuals who worked for the banks acted in a fraudulent manner.