JAMIE DIMON is among the most influential Democrats on Wall Street, so his opinions carry particular weight in Democratic circles. In April 2019 he warned against the direction some congressional Democrats and presidential candidates were taking the party, writing in his annual shareholder letter that it amounted to socialism. “Socialism inevitably produces stagnation, corruption and often worse—such as authoritarian government officials who often have an increasing ability to interfere with both the economy and individual lives—which they frequently do to maintain power,” he wrote, adding that socialism would be “a disaster for our country.”
It’s not clear exactly what Dimon means by socialism. “Socialism” was the scare word used by the oligarchy of the Gilded Age when America began to regulate and break up their giant corporations. It was the term used by the American Liberty League in 1935 to attack President Franklin D. Roosevelt’s proposal for Social Security. “Socialism is the epithet they have hurled at every advance the people have made,” President Harry Truman observed. It was “what they called public power…bank deposit insurance…free and independent labor organizations…anything that helps all the people.” Every time over the last century Americans have sought to pool their resources for the common good, the wealthy and powerful have used the bogeyman of “socialism” to try to stop them.
If by “socialism” Dimon meant social insurance, the brute fact is that by 2019 America spent very little on safety nets compared to other advanced nations. Almost 30 million Americans still lack health insurance, most workers who lose their job aren’t eligible for unemployment insurance, one out of five American children lives in poverty, and nearly 51 million households can’t afford basic monthly expenses such as housing, food, child care, and transportation. Our infrastructure is literally crumbling, our classrooms are overcrowded, and our teachers are paid far less than workers in the private sector with comparable levels of education.
But America does practice one form of socialism—socialism for the rich. Exhibit A is the bailout of Wall Street in 2008. Dimon was at the helm when JPMorgan received $25 billion from the federal government to help stem the financial crisis, which had been brought on largely by the careless and fraudulent lending practices of JPMorgan and other big banks. Dimon himself was paid $20 million that year. If this isn’t socialism, what is? In the wake of that crisis, 8.7 million people lost their jobs, sending the unemployment rate soaring to 10 percent in 2008. Total U.S. household net worth dropped by $11.1 trillion. Housing prices dropped by one-third nationwide from their 2006 peak, ultimately causing some 10 million people to lose their homes.
In March 2009 President Obama summoned Dimon and other top executives to the White House and warned them, “My administration is the only thing between you and the pitchforks.” But Obama never publicly rebuked Dimon or the other big bankers. When asked about the generous pay Dimon and other Wall Street CEOs continued to rake in, Obama defended them as “very savvy businessmen” and said he didn’t “begrudge peoples’ success or wealth. That’s part of the free market system.” What free market system? Taxpayers had just bailed out the banks, and the bank CEOs were still taking in fat paychecks. Rather than defend those paychecks, Obama might have demanded that the Wall Street banks help underwater homeowners on Main Street as a condition of getting bailed out.
JPMorgan returned its bailout money quicker than other big banks, but it has continued to make a nice profit from being “too big to fail.” By 2019, America’s five biggest banks, including Dimon’s, accounted for 46 percent of all U.S. bank deposits. In the early 1990s, they had accounted for only 12 percent. Their giant size has translated into a huge but hidden federal subsidy estimated to be $83 billion annually, reflecting the premium investors are willing to pay for the stocks and bonds of banks they believe are too big to fail.
Dimon says it’s wrong to “vilify” people who succeed under free market capitalism, like himself. But he has an odd view of free market capitalism. It seems not to include the bank bailout and its ongoing $83 billion hidden government insurance. Take this subsidy away and Wall Street’s entire bonus pool would disappear, along with most of its profits, and Dimon would be worth far less than $1.6 billion.
A few years after the crisis Dimon told Roger Lowenstein of The New York Times that “no bank should be too big to fail” and that if JPMorgan couldn’t pay its bills, “Morgan should have to file for bankruptcy.” Dimon was either stunningly naïve or was pandering to Times readers, saying what he assumed they wanted to hear. Given the mammoth size and dominance of JPMorgan and the other behemoths on the Street, their failures would put the national economy into a tailspin. Bankruptcy is out of the question. Dimon knew this better than anyone.
By 2018, a full decade after the crisis, the American economy had regained all the jobs it had lost and more, and housing prices had rebounded. But many of the deepest wounds had still not healed. Median household income, adjusted for inflation, had barely budged over the decade, although the incomes of the wealthiest had soared. Median household wealth (mostly contained in the value of people’s homes) was $97,000, still far below what it had been in 2007 ($126,000). Almost a third of adult millennials still lived at home. The crisis stunted the economy so much that every man, woman, and child in America lost the equivalent of $70,000 compared to what they would have earned had the Great Recession never happened, according to calculations by the Federal Reserve Bank of San Francisco.
The economy was saved, but many things could have been done to lessen the pain for average people. One sensible proposal would have let bankruptcy judges restructure shaky home mortgages, so borrowers didn’t owe as much and could therefore pay their mortgage bills and remain in their homes. Borrowers can already use bankruptcy to protect their vacation homes and investment properties, so why not their primary homes? Yet the big banks, led by Dimon, opposed the proposal. They thought they’d do better by squeezing as much as they could out of distressed homeowners, and then collecting as much as they could on foreclosed homes. In April 2008, Dimon and the banks succeeded: The Senate formally voted down a bill allowing bankruptcy judges to modify mortgages on primary residences to help financially distressed homeowners.
Research shows that most people pay their bills until some unforeseen event—loss of a job, a serious medical problem, a divorce—makes doing so impossible. Absent supports typical in European countries—such as anti-layoff regulations, universal health care, and paid family leave—Americans are especially vulnerable to serious financial disruptions. Without access to bankruptcy to protect their homes, they and their families can find themselves out on the street. Here again, Jamie Dimon seems not to have considered his role in leaving Americans behind. (The 2005 bankruptcy act—another product of Wall Street lobbying—prevents graduates from seeking to have their student loan debt forgiven under bankruptcy.)
Bankruptcy is part of the free market, but, like all other aspects of the market, its rules are determined through politics, and over the last four decades Wall Street has become far more politically powerful than Main Street. That’s why the biggest banks got bailed out and didn’t have to use bankruptcy, while homeowners did not get bailed out and were not allowed to use bankruptcy. Recall that there is no free market separate and apart from government. Government sets the rules of the game. The issue is who has most influence over those rules. In the era of oligarchy, the rules are being set by those at the top.
To the conservative mind, socialism means getting something for doing nothing. This pretty much describes Adam Neumann, the young, charismatic billionaire founder of WeWork, an office-sharing start-up. Wanting to get into the action early with the hope of leading WeWork’s initial public offering, JPMorgan poured so much money into the company and into Neumann’s own pockets that Neumann reportedly described Dimon as his “personal banker.” Neumann used the money to fund projects such as buildings that he leased back to WeWork, and a lifestyle that included a $60 million private jet, a sixty-acre estate in Westchester County, a residence in Manhattan’s upscale Gramercy Park neighborhood, a $22 million home in the Bay Area, another in the Hamptons, in-house concerts, a personal spa attached to his office, and a Maybach luxury car. WeWork never showed a profit. In the end, it all fell apart after the bank pressed Neumann to disclose his personal conflicts of interest in WeWork’s filings for the initial public offering and potential investors fled. Neumann was ousted in October 2019 and walked away with over $1 billion. Yet most other WeWork employees were subject to harsh capitalism. They were left holding nearly worthless stock options. Thousands were set to be laid off.
Getting something for nothing also describes General Motors’ receipt of $600 million in federal contracts, plus $500 million in tax breaks, in the two years after Donald Trump took office. Some of this corporate welfare went into the pockets of GM executives. Chair and CEO Mary Barra raked in almost $22 million in total compensation in 2017 alone. GM employees, on the other hand, have been subject to harsh capitalism. GM announced in 2018 that it planned to lay off more than fourteen thousand workers and close three assembly plants and two component factories. In early 2019 it shut its giant plant in Lordstown, Ohio, which Trump had vowed to save. “Don’t move. Don’t sell your house,” he had told a rally. A decade earlier, when GM was on the brink of collapse, American taxpayers rescued it with a $50 billion bailout. As part of the deal, GM workers allowed the company to make new hires at about half its prevailing hourly wage and with skimpier retirement benefits, bring on temp workers at even lower rates, and outsource more jobs abroad. Yet once GM was back to making big profits, it didn’t raise wages or stop outsourcing. This led almost fifty thousand workers to go on strike in September 2019.
Under socialism for the rich, it is possible to screw up big-time and still reap generous rewards—if you’re a CEO. Equifax’s Richard Smith retired in 2017 with an $18 million pension in the wake of a security breach that exposed to hackers the personal information of 145 million customers. Wells Fargo’s Carrie Tolstedt departed with a $125 million exit package after being in charge of the unit that opened more than 2 million unauthorized customer accounts. Boeing CEO Dennis Muilenburg raked in $23 million in 2018, up 27 percent from the year before, notwithstanding the corporation’s deadly, defective 737 Max airliner. McDonald’s CEO Stephen Easterbrook, fired in 2019 for having an inappropriate relationship with an employee, received a severance package of nearly $42 million—more than double the $15.9 million he made in 2018.
In 2019, OxyContin maker Purdue Pharma sought bankruptcy protection from lawsuits seeking to hold it accountable for its role in the nation’s opioid epidemic. Yet in the preceding year, the company paid its CEO, Craig Landau, $9 million and board chairman, Steve Miller, nearly $4 million, and five other board members a combined $3.7 million.
In 2018, the stock market posted its worst annual performance since the financial crisis. The median shareholder return for the largest five hundred corporations was a negative 5.8 percent. But their top executives got raises of 5 percent or more, with the typical CEO pay reaching a record $12.4 million, according to an analysis by The Wall Street Journal. Big financial firms did even worse for their shareholders (a negative 17 percent for the year) but even better for their CEOs (median raises of 8.5 percent).
JPMorgan closed the year with a negative 6.7 percent total shareholder return, yet the bank paid Jamie Dimon $31 million, up from $28.3 million in 2017. That may have been because its profits were up, as I’ve noted. (There’s not always a direct relationship between year-by-year profits and share prices.) Nonetheless, Institutional Shareholder Services, which advises major investors on how to vote, found Dimon’s compensation to be excessive and recommended that shareholders vote against it. It didn’t matter. Even if a majority of shareholders voted against Dimon’s pay, the board was under no obligation to change it. Shareholder votes on executive pay are merely advisory. This is the American system. When asked by CBS’s Lesley Stahl whether his pay was too high, Dimon said he had nothing to do with it” and “leave[s] it to the board to set my compensation.” But Dimon is chair of the board—simultaneously JPMorgan’s CEO and its board chair—and it’s unlikely the board would act against its own chair. Occupying both roles is perfectly legal, but it means even less corporate oversight. This, too, is how the system has come to be organized.
The contrast between Dimon’s $31 million pay and what most Americans took home drew public comment and even ridicule. After Morehouse College’s commencement speaker, billionaire investor Robert Smith, promised to cover all the student debt of its graduating students, the satirical Onion posted an article entitled “Chase CEO Giving Commencement Pledges to Double Whole Class’s Student Loan Debt,” accompanied by a large photo of Dimon.
Although JPMorgan has been deep in legal hot water, those problems and consequential fines have had no effect on Dimon’s pay. In the bank’s 2013 quarterly report, its list of legal imbroglios ran to nine pages of small print: improper energy trading, fraud in collecting credit card debt, misrepresenting the quality of mortgages in securities sold to investors, misleading credit card customers, bribing officials in foreign countries to buy certain securities, illegally foreclosing on mortgages, covering up Bernie Madoff’s Ponzi scheme, manipulating the foreign exchange market.
That year the bank paid out more than $20 billion to settle the claims but still made a profit of $17.9 billion. So JPMorgan’s board voted to boost Dimon’s pay to $20 million, a 74 percent increase over the year before, which came out to about $1 million for every billion dollars JPMorgan had been fined for illegal activities. In fact, Dimon’s star actually rose at the bank when, due to his personal connections, he negotiated with the government directly. He reached out to then attorney general Eric Holder to get a $13 billion settlement on claims of mortgage fraud. A few months later, he personally approached Preet Bharara, the United States attorney in Manhattan who had led the investigation into the Madoff Ponzi scheme, and settled that one, too. Still, JPMorgan’s board struggled to strike the right balance in determining Dimon’s compensation, according to the people briefed on the matter. Cutting his pay would have sent a message to bank regulators that the firm understood it had done wrong, but might have angered Dimon. In the end, the board opted to please Dimon rather than its regulators.
The decision made sense in narrow economic terms. More money was made by ignoring the laws and paying the fines than by following the laws and forgoing the business. The same logic applied to Citigroup’s $7 billion settlement over similar frauds in 2014, and to Bank of America’s record-shattering $16.65 billion settlement. In fact, on news of Bank of America’s settlement, its stock price rose. When Holder announced the guilty plea of the giant bank Crédit Suisse to criminal charges of aiding rich Americans in avoiding paying taxes, he crowed, “This case shows that no financial institution, no matter its size or global reach, is above the law.” But financial markets shrugged off Crédit Suisse’s $2.8 billion fine, and the bank’s shares rose the day the guilty plea was announced. Its CEO even sounded upbeat, noting that “discussions with clients have been very reassuring.” That was probably because the Justice Department hadn’t even required the bank to turn over its list of tax-cheating clients.
Corporations do not automatically obey laws. They weigh the size of the penalty relative to the gain from law breaking. In the age of oligarchy, laws are window dressing when penalties aren’t high enough and the people responsible for the lawbreaking are not held accountable. Unless the government prosecutes individuals or at least claws back their pay, the law is not of particular concern to the inhabitants of C-suites. Eleven years after Wall Street’s near meltdown, not a single major financial executive had been convicted or even indicted for crimes that wiped out the savings of countless Americans. Contrast this with a teenager who is imprisoned for years for selling an ounce of marijuana.
Socialism for the rich means the oligarchy is not held accountable. Harsh capitalism for the many means most Americans are at risk for events over which they have no control—such as the closing of factories across the Midwest or a Wall Street financial crisis—and have no safety nets to catch them if they fall.