The best picture of what happened inside of JP Morgan Chase is provided by their own report on the London Whale trading fiasco. After reading the report in conjunction with mountains of other publications, and having worked inside the bowels of several money center banks, I concluded,
"Institutions like J.P. Morgan are TCTM ("Too Complex to Manage") The talk about the "London Whale" does nothing more than anthropomorphize the huge, systemic risk posed by institutions like J.P. Morgan Chase. The 2012 CIO losses cannot legitimately be attributed solely to the behavior of one trader, or even to a group of traders."
Today, a spokesperson from the CFA Institute is quoted as saying in the New York Times,
“With respect to the big banks, it is not so much a culture problem but a complexity problem,” said Kurt N. Schacht, a managing director at the CFA Institute, an organization that promotes ethics and standards at financial firms. “We think these firms are so large that they are always going to be plagued by rogue operators.”It's nice to be out ahead of the consensus narrative on complexity versus size, but really to take billions from the shareholders of J.P. Morgan Chase makes little sense from the point of view of simple justice.
The Madoff fraud was out in the open for anyone to see who was doing their jobs, and this means the SEC in particular. The best due diligence is often very straightforward, and after the fact seems simple, but it's not. Harry Markopolos did his job when he tried to replicate Madoff's published trading strategies in a real market. There were others on trading desks who had never heard of Madoff, despite the huge trading volume he would have created if his strategies had been real. These traders were always under the regulatory umbrellas of FINRA and the SEC, and it would have been easy to interview them and ask them about the Madoff funds. Harry did the math, and he reported it to the SEC. It went nowhere. The SEC, and its highest officers, should pay the billions to Madoff investors because the evidence was put right in front of their noses and they ignored it
Besides turf wars between the Boston and New York offices of the SEC (a hallmark of government regulatory and prosecutorial operations), Markopolos "describes poor investigative ability at the SEC." In the newly minted, redacted press narrative, J.P. Morgan Chase pays the bill because they can and because they have little choice. The people who failed to do their jobs have new leaders, more notoriety and bigger budgets. Go figure.