In 2008, Jamie Dimon could do no wrong. At the drop of a hat (and a guarantee from the Fed of $29 billion, he took a dying Bear Stearns off the hands of the Fed-Treasury allowing the new Committee to Save the World, some breathing space. They didnt have much of a respite because by August-September the credit world was in shambles.

Dimon had snatched a plum from the Federal Money Tree even if he wound up having to pay the Bear Stearns shareholders $10/share ($8 more than then Treasury Secretary Paulson initially wished them to receive). The extra booty was not intentional. JPM lawyers had made a terrible mistake when they first signed onto to the shareholder misfortune train because they had already guaranteed Bears obligations for the next year. In for penny, in for a pound. JPM could have walked but the guarantees would remain.

The first inkling of Dimons independence came when he objected to taking down $25 billion in loans from the Treasury under Paulsons threat that any bank that refused (made verbally to the nine called to Treasury in 2008) would have trouble with their regulator. JPM took the money and the Treasury-Feds fear of stigma attached to banks that received funds from the Government was put aside. (To be fair, Dimon was not the only objector to the Treasury cram down. Wells Fargo complained vociferously as well that they didn’t need the money.).

Dimon was widely acclaimed as the fair haired boy of the financial community. JPM had a fortress balance sheet and could and did pick up many crumbs from the Credit Debacle. Washington Mutual fell into its lap and suddenly JPM was a major factor in the in the mortgage business albeit very cheaply. But, Dimon was an outspoken financial chief who voiced strong opinions about Dodd-Frank while it was being nurtured on the Hill. He wasnt a supporter of intense government regulation of the banking business. After passage, he loudly complained about the imposition of the Volcker rule that would prohibit (or at least strongly limit) trading by depositary banks in the Federal Reserve System. Sitting on top of a financial colossus, he was listened to with great respect. He had clearly outshone his former mentor, Sandy Weill, even though he exhibited many similar traits in his deal making: Quick to close, and quick to integrate an acquisition.

Dimons real troubles began with his revelation on May 10, 2012 of a large loss by JPM traders on synthetic credit derivatives. In answering queries from the press, he first termed the loss a tempest in a tea pot. JPM had not disclosed some $700 million in booked losses in its April filings on April 13. The teapot had just begun to boil. It ultimately boiled over in a big way, saddling JPM with some nearly $6 Billion in losses as time went on. Moreover, it caused major heads to roll in the JPM senior ranks.

The Levin Committee ((The Senate Permanent Subcommittee on Investigations))produced a cacophony of JPM misdeeds surrounding the London Whale deal, and more troubles were yet to come. Having fallen from grace in Washington, JPM now became a target of the very Federal Agencies that had been so in love with JPM in 2008. Among the scandals were the Libor rate fix in London, energy and electricity trading in the US and incorrectly documented and potentially misrepresented mortgages (some of which, but certainly not all, had been acquired in the Washington Mutual take-over).

When Washington is your friend, you can do no wrong. When Washington turns on you, you can spend, spend, spend on your lawyers to keep further troubles from invading your fortress. Dimon has already admitted to some $18 billion in legal costs! By now, he may well feel that his original willingness to take Bear Stearns off the hands of the trembling triumvirate of financial policy makers in 2008 (Bernanke, Geithner and Paulson) was indeed a Faustian bargain.

JPM is reportedly in discussions to pay up to $11 Billion to get out from under the various Federal and State investigations and potential law suits. The (tea) pot runneth over. The stickler may not be so much the money, but the Feds allegedly want a confession of guilt. That could subject JPM to more legal difficulties down the road.

Somewhat lost in prior discussions of JPMs issues was the question of who pays, or as we like to term it, Whos the Fish Who is the loser that is saddled with the bill to cleanup the mess made by the rowdies when the party is over and the punchbowl is taken away Corporate governance observers know the answer: the shareholders. It is not different this time! Rarely are Captains forced to walk the plank or go down with their ship. It is always the shareholders who get to take a bath.

Readers who wish to delve further into this troubling matter will find the video tape of the Levin Committee hearings on the Whale case utterly fascinating and most likely deeply depressing. (http://www.hsgac.senate.gov/templates/watch.cfmid=c3474944-5056-a032-529d-e90934e283c0)

There are many depressing aspects that come to light during these hearings, but one bottom line is the continuing abuse of shareholders by managers who are paid on the basis of their performance unadjusted for the risks they take to produce that performance. When that happens, and there are totally inadequate risk management controls and reviews by both management and by the Board of Directors, the upshot is shareholder equity is at risk. In the case of JPM, this will be not an insubstantial risk. And, to be sure, there is more to come.

There is another bottom line to this story. The Government is now on the punishment path. Having failed at preventing the last financial crisis, government at all levels has the financial sector in its sights for each and every possible area of financial activity undertaken by various financial conglomerates. At this stage, it appears that many financial entities would rather pay than fight, but that will generate precedents that go far behind our due process legal system. Punishment that is beyond the law is not the answer. We will have more to say on this theme shortly.