Three takes on JP Morgan and Madoff

By Felix Salmon
February 4, 2011
Diana Henriques, of Irving Picard's lawsuit against JP Morgan Chase.

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I love the NYT’s coverage, by Diana Henriques, of Irving Picard’s lawsuit against JP Morgan Chase. Not only has the NYT put the lawsuit online in full, but it also regularly links to the exact page of the lawsuit that it’s talking about, using the nifty NYT document viewer. As you’d expect from the NYT, the story is clear and accurate, with handy interactive sidebars and audio extras.

Alongside the official NYT coverage, Floyd Norris wrote a blog on the case. He picks up on something quite astonishing: JP Morgan had created products which paid out the return on Madoff’s funds. In order to hedge that exposure, JPM was naturally invested in those funds. But even as it retained its exposure to its investors, JPM took its money out of the funds. “JPMC was still required to pay its investors based on the returns generated by the BLMIS feeder funds, which were generating positive returns when the market was down,” says the complaint drily. “But for JPMC’s suspicions about fraud at BLMIS, this move would have been counterintuitive.”

Norris is evenhanded about what all this means:

Two things stand out. First, JPMorgan Chase no longer had a riskless strategy. If it turned out Madoff’s returns were genuine, it stood to lose a lot of money since it would have to pay the investors in the structured products. Second, the suit refers to the bank’s “suspicions.” That is a very different word from “complicit.”

It seems to me that JPM was making a massive proprietary bet on Madoff being uncovered as a fraud — there’s no other explanation for its actions that I can see. Norris is right that JPM wasn’t necessarily complicit with Madoff in the fraud, but there’s something extremely fishy going on here.

For a much less evenhanded look at the case, one needs only turn to the Huffington Post, where Peter Goodman has recently taken over as business editor after leaving the NYT. His headline is stark — “Bernie Madoff’s Relationship With JPMorgan Should Shock No One” — and, freed from the institutional constraints of the NYT, he lets loose:

Far from shocking, this is really just an appropriate plotline in a story that is finally becoming clear beyond argument: Those lines between criminal fraud and legitimate banking have been blurry for a long time. One can reasonably argue that they pretty much got erased during the Internet bubble and into the real-estate boom.

Goodman goes on to compare JPM unfavorably to Madoff, noting that in Madoff’s fraud, “the amount of money left missing, some $65 billion, amounts to chump change compared to the banking-led larceny committed at the expense of national prosperity.”

Clearly, Goodman is enjoying his newfound freedom at HuffPo — the fact that he can write the kind of material which would be unthankable in the blogs or pages of the NYT. But at the same time, as journalists move back and forth with increasing regularity between mainstream outlets and newer, more vivacious sites, it’s going to be harder for the MSM to hold on to its ability to stay above the fray. Goodman was writing Henriques-style reports only a few months ago, and now that he’s left, it’s pretty clear what he was thinking all along. The same can be said for other NYT departures, like say David Cay Johnston.

The more that this kind of thing happens, the more obvious it becomes that NYT reporters are uncomfortably hiding their opinions, inevitably letting them seep out the edges of their reporting, and at the same time desperately trying to maintain a veneer of impartiality and objectivity. It’s a tough act to maintain, and it shatters completely if and when the NYT’s bylines regularly appear elsewhere expressing strongly-held and even extreme opinions.

The world of journalism is becoming increasingly personality-based, with copper-bottomed institutions being replaced by a multitude of individual voices. The NYT in general is doing a good job of showcasing a wide range of voices on its blogs and in its non-news pages more generally. But it remains to be seen whether and for how long it will try to enforce the wall between news and commentary. That wall has, after all, already been breached by having reporters like Gretchen Morgenson also write columns. And in coming years I expect we’ll see much more voice and opinion in news articles, if only because that’s the best way of getting the best content out of the NYT’s smartest reporters.

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