Former New York Times business journalist David Cay Johnston writes for Columbia Journalism Review about how most of the business media provided no context when reporting JP Morgan’s recent $13 billion fine.
Johnston writes, “Net pre-tax income is what I would use, and that comes to $154 billion for the years Sirota wrote about, 2005 through 2012. That makes the penalty 8.4 percent of pre-tax profits since 2005 or one dollar in 12. That does seem more than a speeding ticket, but arguably not enough to deter misconduct in the future.
“Columnist Michael Hiltzik of the Los Angeles Times also provided valuable insight, noting that the size of the fine is not the most important part of the story. Hiltzik wrote that the settlement:
doesn’t resolve the ongoing federal criminal investigations of the bank’s conduct in the residential mortgage securities business during the run-up to the 2008 financial crisis. That investigation is being handled by federal prosecutors in Sacramento.
“Next time the government announces a penalty for a business, reporters should put it in context. One good measure would be penalty (after tax if it is deductible as a business expense) divided by net pre-tax income for the years in question. Here is another measure reporters could have used: Calculate the dividends paid since 2005 against the fine. A hint on how informing that would be: the $13 billion is roughly what JP Morgan paid in dividends on its nearly 3.8 billion shares in the last five quarters, while the period Sirota decided is relevant was 32 quarters long.”
Read more here.
