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Hard cop. For now. Until the next time.

The WSJ decries the role of government in the financial sector:

The tentative $13 billion settlement that the Justice Department appears to be extracting from J.P. Morgan Chase needs to be understood as a watershed moment in American capitalism. Federal law enforcers are confiscating roughly half of a company’s annual earnings for no other reason than because they can and because they want to appease their left-wing populist allies.

The settlement isn’t final and many details weren’t available on the weekend, but we know enough for Americans to be dismayed. The bulk of the settlement is related to mortgage-backed securities issued before the 2008 financial panic. But those securities weren’t simply a Morgan product. They were largely issued by Bear Stearns and Washington Mutual, both of which the federal government asked J.P. Morgan to take over to help ease the crisis.

So first the feds asked the bank to do the country a favor without giving it a chance for proper due diligence. The Treasury needed quick decisions, and Morgan CEO Jamie Dimon made them in good faith. But five years later the feds are punishing the bank for having done them the favor. As Richard Parsons notes nearby, this is not going to make another CEO eager to help the Treasury in the next crisis. But more pointedly, where is the justice in such ex post facto punishment?

Well, it’s complicated. Yes, the government shouldn’t have leaned on J.P. Morgan to acquire Bear Stearns or Washington Mutual. On the other hand, they gave them a bargain–they let them acquire Bear Stearns with what seemed at the time to be very little risk (by guaranteeing the assets that JPMC didn’t have time to look into.

So is “the government” too tough on the investment banks or too easy? Both. That’s the beauty of the system as it is currently constituted. The government is the soft cop who lets you off for driving under the influence and even gives you gas money. But the government is also the hard cop who gives you a bit of a beating just to show the people that everyone has to obey the law.

Some parts of the government are too tough on the banks–imposing ad hoc penalties that are a violation of the rule of law. Other parts are too easy–making sure creditors get rescued so the big banks can keep borrowing. Or letting them call themselves regular banks so they can borrow money from the Fed.

I think the Journal misses the main point. This penalty for JP Morgan isn’t a new era of getting tough on the banks to please the left. It’s part of the whole charade. It’s like when the cop pretends to beat up the informer so the real criminals will think the informer isn’t an informer. It’s the equivalent of theater.

But isn’t $13 billion a lot of money? Depends on how you look at it. You want a really cynical take? It’s the cost of doing business. Is it going to wipe out J.P Morgan? No. Is it going to mean no bonuses or a bad compensation year for the top execs? I doubt it.

Here’s the headline in the Journal for this story:

The Morgan Shakedown

A landmark that shows how much politicians now control U.S. finance.

The Journal has it half right. Sure the politicians jerk the finance sector around. The other half of the story is that the financial sector jerks the politicians around. The wrong interpretation is to think sometimes the politicians are tough on the financial sector and sometimes they’re soft. It’s just a dance that’s all. A pox on both dancers.