Matt Taibbi with some news that is making bankers very, very unhappy:

Minds are changing on Too Big to Fail. A month ago, it was just something in the air. Now, it looks like we're headed for a real legislative confrontation. And man, is the finance sector freaking.

Last week, on April 24th, Democratic Senator Sherrod Brown of Ohio and Louisiana Republican David Vitter introduced legislation called the "Terminating Bailouts for Taxpayer Fairness Act of 2013 Act," or the "Brown-Vitter TBTF Act" for short. The bill is a gun aimed directly at the head of the Too-Big-To-Fail beast.

During the Dodd-Frank negotiations a few years ago, Brown teamed up with Delaware Democrat Ted Kaufman to introduce an amendment that would have physically capped the size of the biggest banks. The amendment was bold and righteous but was slaughtered on the floor by a 61-33 margin, undermined by leaders of both parties – 27 Democrats voted against it.

Brown-Vitter offers a different and, in a way, more elegant solution to the problem than Brown-Kaufman. Rather than impose size limits, it simply insists that banks with over $500 billion in assets maintain higher capital reserves than are currently required. Companies like J.P. Morgan Chase, Wells Fargo, Morgan Stanley, Goldman Sachs, Citigroup and Bank of America will have to keep capital reserves of about 15 percent, about twice the current amount.

The bill only has such tough requirements for just those few megabanks, which sounds unfair, except that the aim of the bill, precisely, is to level the playing field. Right now, the biggest U.S. banks enjoy a massive inherent market advantage in that they're able to borrow money far more cheaply than other banks, because everybody on earth knows the government will never let them fail and will always bail them out in a pinch, making their debt essentially U.S.-government guaranteed. Studies have shown that these banks borrow money at about 0.8 percent more cheaply than other banks, and that this implicit government subsidy is worth about $83 billion a year just to the top 10 banks in America. This bill would essentially wipe out that hidden subsidy and make the banks bailout-proof.

As soon as Brown-Vitter was introduced, a very interesting thing happened. The Independent Community Bankers of America, or ICBA, issued a press release boosting the bill. "ICBA strongly supports this legislation," the release read, "and urges all community banks to join the association in advocating passage of legislation to end too-big-to-fail."

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Now this is interesting. Fidelity was able to flag an individual account for insider trading, presumably because suspicious patterns arose in the trading, leading to the arrest of a small-time player in the financial industry.

The party in question, an accountant with KMPG, traded insider information for a Rolex watch, some Springsteen tickets, and (according to some sources) about a hundred thousand dollars. His "client" made about a million dollars before turning state's evidence after Fidelity tipped the Feds to some funny transactions on his account.

And yet, despite handling his account for years, JPMorgan Chase never noticed anything suspicious about Bernie Maddoff's enormous operation.

Funny how that happens, isn't it? Steal a million, you get a knock on the door. Steal a billion, you're a hero. Steal $100 billion, they float your name as Treasury Secretary.

Jamie Dimon should be in jail and JPMorgan Chase should be broken up, but we already know why neither of those things are likely to happen. Eric Holder is a friend to Wall Street, as is the rest of the Obama administration. Hopefully some of our more progressive senators will turn up the heat over this latest news:

Washington dealt a double blow Thursday to JPMorgan Chase as a Senate report accused its iconic chief executive of hiding information about a massive loss from regulators while the Federal Reserve unexpectedly said it had found a “weakness” in the bank’s capital plans.

The twin announcements, both unveiled in the late afternoon, escalates the problems for JPMorgan, the nation’s largest bank and arguably its most prestigious. Once viewed as the strongest bank to emerge from the 2008 financial crisis, the firm on Thursday watched its weaker rivals, Bank of America and Citigroup, sail through the Fed’s examination.

Perhaps more pressing is a report from the Senate’s Permanent Subcommittee on Investigations, which plans to hold a hearing Friday to probe the behavior of current and former senior bank executives as they tried to contain the fallout from a series of damaging trades, initiated by a trader known as the “London Whale.” The bets ultimately cost the bank about $6.2 billion.

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Think of it as the story of two antagonists. One of them was an honest Senator who came to Washington to fight corruption. The other is an arrogant banker who's so sure of his untouchability that he wore "FBI" cufflinks when he made a public appearance last month.

The Senator

Former Sen. Ted Kaufman, whose epic struggle to bring Wall Street to justice was depicted in PBS Frontline's recent episode The Untouchables, made a striking observation on a press call today. "In a private case," Sen. Kaufman said, the Dexia bank's lawsuit "… uncovered reams of emails directly related to the fact that fraud was (allegedly) being committed by JPMorgan Chase."

He was referring to headlines like "E-Mails Imply JPMorgan Knew Some Mortgage Deals Were Bad" in the New York Times and "JPMorgan Hid Reports of Defective Loans Before Sales" in Bloomberg News. Sen. Kaufman added:

"It is just hard to believe that if the Department of Justice had made Wall St fraud a major priority, with the resources they have, they could not have found these same emails and brought these cases."

It's not just that the government wasn't bringing a case against JPMorgan Chase.  Everybody in Washington from the President on down was praising its CEO, Jamie Dimon, claiming he was our nation's smartest and most ethical banker. So were a lot of reporters. Roger Lowenstein's flattering profile of the dyspeptic Dimon remains a classic of the Wall Street flattery genre.

Even Alison Frankel, who has done some excellent reporting in this area, was somehow able to ask only last month (unless her editors wrote the headline for her): "Is JPMorgan Chase the new MBS (mortgage-backed securities) piñata?"

Sometimes a piñata turns out to be a real donkey.

FBI Cufflinks

Wall Street Journal reporter David Erlich sent this to his Twitter followers from the international finance soiree at Davos: "Jamie Dimon is sporting FBI cuff links at #Davos. Sadly he wouldn't let me take a picture of them."

But then, there are a lot of things Jamie Dimon doesn't want coming to light. What message do you suppose he was trying to send with those cufflinks, especially in the wake of the criminal inquiries into his bank's behavior in the "London Whale" scandal?  Peter J. Boyer and Peter Schweizer noted last May that, based on the Justice Department's record of hands-off attitude toward the bank, "JPMorgan Chase has nothing to fear from an FBI probe."

Even after JPMorgan Chase entered into enormous financial settlements - for charges that ranged from sophisticated investor fraud to plain old-fashioned Alabama bribery - it was considered somehow déclassé to suggest that the crime wave which occurred on Mr. Dimon's watch should in any way reflect badly on his character or managerial skills.

JPMorgan Chase was the "good" bank, and Dimon the "good" CEO. It was considered "unserious" to imagine that the bank's crimes could be pursued - or, despite mountains of evidence, that they had even been committed.  But somehow Dexia and its attorneys were able to obtain evidence that the Department of Justice, the FBI, and the enormous machinery of our national security state could not - or would not - find for itself.

What did FBI-cufflink wearing Jamie tell the public about that criminal matter, the $6 billion dollar loss that he told investors was nothing? "We did have record profits. Life goes on.”

I think we can guess what the "F" stands for.

The Evidence

The information that Dexia assembled is breathtaking -- and damning. The JPM section of their complaint begins by reminding us that JPMorgan Chase was lagging behind its Wall Street competitors in 2005. Dimon has tried to rewrite history since then by arguing that he was smarter than other bankers and stayed away from the short-term profits of mortgage-backed securities because he was wise enough to see how risky they were.

Nonsense. As the Dexia lawsuit recaps, they were just late to the game. Dimon was desperate to get it on the action, telling investors in the 2006 Annual Report that the unit handling MBS had "materially increased its product breadth and volume" - from virtually nothing to $25 billion in just a year.

Dimon also reassured investors that the unit "maintained its high lending standards" and had "materially tightened" its underwriting - much as he assured investors that the bank had tightened its standards after the 2008 crisis when the "London Whale" unit reporting directly to him wasn't following published standards, and much as he told them that the "London Whale" losses were a "tempest in a teapot" when he secretly knew they amounted to billions.

The emails uncovered by Dexia show that JPMorgan Chase tried desperately to make up for its late entrance into the mortgage feeding frenzy by cutting corners and misleading investors. In fact, the Dexia suit includes documentation which suggests that Dimon had already told a senior executive to sell off the bank's own ownership of these poorly-underwritten securities.

A Forbes magazine story cited in the suit also quote Dimon as saying "This stuff could go up in smoke!"

True Confessions

An internal JPMorgan Chase memo reportedly told staff how to cheat "Zippy," the company's underwriting system, by falsifying information in order to write bad loans. The memo was even entitled "Zippy Cheats & Tricks."

The Dexia filing extensively documents JPMorgan Chase's flouting of underwriting standards, its misrepresentations to investors, and its rewriting and falsification of independent analyses. These acts are strongly suggestive of criminal acts by individuals, as well as civil wrongdoing.

Sen. Kaufman spoke authoritatively about the deterrent effect that criminal indictments have against white-collar crime. Someone is much less likely to commit a white-collar crime, according to studies, if they know that they could be prosecuted. As Sen. Kaufman explained, this deterrent effect is much weaker for drug crimes, whose perpetrators have already faced the criminal justice system. But bank crimes aren't drug crimes - except, of course, when they are.

Sen. Kaufman added: "There have been a number of us saying in the cases against JPMorgan Chase and Goldman Sachs and Morgan Stanley and the big banks was that one of the problems with the settlements … is that they never had to admit wrongdoing."

The Badge

When JPMorgan Chase was sued over the actions of subsidiary Bear Stearns, it implied that it had only acquired that firm as a favor to the nation - a myth the press has often repeated - and made it clear that it felt it was unfair to be punished for the acts of an organization that was not under Mr. Dimon's supervision at the time. Thanks to Dexia, that particular injustice has now been corrected.

It remains to be seen if the Justice Department will follow Dexia's lead and investigate the compelling evidence of criminal actions at JPMorgan Chase.

Jamie Dimon may believe that he and his peers above the law, but there are still honest people trying to hold them accountable. And he may have those FBI cufflinks, but hey -- Elvis Presley got Richard Nixon to give him a badge from the Narcotics Bureau, and we know how that story ended.

(The press call was part of the Campaign for a Fair Settlement's call for prosecution of Wall Street crimes in the first 100 days of the President's second term.)

I have a feeling Max Keiser and Stacy Herbert would really like Adriana Vasquez.

As this article points out, Houston has the fastest-growing group of millionaires in the country, and local companies are making obscene profits. Guess who's not making money? That's right, the people who cook and clean up after this gang of heartless bastards like Jamie Dimon. Nice to hear that at least one working person got to confront him yesterday - even if she will probably be fired for it. I hope Stephen Colbert invites her on as a guest:

Earlier today, following JP Morgan Chase CEO Jamie Dimon's testimony in front of the House Financial Institutions and Consumer Credit Committee regarding his company's recent massive banking loss, Adriana Vasquez, a janitor who cleans the JP Morgan Chase tower in Houston, Texas confronted him with a simple question: "Despite making billions last year, why do you deny the people cleaning your buildings a living wage?"

Dimon evaded Adriana's question but told her to "call his office" to arrange a meeting.

Each night, Vasquez cleans 24 bathrooms across 11 floors in the JP Morgan Chase tower in downtown Houston. "I work hard each and every day scrubbing 24 bathrooms just to support my children, to keep food on the table and a roof over my head – but it still isn't enough," explained Vasquez. "I traveled to Washington, DC to confront Jamie Dimon because it is not acceptable that while he makes billions, he denies the people cleaning his buildings a living wage."

"I want Mr. Dimon to walk a day in my shoes," she says.

In a hearing otherwise focused on 'too big too fail', Rep. Green (D-TX) raised the critical issue of income inequality rippling through communities across the country and secured a commitment with Mr. Dimon to meet with him to discuss the issue. "The average janitor in Houston is making less than the poverty level," Green explained, "I want to meet with you about something I call, 'too small to live off.'"

Janitors in Houston, including Adriana, make just $10,000 annually – some make less – and have been offered only a $.50 raise across the next five years. JP Morgan Chase is a major player in the real estate industry nationwide, including in Houston where more than 3,000 janitors have voted to authorize their bargaining committee to strike.

"My coworkers and I are sick and tired of working hard but not being able to make ends meet. We are uniting to fight for better wages and a better life for our families," Vasquez continued. "We do not deserve to suffer abuse just because we are poor."

The contrast of Jamie Dimon – one the richest men in the United States and the 12th highest paid CEO in the country – and the janitors who clean his building – many make as little as $10,000 a year— poignantly illustrates both what's wrong with the economy and the growing gap between the wealthiest 1% and the rest of us. A Houston janitor would have to work more than 2,500 years in order to earn JP Morgan CEO Jamie Dimon earned last year.

It makes me suspicious that Jamie Dimon is busily spraying Febreze all over that big London deal that lost so much money for JPMorgan Chase. The Sarbanes-Oxley act was supposed to prevent these (allegedly) renegade units, because the people at the top now had a legal responsibility to provide oversight. Doesn't anyone in the SEC care about such things? Apparently not.

Also, I've been reading about hedges. This doesn't sound like a hedge. It sounds like they called it a hedge for accounting purposes, which is of course another problem. But hey, this is Jamie Dimon, damn it, and the rules don't apply to him! He will do his little ceremonial apology on Capitol Hill today, and that will be that:

JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said traders in a London unit responsible for a $2 billion loss didn’t understand the risks they were taking and weren’t properly monitored.

“This portfolio morphed into something that, rather than protect the firm, created new and potentially larger risks,” Dimon said in prepared remarks ahead of his appearance tomorrow before the Senate Banking Committee. “We have let a lot of people down, and we are sorry for it.”

Lawmakers plan to question Dimon at hearings this week and next about the bank’s blunders on credit derivatives in its chief investment office after he initially called April news reports about the trades “a complete tempest in a teapot.” Shares of the bank, the biggest in the U.S., have dropped 17 percent since Dimon disclosed the mounting losses May 10, lopping about $26.5 billion from the firm’s market value.

“CIO’s traders did not have the requisite understanding of the risks they took” on bets that were supposed to hedge credit risk, Dimon said. “When the positions began to experience losses in March and early April, they incorrectly concluded that those losses were the result of anomalous and temporary market movements.”

Kabuki theater. A public apology, a stern public talking-to, jokes and cocktails in the back room, and it's back to business as usual.

You really have to wonder why a huge company like JPMorgan would want people like this sitting on their risk committee:

The three directors who oversee risk at JPMorgan Chase & Co. (JPM) include a museum head who sat on American International Group Inc.’s governance committee in 2008, the grandson of a billionaire and the chief executive officer of a company that makes flight controls and work boots.

What the risk committee of the biggest U.S. lender lacks, and what the five next largest competitors have, are directors who worked at a bank or as financial risk managers. The only member with any Wall Street experience, James Crown, hasn’t been employed in the industry for more than 25 years.

“It seems hard to believe that this is good enough,” said Anat Admati, a professor of finance at Stanford University who studies corporate governance. “It’s a massive task to watch the risk of JPMorgan.”

Boy, that's the understatement of the year. Why, it's almost as if they wanted unqualified people!

The bank has been under siege since CEO Jamie Dimon said May 10 that the firm’s chief investment office suffered a $2 billion loss trading credit derivatives. He later called it “a Risk 101 mistake.” Shares of the New York-based company have fallen about 18 percent since, and at least half a dozen agencies, including the U.S. Department of Justice and the Securities and Exchange Commission, are investigating.

The probes began after traders in the London office, which manages the bank’s excess cash, made wrong-way bets on illiquid credit derivatives, some of them so large they distorted market prices. Dimon transformed the division under Ina Drew, who resigned over the losses, from a sleepy haven for traders of U.S. Treasuries into a profit center with an increasing appetite for exotic wagers.

Crown, 58, who is president of Chicago-based Henry Crown & Co. and lead director of defense contractor General Dynamics Corp. (GD), sits on the risk committee with Ellen Futter and David Cote. Futter, 62, is president of the American Museum of Natural History in New York, and Cote, 59, is CEO of Honeywell International Inc.

The committee, which met seven times last year and hasn’t changed its composition since 2008, approves the bank’s risk-appetite policy and oversees the chief risk officer, according to the company’s April 4 proxy statement

If there was ever any doubt that the recently announced JPMorgan Chase "probe" was merely an early summer's entertainment to keep the masses distracted, I'd say their hire of this former SEC chief to help them has cleared up that question. The SEC is notorious for its incestuous ties with Wall Street and their all-too-forgiving ways toward their former (and possibly future) employers. (For instance, JPMorgan’s general counsel Stephen Cutler was previously head of enforcement at the SEC.) Why, it's almost like Capitol Hill!

JPMorgan Chase & Co. (JPM), the biggest U.S. bank, has hired former U.S. Securities and Exchange Commission enforcement chief William McLucas to help respond to regulatory probes of the firm’s $2 billion trading loss.

The lender retained law firm Wilmer Cutler Pickering Hale & Dorr LLP, where McLucas is a partner, shortly after the bank disclosed the loss on May 10, said Kristin Lemkau, a spokeswoman for New York-based JPMorgan.

The probes began after JPMorgan traders in London built up positions in illiquid credit derivatives that were so large they distorted market prices and eventually led to what Chief Executive Officer Jamie Dimon called “self-inflicted” losses that may grow. That spurred reviews by the SEC, Commodity Futures Trading Commission, Office of the Comptroller of the Currency and Federal Bureau of Investigation.

“Our focus right now is on whether the company’s public disclosure and financial reporting is accurate,” SEC Chairman Mary Schapiro said today in congressional testimony. “The agencies collectively, including the criminal authorities, are working very hard to untangle what happened at the firm.”

The SEC is reviewing the accuracy and timing of JPMorgan’s disclosure of changes in how it calculates value-at-risk, or VaR, which shows how much it could lose from trading most days, Schapiro said. The bank changed its VaR model for the chief investment office during the first quarter without telling investors. The new model, which has since been scrapped, had cut the risk estimation almost in half, Dimon told investors May 10.

It's unlikely that any of Wall Street's criminals will ever go to jail, but maybe if we kick up enough of a fuss, we can get Jamie Dimon kicked off the board of the NY Fed. Not that there's anything wrong with sitting on the board of the agency that's supposed to oversee you, of course! It's been this way for so long, they don't even understand why we'd be upset about it:

JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon’s position as a director on the Federal Reserve Bank of New York’s board renewed concern that the central bank is too close to the institutions it oversees.

Dimon, who disclosed a $2 billion trading loss by his firm last week, is one of three bankers sitting on the New York Fed’s board, as mandated by Congress under the Federal Reserve Act. While directors have no role in bank supervision, Elizabeth Warren, a Massachusetts Democrat running for U.S. Senate, called for Dimon’s removal from the district bank board because the New York Fed regulates JPMorgan. Senator Bernard Sanders, a Vermont Independent, said he sees a conflict in Dimon’s two roles.

Fed governance came under scrutiny after taxpayer-funded bailouts during the 2008 financial crisis sparked a political backlash. The Dodd-Frank Act overhauling bank supervision required a Government Accountability Office audit of the central bank, which was completed last year and found the Fed needs to strengthen policies governing conflicts of interest and improve transparency.

Having bankers on the boards of regional Fed banks “is a problem, period,” said Sheila Bair, senior adviser at Pew Charitable Trusts and a former chairman of the Federal Deposit Insurance Corp. “Why the regional banks have members of the industry that they regulate on their boards is beyond me.”

It's funny, isn't it, how the women are the ones with the loudest voices on this issue?

Warren, a Democrat, has served in the Office of the President and as chairwoman of the Congressional Oversight Panel for the Troubled Asset Relief Program. She helped establish the Consumer Financial Protection Bureau.

“After the biggest financial crisis in generations, the American people are frustrated that Wall Street has still not been held accountable and does not appear to consider itself responsible,” she said. “Dimon should resign from his post at the New York Fed to send a signal to the American people that Wall Street bankers get it and to show that they understand the need for responsibility and accountability.”

Most observers are missing the point. When CEO Jamie Dimon announced that JPMorgan Chase had incurred at least $2 billion in losses from risky, unsecured, derivatives-types trading, it uncovered the scandal of our time once and for all.

The Chase disaster gives us a much-needed glimpse into our corrupt political system, its Wall Street paymasters, and the media voices that allow people like Dimon to escape scrutiny.

The JPMorgan Chase story is also the story behind the financial crisis that has thrown millions of people out of work. It's the story behind our ever-growing wealth inequity. It's the story behind Washington's inability to prosecute criminal bankers, regulate reckless ones, and propose the economic solutions the rest of us urgently need.

Predictably, the pundits who aid and abet people like Jamie Dimon are dismissing this story's importance, pointing out that $2 billion (it could become much more) pales against the $19 billion in profit Chase reported last year.

But it was potentially $2 billion earned through crime. And more importantly, this story isn't just about Chase's errors and crimes. It's much bigger than that.

Besides, $19 billion in a single year? That's a big part of the story, too.

The Case Against Chase, its CEO, and its accomplices is too big to cover all at once. Here are the aspects of this under-reported story we plan to address in the days and weeks to come.

The Firm

Depending on the day and the measurement used, JPMorgan Chase is now the largest or second-largest bank in the world. Its Japan operation alone has been cited by that nation's regulators as a systemic risk because of its size.

If Chase began to collapse because of risky betting, the government would be forced to step in again.

Jamie Dimon knows that. It's a lot easier to gamble when you know somebody else will be forced to bail you out if you lose too much.

Chase, like the other mega-banks, has systematically engaged in criminal activity for years. At the same time, it has used its vast wealth to corrupt our political and regulatory systems. And it has been aided and abetted by willing collaborators in the media, every step of the way. It gave up nearly three quarters of a billion dollars in settlements and surrendered fees to settle one case alone—that of bribery and corruption in Jefferson County, Alabama.

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