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Far from being a cathartic event, JPMorgan's tentative settlement just shows how badly the aftermath of the financial crisis has been handled. Thanks in part to financial-industry lobbying, the Dodd-Frank reform rules have turned into a crazy-making 2,300-page document that will have lawyers scouting for loopholes. As Mayo puts it, "what we really needed was three pages outlining the Volcker Rule as Paul Volcker actually envisioned it"--meaning a simple separation of commercial and investment banking. That would end the too-big-to-fail problem by splitting the federally insured restaurant of deposit taking and lending from the risky casino of trading.
Of course, given the political and lobbying energy that's been poured into Dodd-Frank, that was never going to be an easy task. Just implementing the existing rules completely will take several more years. So what should happen now? If JPMorgan CEO Jamie Dimon really wants to appease the public, he should take a personal pay cut in 2013 to compensate for the billions in legal fees and fines that will dampen the bank's profit for a few quarters. (Dimon took home $18.7 million in 2012, after his bonus was cut in half because of the London Whale debacle.) More crucially, the government should come up with clearer rules of the road immediately. We need laws that hold financial executives personally responsible for actions that society deems harmful. And we need banking rules that make the system safer. The $13 billion in this deal buys us neither.