If the federal government has it's way, the J.P. Morgan building might not exist a year from now. (Krzykol; Wikimedia Commons)

The settlement sees J.P. Morgan paying the federal government $13 billion to stop the investigation into the bank having misled investors during the financial crisis. 

The settlement is far greater than the previous record levied against a company, a record set just a couple of years ago when British Petroleum paid out $4 billion for its role in the Gulf Coast oil spill.

I’ve spent a week waiting to hear someone say what I’ve been thinking: this is a monumental overstep of governmental rights and sets a terrifying precedent for how business is done in this country.

But here we are, with a federal government about to walk away without ever being called out for the complete lack of logic of which it is guilty.

In the fall of 2008, the federal government seized Washington Mutual to keep it from going belly up. It was at this point that our friends in DC turned to banking giant J.P. Morgan and practically begged them to take Washington Mutual off their hands. This came just months after the government had implored J.P. Morgan to purchase Bear Sterns with a $29 billion federal backstop. This federal investigation concerned only the practices of those three banks in 2009 and earlier. 

This is where our government went wrong. It has been said that the “bulk” of the $13 billion dollar penalty was because of the actions of Washington Mutual and Bear Sterns. As I just demonstrated, J.P. Morgan purchased those two banks (although willingly) at the urging of the same federal government that is now penalizing them for those purchases. How does this make sense? Why are we not making a bigger deal out of this?

Imagine the police officer living down the street from you, the one with the big box of illegal fireworks he’s confiscated throughout the year. Now imagine he grabs one of those fireworks and lights it. After lighting the firework he turns to you and says, “here hold this, you’re going to look really cool when it goes off.” You’re thinking, “why not?” He obviously knows what he’s doing and you couldn’t possibly get in trouble for holding an illegal firework when the police are the ones who told you to do just that, right? Now picture your badge-wearing neighbor turning to you the second the firework goes off into the night sky and demanding you pay him $13 billion or he’s going to press criminal charges for your actions.

How many of us would be OK with that scenario? How many of us would stand by and not say a word about how out of line the police officer was? The thing is, that’s essentially what we’re doing with our federal government. We’re looking the other way while they hand failed, “too big to fail” banks off to J.P. Morgan and then penalize JPM for not turning down the opportunity? 

Maybe I’m delusional. Maybe J.P. Morgan should be penalized solely for being a big bank. Maybe they should be penalized for not being part of the 99 percent, or for trying to make a profit and trusting their own federal government. Instead they’re settling into a comfortable position out behind the woodshed while DC winds up to give a paddling. 

Washington Mutual was supposed to be too big to fail; J.P. Morgan was too big to fail. But it's time we stopped looking at the banking system and start looking at the government pulling the strings above. It's time we stopped looking at failed too big to fail banks and started looking at a government overstepping its rights and responsibilities. A government so out of touch with reality it’s scary.

A government, it turns out, that isn’t remotely too big to fail. 

Reach Columnist Calum Hayes here; follow him here.