The real lesson of the Morgan settlement isn't that justice has finally been done to the perpetrators of the crisis. That would require arresting Barney Frank and those in Congress who blocked the reform of Fannie and Freddie, plus the Federal Reserve governors who created so much easy credit.

The Morgan Shakedown

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

Updated Oct. 20, 2013 10:51 p.m. ET WSJ

The tentative $13 billion settlement that the Justice Department appears to be extracting from J.P. Morgan Chase JPM +0.29% 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?

Then there's the fact that $4 billion of the settlement is earmarked to settle charges against the bank by Fannie Mae FNMA +5.19% and Freddie Mac. We are supposed to believe that the bank misled the two mortgage giants about the quality of the mortgage securities they were issuing. But everyone knows that Fan and Fred had as their explicit policy the purchase of securities for liar loans and subprime mortgages to further their affordable-housing goals. Those goals went far to create the crisis, but now these wards of the state are portraying themselves as victims.

The news reports add that another $4 billion in the settlement will go for consumer relief, and that it is up to the feds how this will be distributed. But remember that most of the charges being settled relate to Morgan's sale of mortgage securities. Even if you believe those charges, which we don't, the victims would be the institutional buyers of those securities.

To make the victims whole, the government would have to distribute the settlement proceeds to those buyers, who aren't mom and pop. If instead the feds pass out the money to consumers or their favorite advocacy groups, the fact that this is a political shakedown and wealth-redistribution scheme becomes even clearer. Perhaps the Administration will have the checks arrive in swing Congressional districts right before the 2014 election.

The tentative settlement doesn't even include the criminal probe the feds are still conducting against the bank or even how much wrongdoing Morgan will admit. You would think $13 billion, the largest such settlement against a U.S. company, would be enough. But the political left isn't satisfied these days with cash, though it will take what it can get.

But like medieval justice, the left wants perp walks, if not heads on pikes. The assumption is that if there aren't indictments, then prosecutors must be going easy on the bankers. Poor Lanny Breuer, the former head of the Justice Department Criminal Division, was vilified for not indicting enough bankers, as if he didn't try.

The truth is that he didn't indict bankers because the 2008 crisis wasn't the result of bank fraud, despite liberal mythologizing. It was a classic credit panic caused by bad government policy coinciding with the rational exuberance of bankers who were responding to the incentives for excessive risk-taking that government created.

We'd like to see Mr. Dimon fight the charges, but the political reality is that he and his bank don't have much choice. His board is eager to move on, and the government will only turn the screws harder if he resists. In a post Dodd-Frank world, banks are public utilities and no CEO can afford to resist the government's demands.

The real lesson of the Morgan settlement isn't that justice has finally been done to the perpetrators of the crisis. That would require arresting Barney Frank and those in Congress who blocked the reform of Fannie and Freddie, plus the Federal Reserve governors who created so much easy credit.

The lesson is how government has used the crisis to exert political control over even the most powerful private financial companies. The real lords of American finance are Attorney General Eric Holder, Treasury chief Jack Lew and their boss in the White House.