So, J.P. Morgan Chase was able to settle with the Justice Department for $13 billion. This is rewarding bad behavior. Don’t get me wrong, $13 billion is a lot of money. But J.P. Morgan Chase, like many other of these financial behemoths, broke the law and committed fraud.
From WSJ:
The historic settlement ends a number of investigations and lawsuits targeting soured mortgage bonds issued before the financial crisis and amounts to the biggest combination of fines and damages extracted by the U.S. government in a civil settlement with any single company.
“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,” Attorney General Eric Holder said in a statement. “J.P. Morgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm’s behavior.”
From Matt Taibbi (He asked for haiku’s about the Morgan Chase Fail and some are quite humorous):
What Washington Mutual and Bear Stearns (Chase’s guilty acquisitions) were doing in the mortgage markets was little more than an elaborate take on a Madoff-style Ponzi scheme. Actually, most of the industry was guilty of the same thing, but in the cases of these two banks in particular the concrete evidence of fraud is extensive, and the comparison to a Madoff-style caper isn’t a fanciful metaphor but more like evidentiary fact.
Madoff’s operational fiction was his own personality. He used his charm and his lifestyle and his social status to con rich individuals into ponying up money into an essentially nonexistent investment scheme.
In the cases of both WaMu and especially Bear, the operating fictions were broad, carefully-crafted infrastructures of bogus guarantees, flatlined due diligence mechanisms, corrupted ratings agencies and other types of legal chicanery. These fake guarantees and assurances misled investors about they were buying. Most thought they were investing in home mortgages. What they were actually investing in was a flow of cash from new investors that banks like Bear and WaMu were pushing into a rapidly-overheating speculative bubble.
This is what I’m talking about. It is like some drunk rich kid who crashes his daddy’s car. The rich kid doesn’t go to jail for his crimes. He doesn’t even have to do community service. He father simply opens up his wallet and takes care of the problem. This is exactly what JP Morgan gets to do. I’m not saying that the fine has to be so big as to kill the company. I’m saying that people committed fraud. They should go to jail.
A good deal for JP Morgan but completely inadequate as a suitable punishment.
@Jack Oh, you know it. It was a great deal for JP Morgan or they wouldn’t have made it. They were facing a mountain of litigation. Now, with this settlement all of it (or at least most of it) goes away. Look for B of A to make a similar deal.