It was five years ago when the sudden collapse and bankruptcy of Lehman Brothers marked the beginning of the financial crisis that spawned the Great Recession. Banks that were “too big to fail” were propped up by hundreds of billions of dollars of taxpayer money even as the games they played wrecked havoc with the American economy and plunged millions of people into homelessness and poverty. Many of those whose lives were destroyed in the collapse are still struggling to rebuild, little thanks to the banks who sold Americans on phony mortgage claims and sold the world on a fraudulent securities scam. Banks who, today, are larger and wealthier than they were before the crisis, and who have yet to be held criminally responsible for their illegal and immoral manipulation of the financial markets (among others). The federal government has been criticized over the years for this lack of criminal prosecutions. After all, these bankers are the people who rigged the whole system so that, no matter who lost, they always gained… and then precipitated an enormous collapse with their shady dealings that they were protected from by the government. To be fair, there is a federal mortgage task force which was created in 2009 to investigate the sub-prime mortgage collapse, but their slow progress to date has let many banks get away with their wanton destruction of the American economy while raking in obscene profits. The big banks are bigger and badder than ever, and now they would really like to just be able to make a “reasonable” payment as a token of their (inadvertent) wrongdoing and to put this whole sorry mess behind us. At least, that’s what JPMorgan Chase would like to do. As the largest bank in the US, it is the epitome of “too big to fail,” and its role in the selling of junk mortgages and mortgage-backed securities has been the topic of several state and federal investigations, including subpoenas and informal requests for information concerning every aspect of the packaging and sale of mortgage securities [source]. JPMorgan also faces at least seven Justice Department probes on issues ranging from energy trading to its hiring practices in China, and the bank’s legal liability could depress its stock price and future earnings. With its third quarter earnings being reported on October 11 , JPMorgan would like to settle its costly legal issues as soon as possible; word from California that state prosecutors would be filing a civil suit against the bank also led to an increased enthusiasm at JPMorgan for negotiating with the Justice Department and striking a deal, regardless of how unpalatable the thought of giving up large sums of money is to the bank. So the bank bit the bullet and went to negotiate with the Justice Department; on Tuesday, they offered to settle at least three separate investigations and federal and state claims against the bank for the sum of…..$3 billion. Just to give that figure some perspective: the second quarter earnings ALONE of JPMorgan Chase for 2013 were $6.5 billion, and American taxpayers bailed JPMorgan out to the tune of $25 billion. You can watch the bank’s offer discussed in this episode of MoneyBeat: The worst part is that this is pretty much business as usual when it comes to “disciplining” the financial sector: no matter how outrageous and criminal in intent and impact their behaviour, bankers are expected to pay fines rather than see the inside of a cell. JPMorgan is trying this strategy because it works; after all, they’ve been fined plenty recently while still making billions in profit every quarter. Besides the civil London-whale settlement [for $920 million], the bank last week agreed to pay $80 million to settle regulatory claims related to credit-card practices. In August, J.P. Morgan, without admitting any wrongdoing, agreed to pay $410 million to settle allegations raised by the Federal Energy Regulatory Commission that the bank manipulated electricity markets in California and the Midwest. Settling allegations of massive fraud and market manipulations “without admitting any wrongdoing” for peanut sums is absolutely ridiculous; no wonder people are fed up with the federal government’s inability to rein in and properly regulate the big banks. Their flagrant and outrageous behaviour goes effectively unpunished, as the very money they use to pay the fines came from the taxpayer by way of their bailout or was created out of nothing on the derivatives market. The government has good reasons to settle with the banks: after all, the court cases are guaranteed to be prolonged for years by the protracted fight with banking legal teams, and a large cash settlement that can be distributed among government agencies and distressed homeowners is very attractive. But to settle for so little? So the federal government has moved to settle with JPMorgan, but not for $3 billion. Even though that would make the settlement one of the largest ever gained by the federal government, it is still laughably small when considering the number of cases that JPMorgan would like settled. The move of the federal mortgage task force investigating the bank has been to up the price for forgiveness to $11 billion. The deal, if struck, would settle claims brought by the Federal Housing Finance Agency, the New York attorney general and end at least three separate investigations by U.S. attorneys’ offices in New York, California and Pennsylvania. The potential deal would involve a $7 billion cash payment and $4 billion in mortgage modifications for troubled borrowers. The bulk of the $7 billion cash payment being discussed would go to Fannie Mae and Freddie Mac, the government-backed mortgage giants regulated by FHFA. The agency, led by Edward DeMarco, claims Fannie Mae and Freddie Mac were duped into buying junk mortgage-backed securities issued by JPMorgan and the financial companies it purchased in 2008, Bear Stearns and Washington Mutual. The rest of the funds would be split between shoring up the Federal Housing Administration, which has claims against the bank for allegedly defrauding taxpayers on FHA loans; New York state; the U.S. government; and distressed homeowners, who could apply for mortgage assistance. [source] Really? Is $11 billion the best we can do against a company that rakes in around $26 billion in sheer profits every year? Well, the insiders who broke the story on the tense negotiations between the government and JPMorgan all state that the numbers are fluid and subject to change; note the big difference in the two offers already discussed. It will also depend on how many investigations and allegations are settled at this time or left for another time; or both parties could leave the table with no agreement except on a court date. The execs at JPMorgan should really be facing criminal charges instead of minor fines, as even preliminary investigations have concluded that the bank violated civil securities laws related to the mortgage securities it packaged and sold from 2005 to 2007 [source], never mind the junk mortgages it duped the government into buying in 2008. The only silver lining in this case, besides the fact that homeowners may soon get some relief with their mortgages, is that even if they manage to buy their way out of this investigation, the show isn’t over yet. Even if JPMorgan resolves many of its outstanding cases with the Justice Department, it will still have to contend with federal probes into its debt-collection practices and its role in the manipulation of a benchmark measure tied to interest-rate swaps. [source]
Posted on: Fri, 27 Sep 2013 02:06:26 +0000
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