Of the $13 billion total settlement with JPMorgan — which would be the largest ever paid to the government by a single corporation — most would go to the housing regulator and to other investors who sustained losses on securities sold by JPMorgan and by two banks it bought during the financial crisis, Bear Stearns and Washington Mutual. Another $4 billion reportedly is earmarked for mortgage relief for homeowners. The only penalty would be $2 billion to $3 billion for the dubious securities sold by JPMorgan itself. This hardly seems punitive; indeed, even with the settlement payments, JPMorgan is likely to come out way ahead, given the income and market clout that Bear Stearns and Washington Mutual have contributed to the bank since the end of 2008. The real losers in the deal would be homeowners, because the $4 billion in relief does not appear to add to existing aid; rather, it is almost surely relief the bank would have provided anyway. JPMorgan also will be able to deduct most of the settlement from its taxes — for a tax savings of roughly $4 billion — unless the settlement forbids the write-off. (Memo to Justice Department: Forbid the write-off.) Another problem is that the deal appears oddly short on accountability. Negotiators reportedly have not yet decided how much wrongdoing, if any, the bank will admit. If there is no admission of fault, that would imply the claims are meritless, though it is unfathomable that the bank would pay $13 billion if it had done nothing wrong. Banks, however, are loath to admit wrongdoing in government settlements because they fear subsequent shareholder lawsuits. If the government accepts no admission, or an admission that is broad and nonspecific, it would be shielding JPMorgan — on the theory, presumably, that private lawsuits would imperil the bank and endanger the economy. But if the settlement, in effect, precludes private litigation, then $13 billion is not enough. The government has to require either a bigger settlement, which seems unlikely, or a clear and comprehensive admission of wrongdoing.
Posted on: Sat, 26 Oct 2013 15:17:26 +0000
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