JPM And DOJ Reach Tentative Settlement Over Role In Financial Crisis

Reuters: JPM Negotiated $13 Billion Settlement With Justice Department Over Role In 2008 Financial Crisis. According to an October 20 report from Reuters, JPMorgan Chase & Co. CEO Jamie Dimon “has negotiated a tentative $13 billion deal to settle many of the U.S. investigations into mortgage bonds that JPMorgan -- and the banks it bought during the financial crisis -- sold to investors.” Reuters explained that the settlement related to civil charges against the bank, and investigations of criminal charges remain open. From Reuters:

While JPMorgan and the government have agreed to broad outlines of the $13 billion agreement, many parts of the settlement are not yet finalized, including a deal to resolve lawsuits from the credit union regulator, according to another person familiar with the matter. The sources all spoke on condition of anonymity because the talks are private.

The tentative deal came after Dimon, U.S. Attorney General Eric Holder and some of their aides took part in a telephone call on Friday. [Reuters, 10/20/13]

Right Wing Media Accuse Obama Administration Of “Shakedown”

WSJ: JPMorgan Settlement Is “Shakedown,” “Medieval Justice.” On October 21, The Wall Street Journal editorial board wrote that the JPMorgan settlement was a “watershed moment in American capitalism.” They continued, claiming that “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.” From the editorial:

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. [The Wall Street Journal, 10/21/13]

Fox Business Correspondent Charlie Gasparino Calls JPM Settlement “McCarthyism.” On the October 21 edition of Fox News' America's News HQ, Fox Business senior correspondent Charlie Gasparino claimed that JPMorgan Chase was targeted by the Justice Department for CEO Jamie Dimon's criticism of the Obama administration, saying JPMorgan has “no shot [against government prosecution] when you're up against this type of McCarthyism.” [Fox News, America's News HQ, 10/21/13]

Stuart Varney: JPM Settlement “Looks Like Heavily Politicized Prosecution.” On the October 21 edition of Fox News' America's Newsroom, Fox Business host Stuart Varney said of the JPMorgan settlement, “In my opinion, this is an attempt to pin all of the blame for the crash on Wall Street and pin it on the banks as well.” Varney continued, “It looks like a heavily politicized prosecution in which Wall Street is taking all of the blame for the crash of 2008.” [Fox News, America's Newsroom, 10/21/13]

But JPMorgan Faces Charges Stemming From Legitimate Concerns

CNNMoney: Settlement Addresses Allegations Of Deceptive Practices. An October 19 CNNMoney article explained that the $13 billion settlement addresses deceptive practices employed by JPM and Bear Stearns (which was later acquired by JPM) when selling mortgage bonds in the years before the financial crisis. From CNNMoney:

The tentative deal includes a $4 billion settlement regarding allegations by the Federal Housing Finance Agency that

Morgan Chase misled Fannie Mae and Freddie Mac when it sold them home loans, many of which soured.

Fannie and Freddie sustained massive losses on mortgage-backed securities as the housing market imploded, and required a bailout of over $187 billion. The firms, which have been overseen by the FHFA since their 2008 rescue, have since returned to profitability, paying $136 billion in dividends to the Treasury Department.

The settlement also would resolve a smaller separate case brought by New York Attorney General Eric Schneiderman. Schneiderman sued JP Morgan Chase in October over alleged deceptive practices in sales of mortgage bonds by Bear Stearns, which was acquired by JP Morgan Chase. [CNNMoney, 10/19/13]

And JPMorgan Is Responsible For Itself, Bear Stearns, And Washington Mutual

Center For Economic And Policy Research's Dean Baker: JPM Understood The Risks When They Bought Bear Stearns, WaMu. In an October 20 post on Firedoglake, CEPR's Dean Baker explained that not only is JPMorgan responsible for misrepresentation of its own mortgage bonds, but in acquiring Bear Stearns and Washington Mutual, JPM willingly took on those companies' potential liabilities “such as the legal issues being raised in the Justice Department suit”:

There are two points worth making on this. First, if 70 percent of the securities came from Bear Stearns and Washington Mutual, then 30 percent came from J.P. Morgan. This means that it could have been involved in misrepresenting tens of billions of dollars in mortgage backed securities sold to investors. We have young men sitting in jail for stealing cars worth a few thousand dollars, but the Post thinks that Wall Street bankers should get a pass on fraudulently passing off tens of billions in bad mortgage backed securities.

The other point is that executives of large corporations like J.P. Morgan are supposed to understand that when they take over a company it can involve both upside and downside risks. On the upside, the company may have product lines or assets that the buyer did not fully appreciate at the time of the acquisition. On the downside, it may have liabilities such as the legal issues being raised in the Justice Department suit. [Firedoglake.com, 10/20/13]

Daily Beast: “In Agreeing To Take The Good, JPMorgan Chase Agreed To Take The Bad.” In an October 21, column, the Daily Beast's Daniel Gross wrote, “When you buy a company, or a piece of property, you don't just acquire the assets.” He continued to explain that JPMorgan willingly acquired Bear Stearns and Washington Mutual, believing they would produce positive returns for the company:

The price you pay isn't just for the good stuff, in other words. Anybody who has negotiated the process of buying a home knows this. You settle on the price, and then, when the inspector says the roof is pretty much done, you adjust the price accordingly. That's why it pays to conduct due diligence, whether you're buying a condo or a giant bank.

While the Bear and WaMu deals were conducted hastily, and amid market turmoil, the rules still apply. In agreeing to take the good, JPMorgan Chase agreed to take the bad. And make no mistake, the bank was really pleased to do both deals. It was perfectly happy to acquire the functional businesses of Bear Stearns and the deposits and branches of Washington Mutual.

[...]

What's more, we should dispense with the notion that JPMorgan Chase deserves some legal and regulatory slack because it was doing everybody a favor and because it had done the deals at the instigation of the government. Sure, Treasury Secretary Henry Paulson and other regulators were pleased that JPMorgan Chase agreed to take over faltering Bear Stearns. But I was there at the time. And JPMorgan Chase people thought they were getting a steal, the value of a lifetime. The price paid, $10 a share, came to about $1.2 billion. But the value of Bear Stearns's headquarters building at 383 Madison was pegged at $1 billion. As Charlie Gasparino, then of CNBC, reported in the spring of 2008 Steve Black, the co-head of investment banking at JPMorgan Chase, said the bank “got something that has far more value than the price we paid” and that it expected to earn $1.1 billion from Bear Stearns businesses in 2009. [The Daily Beast, 10/21/13]

Americans For Financial Reform: “JPMorgan Is Trying To Get Away With Enjoying The Profits From Bear's Activities, While Leaving Defrauded Investors And The Public To Pay The Costs.” In a November 1, 2012 letter to chairs of the Residential Mortgage-Backed Securities Task Force, Americans for Financial Reform wrote that not only did JPM pursue the acquisition of Bear Stearns, but also that potential liabilities of the company were factored into the purchase price. From the letter:

In short, JPMorgan's current description of its purchase of Bear has very little to do with what actually happened. Dimon and JPM went after Bear Stearns relentlessly and with eyes wide open. While JPM boxed out any and all competitors for the deal, it still masterminded a $29.0 billion direct subsidy from the Fed to address perceived risks. The Bear assets acquired were worth many times more than the $1.2 billion of JPM stock that was paid. The assumption by JPM of Bears' liabilities was more than an essential part of the deal

it was the most significant part of the purchase price. JPM was doing no one a “favor,” and should not be permitted to renegotiate the deal at the expense of the taxpayers or the individuals, pension plans, 401k participants, and other investors who lost significant sums from Bear Stearns' wrongdoing and are entitled to a recovery. JP Morgan is trying to get away with enjoying the profits from Bear's activities, while leaving defrauded investors and the public to pay the costs. [Americans For Financial Reform, 11/01/12 accessed 10/21/13] 

Former Treasury Sec. Hank Paulson:  JPMorgan Knew At The Time There Was No Indemnification Against Prosecution.  In an October 13 interview with CNBC's Andrew Ross Sorkin, former Treasury Secretary Hank Paulson said that, “I assume” it was in JPMorgan's best interest to acquire Bear Stearns and Washington Mutual. When Sorkin said there was an “idea that actually the government helped but this is what [JPMorgan] wanted. This was beneficial to JPMorgan and they were never indemnify -- the government couldn't offer them an indemnification,” Paulson responded saying that JPMorgan CEO Jamie Dimon, “knew that at the time.” [CNBC, 10/17/13]