Chase Bank DOJ Settlement – Political Retribution?

JPMorgan Gets the Obama Treatment

Chase Bank DOJ Settlement – Political Retribution?

By Chris Flook (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

JPMorgan Chase & Co. has reached a tentative agreement with the U.S. Department of Justice (DOJ) to pay a staggering $13 billion fine related to its involvement in questionable mortgage-backed bond sales that contributed to the financial crisis of 2007-2008.

Although the settlement represents the largest payout ever by a financial firm to the U.S. government, the mega-bank remains on the hook for an unresolved criminal inquiry. Dick Bove, an influential bank analyst at Rafferty Capital, accurately assessed the meaning of the deal. “This is a basic and fundamental attack on capitalism,” he said. “It is possible that the government is taking away the property of the JPMorgan shareholders without the shareholders having committed any crime or having any say in the expropriation of these funds.”

Such considerations are apparently irrelevant. JPMorgan CEO Jamie Dimon negotiated with U.S. Attorney General Eric Holder shortly after the financial markets closed last Friday. The broad strokes of the deal were reportedly reached in a phone call between Holder, Dimon, JPMorgan General Counsel Stephen and Associate U.S. Attorney General Tony West.

The tentative deal announced on Saturday remains somewhat unclear, but the Washington Post reports that $4 billion in relief will be aimed at homeowners, part of which may lower what they owe on their mortgages. Another $4 billion would be paid to the Federal Housing Finance Agency (FHFA), which regulates mortgage behemoths Fannie Mae and Freddie Mac. The deal also resolves a lawsuit fled by New York State Attorney General Eric Schneiderman with regard to the securities, as well as a California civil probe. The statement of facts that will be publicly announced remains unresolved.

JPMorgan was one of 18 banks sued by the FHFA for faulty mortgage bonds two years ago. In JPMorgan’s case, the FHFA accused the bank and its affiliates of making false statements and omitting material facts when they sold $33 billion of mortgage bonds to Fannie and Freddie between 2005 and 2007. Fannie and Freddie have received $187.5 billion in taxpayer-funded bailouts to date.

It is likely the final deal will require JPMorgan to cooperate in a criminal probe of those tied to the issuance of the allegedly dubious mortgage-backed securities. According to the unnamed source, Holder insisted that criminal liability would remain a separate issue. Nancy Bush, a bank analyst who founded NAB Research LLC in New Jersey, thought such a development was ominous. “To not get the waiver from criminal prosecution is not good,” she contended. “What we’re looking for in a settlement of this size is certainty from things like the criminal prosecution of a company. The Street wants certainty.”

Many financial analysts characterized the deal as blatantly unfair, perhaps rightly so. In a classic example of the bromide “no good deed goes unpunished,” they note that 80 percent of the mortgages under criminal investigation were acquired from Washington Mutual and Bear Stearns. Both of those failing banks were acquired by JPMorgan in 2008 at the request of the federal government, which needed the bank’s help to keep the crisis from getting even bigger than it was. JPMorgan’s own culpability involves mostly mismanagement, not investor fraud.

For others, the deal reeks of politics. In 2009, the New York Times referred to JPMorgan CEO Jamie Dimon as President Obama’s “favorite banker, and in turn, the envy of his Wall Street rivals.” “With the crisis, Mr. Dimon, a longtime Democratic donor, has become even more politically engaged, in the process becoming perhaps the most credible voice of a discredited industry,” the paper added.

A 2012 Politico profile was equally glowing, noting that Dimon was one of President Obama’s “most prominent Wall Street friends, a rare high-profile Democrat in an industry dominated by low-tax, free-market Republicans.” That friendship resulted in Dimon making 16 trips to the White House, including three meetings with Obama himself, as part of an effort to make the president seem more business-friendly.

All of that changed when Dimon, despite his Democratic leanings, began to criticize the administration’s economic policies during the 2012 election campaign. In May 2012, while characterizing America as a nation in possession of a “royal straight flush” represented by the world’s strongest military, best businesses, most entrepreneurial workforce and deepest capital markets, Dimon also cited three failings of the Obama administration: the debt ceiling crisis, the failure to adopt the Simpson-Bowles recommendations for fixing our financial crisis and the administration’s “constant attack on business.” When asked why corporate America wasn’t hiring more in a time of record profits, Dimon upped the ante, insisting that the 4 million jobs added by business had nothing to do with government policy. “It should have been 8 million,” he said, whacking the administration yet again.

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