Will the JP Morgan $13B Settlement Deter Others? No! It's Time Criminals That Destroy Lives and the Economy Go To Jail!

 

Bloomberg: Who Really Wins and Will it Deter Others on JP Morgan $13B fine, but who does it really hurt?

JP Morgan Chase had $28.9 billion of pretax income last year. It probably would be a stretch to give the Justice Department credit for the full $13 billion. The matters JPMorgan would be resolving include a 2011 lawsuit by the conservator for Fannie Mae and Freddie Mac, as well as a separate suit by New York Attorney General Eric Schneiderman. It also isn’t clear how much of the $13 billion would be paid in cash.

Before continuing we need summarize what they, the entire financial industry, politicians, and the other greedy people behind the scenes, caused. 

The democrats passed a law intended to help people buy their own homes creating sub-prime loans. This allowed financial institutions, banks, investment firms, mortgage companies to borrow money at below prime rate, free money. The lenders pushed out mortgages to anyone that would take one, regardless whether they could pay the loan back. They would make money selling these mortgages. In fact, they set up mortgages that had very low monthly payments for the first few years so people thought they would be able to afford them. But just prior to the crash people's monthly mortgage payments exploded, $600/mo went to $2800/mo and there was no way people could afford to keep their homes. People who took these mortgages are to blame too.

I had a student that worked for a mortgage company. One day she called a business to check on a mortgage applicants employment and salary history. The business that he put down as his place of employment never heard of him. When she told her boss what the company had said, he replied, "don't worry about it, approve the mortgage." This same scenario was playing out all over the country because they were making money selling the mortgages, the more they sold, the richer they got. 

Another part of the disaster is that President George W. Bush deregulated the financial industry removing all safeguards and allowed banks, investment firms, securities houses, all to be joined into companies that became "Too Big To Fail." Think about this when you here the Republicans screaming about too many regulations! So the Bear Sterns, AIG (the biggest) and others were acquiring all these mortgages, making a great deal of money, but they knew that they were bad mortgages because in a few years people were going to realize that they couldn't pay the monthly payments once they exploded. They had to figure a way to dump them.

This is when they decided to bunch these bad mortgages together and make them mutual funds. They were selling bad investments to their own customers, and they knew it! but they still had a problem. Their customers would realize that the funds were risky. So, here came the gem of an idea that went so far over the line that everyone involved from this point on should go right the F%^K to jail. 

The "Credit Swap" is born. If a company sells an insurance policy they have to show assets, capitol, to show that if the insurance policy has to be paid off, that they have the assets to pay it off.  That means that if an insurance company sold insurance policies worth $1 Billion on their face value, they actually had the $1 Billion to pay them off. Also, this is important, insurance is REGULATED. So, the "Credit Swap" was born. The potential buyers of the mutual funds, who would not buy such risky funds were told they could buy a "Credit Swap" "which would ACT as an insurance policy so that if the Mutual Fund didn't pay off it's projected amount that they could use the credit swap to get the face amount of the fund, like getting your insurance policy to pay the benefit in full. So they sold these horrible funds filled with bad mortgages all over the world, selling credit swaps to assure they would pay off.

Here's the problem,  they were NOT insurance policies and were completely made up, NOT requiring the seller to have the assets to pay them off. When people starting getting the increases in their monthly mortgage payments and knew immediately they could never afford them they either gave their lender the keys back or were foreclosed on. This made the mutual funds worthless. The buyers of the mutual finds started to say they wanted their credit swaps to pay off what they were due. The problem with that is that the sellers of the credit didn't have the money to pay them. Remember if an insurance company sold $1B worth of policies they had the assets. These financial giants sold, we still don't know how much,  much more in credit swaps then they had assets to pay them off. In some cases a company that had $50B in assets sold more than $300B in credit swaps it is suggested. But, in actuality it is believed to be much worse. These companies, to this day, will not tell how much they sold in credit swaps, even though we, the taxpayers had to bail out the ones that were too big to fail.  

These institutions, except for a few, like Lehman Bothers are back on their feet, thanks to the tax payers, enjoying hugh bonuses and profits again. They are using part of their gigantic profits today to lobby and fight the regulations in the Dodd-Frank bill that passed from becoming reality. The Dodd-Frank bill was passed to restore the regulations that were removed and allowed companies to become too big to fail. These companies are supposed to be broken up into smaller companies so that this could never happen again. Well, big money has been able to block these regulations from being put back into place and these firms are actually BIGGER than they were when they caused the atrocities that they caused in 2008. 

When the customers of the funds and the credit started demanding payment on the credit swap, because the funds became worthless the crash came. When the stock market dropped it wiped out peoples retirement funds, 401k's. People who worked 40+ years and had contributed to their retirement were now now without their life's savings. People had to either forfeit their homes or be foreclosed on.  Here's a real kicker, how can this not be illegal? 60 Minutes did a piece where someone who was a regulator got a foreclosure notice. She checked and found that the bank didn't have a "Transfer of Deed." A document the bank would absolutely need to foreclose. After a lot of wrangling she was given one. After doing some searching on the internet she seen that the Vice President of the bank that signed her transfer of deed, was apparently the Vice-President of many banks. The mortgage lenders were in such a frenzy to sell mortgages that tens of thousands of the mortgages didn't even have the proper paperwork when they sold them. No problem, they actually created a company, hired hundreds of workers, at $8/hr to forge documents, I'm not kidding! I believe the employees had to sign a minimum of 300 documents per day or they were let go.

Back to the Bloomberg article; 
About $4 billion would be earmarked for consumer relief, details of which are fuzzy. For all we know this could take the form of coupons, discounts or other soft benefits, which might not cost JPMorgan anywhere near $4 billion in the end. This month the Association of Mortgage Investors sent U.S. Attorney General Eric Holder a letter to complain that some of the government’s settlements with large banks “have resulted in the responsible party shifting a portion of the settlement costs” to investors in residential mortgage-backed securities. If the government lets JPMorgan finance breaks for homeowners with other people’s money rather than its own, that isn’t much punishment.

Another $4 billion would go toward resolving the lawsuit related to Fannie and Freddie. For the Justice Department to include this accord in its total settlement figure would be akin to the rooster taking credit for the dawn. The suit isn’t a law-enforcement matter. It’s a business dispute.
Back in 2011 the Federal Housing Finance Agency, which is the conservator for Fannie and Freddie, hired the law firm Quinn Emanuel Urquhart & Sullivan LLP to litigate the two companies’ mortgage-bond claims against JPMorgan and other large banks. The agency’s lawsuit covers $33 billion of residential mortgage-backed securities issued from 2005 to 2007 that Fannie and Freddie brought from JPMorgan and other companies it later acquired, including Washington Mutual and Bear Stearns.

In court papers, Quinn Emanuel attorneys have said Fannie and Freddie lost billions of dollars on those bonds, without specifying more precisely. Perhaps $4 billion (before attorneys’ fees) is a good deal for Fannie and Freddie. Or maybe it’s an even better bargain for JPMorgan, at about 12 percent of the bonds’ face value. It’s hard to say.

The settlement wouldn’t end the Justice Department’s criminal investigation of JPMorgan. The bank was told it won’t receive a waiver from prosecution, and would have to cooperate with the Justice Department’s probes of individuals still under investigation.

Bloomberg Article on "Who Really Wins"

What Do We Do?

The problem going forward is that there is no deterrent from them doing the same thing or worse. These firms are doing better than ever, and using part of their profits to block regulation. What they did, on so many levels, is in fact criminal. They have even admitted fraud. We need to start putting CEO's CFO's and the others responsible for ruining so many people's lives in jail, and not some country club. Let's not forget that they caused us to go into a recession and a financial crisis of the magnitude that we have not seen since the depression. The entire world economy was in danger, and was damaged. We need to regulate the industry and cause a deterrent by putting these criminals in a real jail.