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JPMorgan Agrees To Pay Billions For Causing Financial Crisis

Yesterday the Justice Department announced a $13 billion settlement with JPMorgan over the megabank’s fraud in the mortgage backed security market that helped trigger a financial meltdown in 2008. The deal was completed after JPMorgan CEO Jamie Dimon summoned Attorney General Holder to a private meeting to avoid a press conference, the terms discussed at that meeting would later be finalized into the current settlement agreement.

The settlement includes a statement of facts, in which JPMorgan acknowledges that it regularly represented to RMBS investors that the mortgage loans in various securities complied with underwriting guidelines. Contrary to those representations, as the statement of facts explains, on a number of different occasions, JPMorgan employees knew that the loans in question did not comply with those guidelines and were not otherwise appropriate for securitization, but they allowed the loans to be securitized – and those securities to be sold – without disclosing this information to investors.

This conduct, along with similar conduct by other banks that bundled toxic loans into securities and misled investors who purchased those securities, contributed to the financial crisis.

In short, JPMorgan committed fraud and it led to a financial panic when people realized they had been had.

Anyone remember the “poor people did it” meme that the conservative think tanks trotted out. They even blamed the decades old Community Reinvestment Act. Well, you can say goodbye to that argument having any credibility now. Wall Street is finally taking the blame, if only symbolically.

The settlement involves JPMorgan paying penalties as well as restitution.

Of the record-breaking $13 billion resolution, $9 billion will be paid to settle federal and state civil claims by various entities related to RMBS. Of that $9 billion, JPMorgan will pay $2 billion as a civil penalty to settle the Justice Department claims under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), $1.4 billion to settle federal and state securities claims by the National Credit Union Administration (NCUA), $515.4 million to settle federal and state securities claims by the Federal Deposit Insurance Corporation (FDIC), $4 billion to settle federal and state claims by the Federal Housing Finance Agency (FHFA), $298.9 million to settle claims by the State of California, $19.7 million to settle claims by the State of Delaware, $100 million to settle claims by the State of Illinois, $34.4 million to settle claims by the Commonwealth of Massachusetts, and $613.8 million to settle claims by the State of New York.

JPMorgan will also be required to use part of the settlement to ” aid consumers harmed by the unlawful conduct of JPMorgan.” Which is supposed to take the form of loan forgiveness and principle writedowns.

So, in the final analysis, is this much of a punishment or even a disincentive for continued misconduct on Wall Street? No, not really.

A good deal of this settlement will be written off in taxes or externalized in other ingenious ways. The amount, paid in 2013, is a pittance compared to profits JPMorgan has reaped from bailouts, fed loans and operating as a Too Big To Fail bank in the intervening years after the crisis and before this civil settlement. And though crimes are essentially admitted to in the settlement no criminal prosecutions have occurred, the Justice Department are litigators not prosecutors when it comes to Wall Street.

The only victory, if you want to generously call it that, is for history. This settlement along with others provides irrefutable evidence of Wall Street’s primacy in the 2008 financial crisis, that banking fraud – not complexity, not poor people – was the cause of the meltdown. Cold comfort for sure.

CommunityThe Bullpen

JPMorgan Agrees To Pay Billions For Causing Financial Crisis

Yesterday the Justice Department announced a $13 billion settlement with JPMorgan over the megabank’s fraud in the mortgage backed security market that helped trigger a financial meltdown in 2008. The deal was completed after JPMorgan CEO Jamie Dimon summoned Attorney General Holder to a private meeting to avoid a press conference, the terms discussed at that meeting would later be finalized into the current settlement agreement.

The settlement includes a statement of facts, in which JPMorgan acknowledges that it regularly represented to RMBS investors that the mortgage loans in various securities complied with underwriting guidelines.  Contrary to those representations, as the statement of facts explains, on a number of different occasions, JPMorgan employees knew that the loans in question did not comply with those guidelines and were not otherwise appropriate for securitization, but they allowed the loans to be securitized – and those securities to be sold – without disclosing this information to investors.

This conduct, along with similar conduct by other banks that bundled toxic loans into securities and misled investors who purchased those securities, contributed to the financial crisis.

In short, JPMorgan committed fraud and it led to a financial panic when people realized they had been had.

Anyone remember the “poor people did it” meme that the conservative think tanks trotted out. They even blamed the decades old Community Reinvestment Act. Well, you can say goodbye to that argument having any credibility now. Wall Street is finally taking the blame, if only symbolically.

The settlement involves JPMorgan paying penalties as well as restitution.

Of the record-breaking $13 billion resolution, $9 billion will be paid to settle federal and state civil claims by various entities related to RMBS.  Of that $9 billion, JPMorgan will pay $2 billion as a civil penalty to settle the Justice Department claims under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), $1.4 billion to settle federal and state securities claims by the National Credit Union Administration (NCUA), $515.4 million to settle federal and state securities claims by the Federal Deposit Insurance Corporation (FDIC), $4 billion to settle federal and state claims by the Federal Housing Finance Agency (FHFA), $298.9 million to settle claims by the State of California, $19.7 million to settle claims by the State of Delaware, $100 million to settle claims by the State of Illinois, $34.4 million to settle claims by the Commonwealth of Massachusetts, and $613.8 million to settle claims by the State of New York.

JPMorgan will also be required to use part of the settlement to ” aid consumers harmed by the unlawful conduct of JPMorgan.” Which is supposed to take the form of loan forgiveness and principle writedowns.

So, in the final analysis, is this much of a punishment or even a disincentive for continued misconduct on Wall Street? No, not really.

A good deal of this settlement will be written off in taxes or externalized in other ingenious ways. The amount, paid in 2013, is a pittance compared to profits JPMorgan has reaped from bailouts, fed loans and operating as a Too Big To Fail bank in the intervening years after the crisis and before this civil settlement. And though crimes are essentially admitted to in the settlement no criminal prosecutions have occurred, the Justice Department are litigators not prosecutors when it comes to Wall Street.

The only victory, if you want to generously call it that, is for history. This settlement along with others provides irrefutable evidence of Wall Street’s primacy in the 2008 financial crisis, that banking fraud – not complexity, not poor people – was the cause of the meltdown. Cold comfort for sure.

Photo by Fletcher6 under Creative Commons license.

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Jane Hamsher

Jane Hamsher

Jane is the founder of Firedoglake.com. Her work has also appeared on the Huffington Post, Alternet and The American Prospect. She’s the author of the best selling book Killer Instinct and has produced such films Natural Born Killers and Permanent Midnight. She lives in Washington DC.
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