After much anticipation, JPMorgan and its government negotiating partners emerged this week from their diet-Coke-filled backroom (smoke-filled backrooms are passé) to announce "a $13 billion settlement with JPMorgan--the largest settlement with a single entity in American history." The federal and state claims against JPMorgan were grounded in failures to be fully forthcoming about the quality of the mortgages backing securities the bank was selling. The press release explained that JPMorgan's actions "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." Such a broad, unfocused accusation against multiple banks cannot alone justify a $13 billion settlement with JPMorgan, but the eleven-page statement of facts does not provide much more insight. We are told that "a number of the loans included in at least some of the loan pools" that JPMorgan bought and securitized did not conform to the bank's representations to buyers. We are further told that Bear Stearns and Washington Mutual--which JP Morgan purchased during the crisis--withheld information about the poor quality of certain mortgages from purchasers of their securities. The settlement documents include what appears to be a comprehensive list of the residential mortgage-backed securities issued or underwritten by JPMorgan, Bear, and WaMu, but there is no indication of which of these included mortgages that the banks knew did not comport with their representations to investors. Nor is there any indication of the basis upon which the entities split the $13 billion among themselves and the seemingly arbitrary group of consumers and other non-parties to the settlement that will receive a piece of the $13 billion. The government accused JPMorgan of hiding behind generalizations about the types of mortgages backing the securities it was selling. Yet, in settling the case, is the government hiding behind generalizations too.
JPMorgan's Unsettling Settlement
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