Democracy Now: Yves Smith on $13B JPMorgan Settlement

Worth watching/listening to the whole thing, but excerpt:

AMY GOODMAN: This is Democracy Now!, democracynow.org, The War and Peace Report. I’m Amy Goodman, as we turn to part two right now of what’s being touted as the biggest banking settlement in U.S. history. JPMorgan is set to pay a record $13 billion fine to settle investigations into its mortgage-backed securities. Five years ago, the bank’s risky behavior helped trigger the financial meltdown, including manipulating mortgages and sending millions of Americans into bankruptcy or foreclosure. JPMorgan said in a statement that its latest settlement is an "important step." However, many in the media have portrayed the deal as unfair to the bank.

We’re going to turn right now to Yves Smith. She is a well-known financial analyst, and she is the founder of Naked Capitalism, the blog. She’s also author of ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism.
If you could talk about—how did JPMorgan Chase violate the law?

YVES SMITH: The violated the law part, we’re not—we’re not completely clear on JPMorgan proper. It’s important to understand there are three legal entities involved. One is Bear Stearns, which they acquired during the crisis. One is Washington Mutual, which they acquired during the crisis. Jamie [Dimon] was delighted to buy those both at the time. And we may get into that detail. These are still financially extremely attractive deals to him. So the idea that Dimon was in any way, shape or form a victim in doing these acquisitions is really overstated.

But the key part of this deal is that this is about liability to investors. So, the government—the government is representing, in this case, a whole bunch of states that have claims against JPMorgan and the different entities, as well as the FHFA, which—sorry, Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac, which entered into its own deal. But basically, the bank sold—these different banking entities sold bonds to investors that they said would be of a certain quality, and they were way short of that. And then, it was because they were, you know, lousy borrowers. They basically would say that it had a higher loan-to-value ratio; that the fellow had income, and he didn’t; that it was a primary resident, and it wasn’t—those sort of misrepresentations.

AMY GOODMAN: Is this evidence that the Obama administration is getting tough on Wall Street?

YVES SMITH: I don’t really buy that theory, because the thing that brought Jamie Dimon to the table was actually a criminal investigation which was initiated in 2007 under the Bush administration. It takes a long time to develop these prosecutions of these complex criminal frauds. So that’s why it’s been such a long lead time. And this settlement has been under negotiation for some time. There have been various investors, private investors, as well as the government, that has been pursuing these investor claims. So this has been sort of cycling through on all kinds of fronts. These suits—you know, for example, different other banks, Bank of America and, I believe, HSBC has settled their investor claims with the government. So those claims—they’re just cycling through those kind of settlements right now.

AMY GOODMAN: Yves Smith, can you talk about the pain that was caused by this? It’s always talked about in these sort of very un-understandable financial terms, macro terms, so it’s hard to really understand, though millions of people felt what JPMorgan did.

YVES SMITH: Well, there—again, this part of the settlement actually doesn’t get to the pain. That was a settlement we had last year. The settlement last year was the part—there was a huge federal-state settlement last year that was supposed to be about the homeowners. But in this case, this—these settlements are all about the investors. And so, you know, to your point, what JPMorgan is going to pay in this settlement is larger than what it paid in the settlement last year to homeowners. I mean, that just intuitively seems extremely unjust, you know, the fact that investors are basically going to get a bigger dollar compensation out of all these banking entities than homeowners got last year. I mean, that’s crazy by anybody’s standards.