How Much Puff versus Pay in Proposed JP Morgan Chase Settlement?

JPMorgan-Trading_Loss-0ca37-1705New Orleans   My goodness, hysteria has broken out among the financial chattering class with the news of a $13 billion proposed settlement between JP Morgan Chase and the Justice Department and Federal Housing Finance Agency over the bank’s handling of the mortgage crisis.  The lead editorial in the Wall Street Journal claimed variously that parts of the settlement might let “the feds pass out the money to consumers or their favorite advocacy group…” making “the fact that this is a political shakedown and wealth distribution scheme even clearer.  Perhaps the Administration will have the checks arrive in swing Congressional districts right before the 2014 election.”   Further this rabid, foaming at the mouth editorialist draws the lesson that this “is how government has used the crisis to exert political control over even the most powerful private financial companies. The real lords of American finance are Attorney General Eric Holder, Treasury chief Jack Lew and their boss in the White House.”

            Wow!  All, I can really say to all of that is:   I wish!

            The truth is that no one has much of any idea how this settlement will be paid, and unfortunately in the wake of recent settlements, I have to wonder how much of this will be real money paid versus credit for fixing the bank’s own balance sheet that should have been done years ago. 

            All any of us really know is that $4 billion is to settle charges with FHFA for the bank’s bundling of garbage loans sold to Freddie Mac and Fannie Mae, $4 billion is for homeowner relief ostensibly, and $5 billion is fines for misconduct.  We already know from the recent monitor’s report that Justice there settled for credits for the bank’s cashing out 2nd mortgages, refinancing underwater loans, and short sales, all of which I would argue were paybacks to the bank itself rather than efforts to keep people in their homes.   Contrary to the crazy folks in the editorial department of the Journal, is there any real reason to believe that Justice has cut a better deal this time than last? 

            Sadly, when the real details are out, 8 of the 13 billion may end up in a form of financial shaming for sure, but basically a fancy recycling program of the banks’ billions back into the their own bank accounts.  

            Cheers to the fact that Attorney General Holder would not give them a “get out of jail” card or whisk away the criminal investigations for their activity in California, but seriously does anyone really think that this late in the game that level of accountability is coming?   I doubt it seriously, and Chase is saying it is confident that that won’t happen.  

            In short, this is “about time” good news, and let’s hope it does scare Wall Street a bit, but this is likely no watershed for homeowners nor any real distribution of justice for the millions who have lost their homes.  


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