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Making the big banks pay

Wednesday, Aug 27, 2014

* From last week

Attorney General Lisa Madigan today announced a record $300 million settlement with Bank of America over of the bank’s misconduct regarding risky mortgage-backed securities.

The settlement includes $200 million in relief to fully recover for losses incurred by Illinois’ pension systems and $100 million in consumer relief.

The agreement is part of a national settlement forged by the U.S. Department of Justice and also joined by attorneys general from California, Delaware, Massachusetts, New York and Kentucky. The settlement includes recoveries for RMBS issued by Countrywide and Merrill Lynch, both of which were acquired by Bank of America.

“This settlement resolves the fourth enforcement action I have brought against Bank of America to fight the widespread fraud that was at the root cause of the economic crisis,” said Madigan. “Bank of America, and in particular Countrywide, were major players in virtually every aspect of the market that caused the crisis, from shoddy loan originations and discriminatory lending to African Americans and Latinos to fraudulent marketing of mortgage-backed securities.”

The settlement with Bank of America stems from an investigation by Madigan’s office that revealed that between 2006 and 2008 the bank failed to disclose the true risk of RMBS investments to Illinois’ pension systems and therefore misled the systems when they invested in the RMBS market. […]

Madigan has reached similar agreements with JPMorgan Chase & Company for $100 million to Illinois’ pension systems, and with Citigroup for $44 million to the state’s pension systems and an additional $40 million in consumer relief.

* The Nation has a very long, detailed story about that JPMorgan Chase settlement

In the end, the abject fear of Ben Wagner got Jamie Dimon to cave.

For much of 2013, Dimon, the chairman and chief executive of the formidable JPMorgan Chase & Company, was telling anyone who would listen that it was unfair and unjust for federal and state prosecutors to blame him and his bank for the manufacture and sale of mortgage-backed securities that occurred at Bear Stearns & Company and at Washington Mutual in the years leading up to the financial crisis. When JPMorgan Chase bought those two failing firms in 2008, Dimon argued, he was just doing what Ben Bernanke, Hank Paulson and Timothy Geithner had asked him to do. Why should his bank be held financially accountable for the bad behavior at Bear and WaMu?

It was a clever argument—and wrong. Dimon’s relentless effort to spin his patriotic story soon collided with the fact that Wagner, the US Attorney for the Eastern District of California, had uncovered evidence that JPMorgan itself was guilty of many of the same greedy and irresponsible behaviors. Piles of subpoenaed documents and e-mails revealed that JPMorgan bankers and traders had underwritten billions of dollars’ worth of questionable mortgage-backed securities that Dimon had been telling everyone had originated at Bear Stearns and WaMu. Worse, the bad behavior had occurred on Dimon’s watch.

The likelihood that the Justice Department would file Wagner’s civil complaint last fall—exposing publicly for the first time the litany of wrongdoing at JPMorgan and threatening to push it off the perch that Dimon had so artfully constructed for it over the years—ultimately brought Dimon to the table. On September 26, just weeks after the Justice Department shared a draft copy of Wagner’s complaint with Dimon, the two sides arranged for a summit meeting between Dimon and Attorney General Eric Holder. By mid-November, the bank had agreed to pay $13 billion in a comprehensive settlement of mortgage-related securities claims with various branches of the federal government and a group of states, led by the attorneys general of New York, California, Illinois, Massachusetts and Delaware.

It was the largest financial settlement of all time, and it kept Wagner’s complaint away from the prying eyes of the public. One thing is clear: Dimon’s claim that his own bankers and traders had done nothing wrong in the years leading up to the financial crisis wasn’t true. “The investigators and the lawyers were uncovering very viable evidence,” explains Associate Attorney General Tony West, who headed up the settlement negotiations on behalf of the Justice Department. “I think there was recognition that we had enough evidence there that would support the complaint and would support a robust lawsuit.”

Go read the whole thing. Whew.

- Posted by Rich Miller        

  1. - LincolnLounger - Wednesday, Aug 27, 14 @ 12:07 pm:

    Meanwhile, Dimon is rewarded with more huge pay and bonuses. Remarkable, really.

  2. - Ghost - Wednesday, Aug 27, 14 @ 12:08 pm:

    Rich you have made a huge error here.

    didn’t you know, it is Illinois tax rate, state worker salaries and pensions that caused all the problems in illinois.

    This article mistakenly makes it look like unregulated securities sales and banking practices damaged business and the economy.

  3. - Esteban - Wednesday, Aug 27, 14 @ 12:11 pm:

    Can anyone explain how no one ever seems to be brought up on criminal charges in these deals?

  4. - Ghost - Wednesday, Aug 27, 14 @ 12:19 pm:

    are you asking why jails are filled with minorities for smoking pot but the wealthy white bankers are all walking free and enjoying their multiple houses, and in some cases running for elected office?

  5. - redleg - Wednesday, Aug 27, 14 @ 12:31 pm:

    Nationwide around 42% of home owners are under water with their mortgages.

    This dance with the too big to fails, or something similar to it, will happen again. Not so sure it will be financially survivable the next time.

  6. - wordslinger - Wednesday, Aug 27, 14 @ 12:55 pm:

    Ugh, cost of doing business fines, no matter how big.

    Rob and steal and crash the world economy and you still keep the sweet gig. Bust into someones car and steal their toll change and you’re looking at a forcible felony.

  7. - Aldyth - Wednesday, Aug 27, 14 @ 12:58 pm:

    And nobody goes to jail. Until CEOs start serving jail time, nothing will change. Just factor it into the cost of doing business.

  8. - Nearly Normal - Wednesday, Aug 27, 14 @ 1:02 pm:

    Fat cats stay out of jail while the poorer who can’t afford high-priced attorneys fill them up!

  9. - Da Moat - Wednesday, Aug 27, 14 @ 1:06 pm:

    Criminal charges were brought in New York.

  10. - A guy... - Wednesday, Aug 27, 14 @ 1:08 pm:

    Lisa deserves some credit here. A lot of it, in fact.

  11. - Demoralized - Wednesday, Aug 27, 14 @ 1:34 pm:

    You’re going straight to Republican hell @A guy. lol

  12. - Formerly Known As... - Wednesday, Aug 27, 14 @ 1:35 pm:

    Plenty of fines, while no one does time.

  13. - Pat C - Wednesday, Aug 27, 14 @ 1:45 pm:

    Eric Holder, protecting the upper 1% of the upper 1%…

  14. - paddyrollingstone - Wednesday, Aug 27, 14 @ 1:50 pm:

    Take it away Bob:

    “Steal a little, and they put you in jail. Steal a lot, and they make you king.”

  15. - A guy... - Wednesday, Aug 27, 14 @ 3:41 pm:

    === Demoralized - Wednesday, Aug 27, 14 @ 1:34 pm:

    You’re going straight to Republican hell @A guy. lol===

    I might be! lol.

  16. - move on - Wednesday, Aug 27, 14 @ 5:13 pm:

    Regardless of what you think of Lisa Madigan’s father, you have to admit that when it comes to consumer protection issues she has done tremendous things for Illinois.

Sorry, comments for this post are now closed.

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