The government's case stems from the sale of mortgage-backed securities — bundles of home loans that lenders didn't want to keep on their books — that failed spectacularly after the housing bubble burst. The securities in question were sold not just by JPMorgan but also by Bear Stearns and Washington Mutual, which JPMorgan later acquired on the brink of insolvency (Bear Stearns) or in government receivership (WaMu). Prosecutors contend that the banks defrauded investors by giving false information about the quality of the mortgages in the securities they sold.
Last week, JPMorgan resolved part of the case without admitting wrongdoing, agreeing to pay $5.1 billion to settle claims by
That contention, however, ignores the fact that JPMorgan acquired the assets of WaMu (and Bear Stearns) at a huge discount, in part because of the expected problems with mortgage-backed securities. The bank has made billions of dollars off those assets since then. And one can only imagine the lesson Wall Street would take away if WaMu were allowed to wipe out liability for securities fraud just by being acquired. Wouldn't that encourage more of the fast-and-loose banking that crashed the economy last time?