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“Fannie Mae Made Me Do It”: JPMorgan Chase Is Too Big To Whine

A new injustice plagues the land, at least according to people who take the side of JPMorgan Chase & Co. and its chief executive officer, Jamie Dimon, after the bank’s tentative agreement to pay a record $13 billion to end civil claims related to its sales of mortgage bonds. The bank and its leader are now — it is claimed — subject to Politically Motivated Prosecution.

This is pointless whining, for three reasons.

First, when pressed, advocates for big banks readily concede that “no one is above the law.” What else can they say in a democracy? When Attorney General Eric Holder and his criminal division chief at the time, Lanny Breuer, suggested last year that very large companies were too big to prosecute, there was even some feeling of embarrassment in the big bank camp -– as well as a great deal of pressure on Holder to walk back his congressional testimony on this point.

Now that charges have been brought and a settlement is almost signed, Dimon’s allies can’t stop complaining.

So no one is above the law, but no charges should be brought? Dimon’s camp wants regulation and law enforcement by lip service, which would just be an invitation to further lawless behavior.

Second, JPMorgan is the largest U.S. bank, and one of the most powerful politically. Dimon met with the attorney general to discuss the charges in September. (He spoke again with Holder at the end of last week.) Most people don’t get such an opportunity — in fact, the Justice Department can’t remember the last time a CEO had this kind of access.

The Supreme Court isn’t known to be anti-business. If there is anything unreasonable or unjustified in the charges, JPMorgan should fight them all the way up.

To suggest that JPMorgan has no legal recourse is to completely misrepresent the way the legal and political systems work. JPMorgan makes big political donations and has powerful protectors in Congress. The bank employs some of the best lawyers, too.

Third, JPMorgan bears responsibility in two ways: the actions by companies it bought (Washington Mutual Inc. and Bear Stearns Cos.) and the actions by JPMorgan itself.

If buying a company could absolve that entity and its employees of all sins, imagine the merger wave we would have.

As Peter Eavis wrote in the New York Times, JPMorgan’s executives knew what they were buying, and expected the kind of legal problems that materialized. After the Washington Mutual deal closed, Dimon said, “There are always uncertainties in deals,” and “our eyes are not closed on this one.”

Assets at both Bear Stearns and Washington Mutual were — justifiably — sharply marked down upon acquisition, presumably to reflect mortgage-related issues.

Blaming the government is a way of saying crisis management by merger isn’t a good idea; creating the largest U.S. bank in this fashion wasn’t such a smart idea for anyone. But at the time, Dimon was keen to make a deal, including one with Federal Reserve financing, in the case of Bear Stearns.

Banking is a regulated industry. But we all observe rules and regulations in our lives. If someone breaks the law, does that mean it is solely the fault of the legislator or the regulator? This is very strange logic.

And “Fannie Mae made me do it,” sounds like a line from Monty Python. But that’s exactly what some of Dimon’s supporters are saying.

More broadly, the list of JPMorgan’s own wrongdoings grows longer and includes illegal foreclosure practices. Nina Strochlic at the Daily Beast calculates that since 2011 the bank has been fined $8 billion (before the latest settlement) in almost a dozen separate instances of illegal and improper behavior. For more background, I recommend Josh Rosner’s recent analysis.

Did Dimon and his colleagues break the law on purpose? Presumably not; otherwise, the board of directors surely would have made a change by now.

Are the allegations of a pattern of illegal behavior by JPMorgan just a politically motivated prosecution, a vast left-wing conspiracy? Anyone making such a claim is just being silly and lacks credibility.

The most plausible explanation is that JPMorgan has become so large and so sprawling that management has lost control. Dimon’s attention to detail and risk management were once legendary. It is impossible to look at him now without also remembering that he carries the London Whale derivatives fiasco on his shoulders. This impression was reinforced last week when JPMorgan admitted to a form of market manipulation in connection with the London Whale (this was a separate settlement with the U.S. Commodity Futures Trading Commission).

At a debate in New York last week, a proponent of big banks argued that the resolution of the London Whale episode showed that the system works.

Was he referring to the system in which our largest bank repeatedly breaks the law, is slapped on the wrist and whines about it?

JPMorgan has lost control of its legal risks. What other risks will it mismanage next?

 

By: Simon Johnson, Featured Post, The National Memo, October 21, 2013

October 25, 2013 Posted by | Big Banks, Financial Institutions | , , , , , , , | 1 Comment

“Now If Congress Could See The Light”: A Fully Private Mortgage Market Is Good For Nobody

Let’s be clear about one thing: just about everyone agrees that the federal government is providing too much direct support to the mortgage market today. That support should be scaled back over time, but it cannot be eliminated entirely.

We believe, as do many others across the political spectrum, that a modest level of government support is necessary to promote a stable, accessible and affordable housing market. That includes an explicit guarantee on certain kinds of mortgage debt – but not the financial institutions that issue that debt.

Rather than keeping taxpayers on the hook for every dollar of loss on mortgage-backed securities – as we do now with Fannie Mae and Freddie Mac – we would rather see private capital take losses first. Financial institutions should have the opportunity to buy limited government insurance on those securities in exchange for a fair and financially responsible fee, much like the Federal Deposit Insurance Corp. offers on bank deposits.

Regardless of whether you own or rent, a government guarantee is critical to your economic well-being. Here are two reasons why.

First and foremost, the guarantee plays a crucial role in preventing and lessening the intensity of boom-and-bust cycles in the housing market. When private capital retreats from residential mortgages during a downturn, government-backed entities stay open for business, ensuring that money keeps flowing into housing. First-time homebuyers can still get a home loan. Homeowners can still refinance or find a buyer if they’re looking to move. Developers can still access the capital they need to start construction on new apartment buildings. Each of these activities sends ripples throughout the economy – new construction jobs, more demand for household goods, stronger and more stable home values – which improves everyone’s bottom line.

In the most recent example, purely private mortgage lending basically ground to a halt when the financial crisis began in 2008. Ever since Fannie Mae, Freddie Mac and the Federal Housing Administration have backed roughly 9 in 10 mortgages made in the U.S., saving the market from even worse collapse.

According to a recent analysis from Moody’s Analytics, a fully private market would have “difficulty providing stable mortgage funding during difficult financial times.” The authors concluded that “the resulting credit crunch further undermines housing demand, driving down prices and unleashing a vicious cycle.” That’s not good for anybody.

Second, it’s important to note that government-backed mortgages don’t just help homebuyers – who benefit from lower interest rates and access to longer-term, fixed-rate mortgage products. They also help the one-third of the U.S. population that rents.

In addition to their homeownership operations, Fannie and Freddie guarantee so-called “multifamily” mortgages, which finance apartment buildings with five or more units. That guarantee plays an important role in ensuring that quality, affordable rental options are available for low- and middle-income families. In 2009, the first full year of the financial crisis, Fannie and Freddie backed 85 percent of new multifamily mortgages; today that number is closer to 50 percent.

According to a recent analysis from Freddie Mac, if the government guarantee on multifamily mortgages were to go away, the market would shrink significantly. New construction on rental housing would plummet by as much as 27 percent, while average rents would rise by as much as 2 percent.

It’s clear that America’s families, regardless of their housing situation, benefit from an explicit, limited and paid-for government guarantee on mortgage debt. And a growing bipartisan consensus agrees: of the 25 plans for housing finance reform reviewed by the Center for American Progress, all but five preserve some sort of government guarantee.

Now, if only Congress could come to a similar agreement.

 

By: Andrew Jakabovics and John Griffith, Analysts at Enterprise Community Partners, U. S. News and World Report, August 13, 2013

August 18, 2013 Posted by | Financial Institutions, Home Owners | , , , , , , | Leave a comment

“BFF’s”: Mitt Romney And Freddie Mac

To get an edge in advance of Florida’s Republican presidential primary, Mitt Romney has gone after Newt Gingrich this week on his ties to Freddie Mac. At first blush, it’s not a bad move; Gingrich is clearly vulnerable on the subject.

But Romney may not have thought the attacks all the way through.

According to his personal finance disclosure forms, Romney invested pretty heavily in Freddie Mac and made a fair amount of money doing so.

Asked about this on Fox News this morning, Romney was reduced to lying.

BRIAN KILMEADE: Yesterday Newt Gingrich joined us and said, “I just found out that Mitt Romney was in investor in Fannie & Freddie.” What’s the truth?

MITT ROMNEY: [Laughs] That’s pretty funny. My investments, of course, are managed not by me. For the last 10 years they’ve been guided and managed by a trustee, they’re in a blind trust. And the trustee invested in mutual funds and so forth and apparently one of the funds had Fannie Mae or Freddie Mac bonds.

We already know that’s not true. The Boston Globe reported on some of Romney’s finances a few months ago, and specifically noted, “[U]nlike most of Romney’s financial holdings, which are held in a blind trust that is overseen by a trustee and not known to Romney, this particular investment was among those that would have been known to Romney.”

The “blind trust” line isn’t going to cut it.

For that matter, Romney is slamming Gingrich for lobbying on behalf of Freddie Mac, but at the same time, a top Romney campaign surrogate and advisor is also — you guessed it — a former lobbyist for Freddie Mac.

Romney’s campaign really ought to be paying closer attention to these details.

By: Steve Benen, Contributing Writer, Washington Monthly Political Animal, January 25, 2012

January 26, 2012 Posted by | Election 2012, GOP Presidential Candidates | , , , , , | 1 Comment

Inconvenient History: Proof Positive That Newt Gingrich Supported Healthcare Mandates

As Newt Gingrich takes his turn as the GOP flavor of the week, all that baggage he carries is beginning to be opened, unpacked and examined like a tourist going through customs on a slow day at the airport.

The past few days have shined a light on Newt’s relationship with Freddie Mac and Fannie Mae, the quasi-governmental agencies that Gingrich has been hammering for their role in the nation’s mortgage meltdown. Yet, it turns out that Gingrich’s consulting firm accepted a sum well in excess of one million dollars from these same agencies to push their agenda with his Republican buddies on the Hill.

Now, the media is getting around to examining Gingrich’s record on healthcare reform and are finding themselves shocked to learn that, as Governor Romney accused during one the recent if endless GOP debates, Newt was a big supporter of mandated health insurance long before he was against it.

Anybody who is similarly surprised by this has simply not been paying attention. As I wrote in a Forbes piece back in May of this year, there is a fairly endless record of Gingrich’s commitment to health insurance mandates.

Newt’s explanation for his now inconvenient history is that he only adopted his pro-mandate position in the early 90’s for the purpose of derailing Hillarycare (the failed Clinton administration effort to reform our health care system.)

And yet, he has left a long trail of mandate laden bread crumbs that clearly proves otherwise.

Appearing earlier this year on Meet The Press, Gingrich stood up for his long-held position that mandates were a good idea. However, upon realizing that his statements were causing him big problems with the Republican base, Gingrich recorded and released a video just a few days later wherein he announced:

I am completely opposed to the Obamacare mandate on individuals. I fought it for two and half years at the Center for Health Transformation. I am against any effort to impose a federal mandate on anyone because it is fundamentally wrong and I believe unconstitutional.

Not only did Newt flip-flop on his position, he outright lied when he said that he has fought the notion of mandates at his Center for Health Transformation.

How do we know he is lying?

Just click on the link and you can visit the Insure All Americans section at Gingrich’s Center for Health Transformation website. Of course, should you take a little trip over to this smoking gun today, you will find that the relevant page has been removed. Go figure.

Fortunately, David Corn of Mother Jones and MSNBC, along with the Washington Post, got there before the page was taken down. As a result, courtesy of Corn, we have the screen image of the relevant proposal. You will want to note the highlighted section.

This, my friends, is unarguably a proposal that includes a health insurance mandate. And it gets even more interesting. According to the Washington Post article referenced above, Newt’s healthcare think tank raked in some $37 million from the healthcare industry by supporting the mandate concept.

Nice work if you can get it but not particularly useful if you are going to run for president on a platform that completely trashes what you had previously supported.

Now, one could argue that Newt’s proposal is somehow different from Obamacare because Gingrich exempts those who earn less than $50,000 from having to purchase coverage.

But that argument would fail miserably. In Newt’s book “Real Change”, published in 2008, Gingrich repeated his proposal that those making over $50,000 be required to purchase health insurance. But he also noted that those who earn below that level should receive tax credits or government subsidies to assist them in acquiring health care insurance coverage.

Sound familiar? It should. The proposal is pretty much Obamacare on the nose.

If GOP primary voters are paying attention, this should close the door on poor old Newt. After all, what’s the use of running a cranky old guy for President when he spends most of his time engaging in hypocrisy on steroids and running away from previously held positions for which he was paid magnificently to pursue.

And if this is the kind of candidate you’re looking for, why not choose Governor Romney? A pretty masterful flip-flopper himself, at least Romney made his money the old fashion way – buying companies, stripping them down, putting thousands out of work, and then reselling the pieces for a giant profit.

This has got to be preferable to a man who got rich peddling his influence with his Republican colleagues in Congress to the highest bidder…doesn’t it?

By: Rick Ungar, Contributing Writer, Forbes, November 18, 2011

November 21, 2011 Posted by | Health Reform | , , , , , | Leave a comment

   

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