The announcement that a tentative agreement had been reached between the Department of Justice and JP Morgan (JPM) was surprising only in the size of the penalty the country’s largest bank (and second largest in the world) agreed to pay: $13 billion. It’s the largest penalty on record that any company has paid to settle claims made by the Justice Department.
But it’s far from being the first that JPM has paid. In a little over 10 years, the bank has paid out (not counting the present agreement which is still being negotiated) more than $5.2 billion in settling claims ranging from fraud involved in underwriting Enron and WorldCom bonds, and engaging in a “pay-to-play” scheme that brought Jefferson County, Alabama, to the brink of bankruptcy, to wrongly overcharging several thousand military families for their mortgages.
This present agreement is the result of numerous charges brought by several aggrieved parties, including the Federal Housing Finance Agency (that oversees mortgage giants Fannie Mae and Freddie Mac), the National Credit Union Administration, and the state of New York, among others.
During the run-up to the start of the Great Recession, the culture of corruption at JPM, Bear Stearns, and Washington Mutual (subsidiaries of JPM) was sufficiently strong that these institutions developed and then sold packages of “mortgage-backed securities” (MBS) containing mortgages of poor quality that were sold as AAA risks. In one singular example, the bank sold $87 billion worth of MBS that were worth only $64.5 billion, costing investors and ultimately U.S. taxpayers $22.5 billion. All told, taxpayers were forced to bail out Fannie Mae and Freddie Mac, the purchasers of these toxic investments, to the tune of $187 billion.
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Photo: Jamie Dimon, JP Morgan's CEO