Monday, August 25, 2014

Jamie Dimon’s $13 Billion Secret | The Nation

Jamie Dimon’s $13 Billion Secret | The Nation

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.”

* * *
Although Wagner’s complaint remains unfiled—and, so far,
unobtainable—tantalizing hints of what it contains are available in a
sanitized “statement of facts” that was a required component of the
settlement. Unlike the complaint, the statement of facts doesn’t include
names and offers few specifics, but there is no mistaking the
wrongdoing. Among the

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