JPMorganChase building in Manhattan
After JPMorgan's settlement with the government on Tuesday It makes for fascinating reading a comment made by the bank as to its financial conduct prior to the fall of 2008 but also the "Statement of Facts" (more on this later) the bank had to admit to as part of the $13 billion settlement with the Justice Department over its role in selling toxic mortgage backed securities to unwitting large institutional investors who thought they were safe but as we all know became worthless when the sub-prime mortgage bubble burst in 2008.
And just how did the bank put it in agreeing to the settlement, "We "routinely' overstated the quality of mortgages sold to investors".
Saying its was "routine" makes it appear as if it was a simple oversight on their part making it seem the securities they sold weren't toxic even though the mortgage loans that backed the securities did not meet underwriting guidelines.
But ah contraire; the bank knew exactly what it was doing.
As part of the settlement the bank had to admit to the government the aforementioned "Statement of Facts", an 11 page document made public on Tuesday.
The following is a synopsis of those "Statement of Facts":
- As the bank packaged the mortgages into complex securities it promised to alert investors to any flaws that might raise questions about the loans.
- They further told investors the mortgages had "solid underwriting platforms" and the loans were independently scrutinized.
- Third party firms were hired by the bank to examine the loans that were packaged into securities but when problems were found JPMorgan ignored the warnings as many of the loans did not meet underwriting standards but they decided to accept the loans anyway or altered their classification to a higher rating.
- So the banks employees received this information that in certain instances the loans did not comply with underwriting guidelines but they didn't alert or disclose this information to the securitization investors. Thus the investors were kept in the dark.
- A JPMorgan employee told an Executive Director in charge of due diligence and Managing Director of Trading that due to their poor quality the loans should not be purchased and securitized.
- Even after the employee's concerns were ignored and the loans were purchased and securitized she re-submitted those concerns to another Managing Director which was then distributed to other Managing Directors yet JPMorgan nonetheless securitized the loans and none of this was disclosed to investors.
So JPMorgan in this instance got caught and held to account (or at least to some meager account). But we also know beyond a shadow of a doubt JPMorgan wasn't the only miscreant selling toxic waste securities to unsuspecting investors.
All the big banks and financial institutions were engaged in similar skullduggery with greed run amok including of course Bank of America, Goldman Sachs, Citi-Group, Lehman Bros., Merrill Lynch, Bear Stearns, Washington Mutual (WAMU), CountryWide Mortgage along with Fannie Mae and Freddie Mac and not to be forgotten AIG, the insurance behemoth that insured most of the securitized packages.
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