The Politics of the JPMorgan Mortgage Loan Lawsuit
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UPDATED: Oct 4, 2012
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At long last, it seems that one of the banking giants responsible for the financial crisis is going to pay for its crimes. Or is it?
On October 1, the Justice Department’s federal mortgage task force filed a civil suit against Bear Stearns & Company, which is now a part of JPMorgan Chase.
According to Attorney General Eric T. Schneiderman, co-chairman of the Residential Mortgage-Backed Securities Working Group, Bear Stearns defrauded investors who bought mortgage loan securities that were packaged from 2005 to 2007.
“We’re investigating the misconduct of folks…that brought about the crash of 2008,” said Schneiderman in an interview with CNN.
The task force’s suit claims that improper practices at Bear Stearns were institutional and affected multiple deals during the defrauding period. While mortgage loan questions and answers can shed light on the inner workings of the home financing industry, the specific question of why JPMorgan Chase is being sued for wrongdoing requires further explanation.
In 2008, Bear Stearns, collapsing in on itself due to the then sprawling financial crisis, was purchased at a “fire sale” price by JPMorgan. But the fraudulent mortgage loan activity within Bear Stearns was not stopped by its new mother company. JPMorgan is alleged to have cost mortgage loan investors $22.5 billion as it continued to profit off of Bear Stearns’ unethical practices.
Even though similar mortgage loan fraud cases against financial giants have made miniscule gains, many investors who were defrauded feel that this recent filing is an excellent step.
“The government’s action represents a complete validation of the cases brought by investors who were duped by the fraudulent sale of mortgage-backed securities by JPMorgan, WaMu and Bear Stearns,” said Gerald H. Silk, a lawyer at Bernstein Litowitz Berger & Grossmann in a New York Times interview.
While the deep pockets of JPMorgan will no doubt aid the financial giant in its sure-to-be-drawn-out battle with federal lawyers, the timing of this move couldn’t be more opportune.
The lawsuit was filed mere days before the first Presidential debate between incumbent President Obama and Republican candidate Mitt Romney. If the President’s authority had anything to do with such a publicized filing against one of the country’s financial juggernauts, then it would be clear that this is more than an attempt at serving overdue justice.
Rather this may be a ploy to change voter perspectives with Election Day only weeks away. Such a filing can easily help sway voters into viewing the President as being tough on banks and mortgage loan lenders that defraud investors. In essence, showing that the government—and the man in control of it for the moment—are effectively and proactively serving the country’s needs by battling it out with the big bad banks.
Unfortunately, this latest effort may be little more than smoke and mirrors. Whether or not the President wins reelection, the fact remains that this lawsuit is the product of a federal initiative formed in 2009. If this task force intends to maintain its current pace of work then voters, mortgage loan investors, and the average American affected by the recession will be waiting for justice well into the 2020s.
“There are more cases to come,” said Schneiderman.
Despite the possible best intentions of Schneiderman and the task force their window of opportunity is closing with each passing month.
“As the go-go years for many alleged violations were 2006 and 2007, the ability to bring more of these suits is rapidly disappearing,” said Jaret Seiberg, a financial services analyst with Guggenheim Washington Research Group.
While it is all well and good that legal action has been taken against fraudulent bankers, voters shouldn’t be surprised if, in the months after the election, lawsuits against banks noticeably decline—or even evaporate altogether.