Why isn't Jamie Dimon in jail?
When an independent analysis of JPMorgan Chase exposed “serious flaws” in the company’s home loans, it did what Wall Street does best, hid the evidence. In documents released this week, officials found proof that the company “adjusted” the critical reviews it received by buying and selling a new set of home-loan portfolios, creating a “sanitized” pool of data in the process. The move allowed the financial powerhouse to gloss over serious faults in its loans and sell mortgages that appeared healthy to the consumer. The suit, which includes a “trove of internal emails and employee interviews,” may be an important stepping stone in the Federal Housing Finance Agency’s landmark $200 billion case.
In a 2007 e-mail, titled “Banking overrides,” a JPMorgan due diligence manager asks a banker: “How do you want to handle these loans?” At times, they whitewashed the findings, the documents indicate. In 2006, for example, a review of mortgages found that at least 1,154 loans were more than 30 days delinquent. The offering documents sent to investors showed only 25 loans as delinquent.
A person familiar with the bank’s portfolios said JPMorgan had reviewed the loans separately and determined that the number of delinquent loans was far less than the outside analysis had found.
At Bear Stearns and Washington Mutual, employees also had the power to sanitize bad assessments. Employees at Bear Stearns were told that they were responsible for “purging all of the older reports” that showed flaws, “leaving only the final reports,” according to the court documents.
Such actions were designed to bolster profit. In a deposition, a Washington Mutual employee said revealing loan defects would undermine the lucrative business, and that the bank would suffer “a couple-point hit in price.”
Ratings agencies also did not necessarily get a complete picture of the investments, according to the court filings. An assessment of the loans in one security revealed that 24 percent of the sample was “materially defective,” the filings show. After exercising override power, a JPMorgan employee sent a report in May 2006 to a ratings agency that showed only 5.3 percent of the mortgages were defective.
Such investments eventually collapsed, spreading losses across the financial system.
New York attorney general Eric Schneiderman said that overall losses from flawed mortgage-backed securities from the years 2005 and 2007 were $22.5 billion.
In a statement shortly after he sued JPMorgan Chase, Schneiderman said the lawsuit was a template “for future actions against issuers of residential mortgage-backed securities that defrauded investors and cost millions of Americans their homes.”
Yet U.S. attorney general Eric Holder still has not filed a single criminal charge against any Big Banker, or sent any of them to jail. It's far past time he got started, and Jamie Dimon is just as good a starting point as any.