You've got to love those Washington Post folks. They continuously use both their news and editorial sections to push for cuts to Social Security, Medicare, and disability insurance, running roughshod over journalistic standards and data. But when it comes to the Wall Street boys, they just can't help but to tear at our heart strings.
Last week the Post ran an editorial bemoaning the "political persecution" of J.P. Morgan. It complained that the government was pursuing a civil case against J.P. Morgan for misrepresenting mortgage backed securities it sold to investors during the housing bubble years:
"Yet roughly 70 percent of the securities at issue were concocted not by JPMorgan but by two institutions, Bear Stearns and Washington Mutual, that it acquired in 2008."
There are two points worth making on this. First, if 70 percent of the securities came from Bear Stearns and Washington Mutual, then 30 percent came from J.P. Morgan. This means that it could have been involved in misrepresenting tens of billions of dollars in mortgage backed securities sold to investors. We have young men sitting in jail for stealing cars worth a few thousand dollars, but the Post thinks that Wall Street bankers should get a pass on fraudulently passing off tens of billions in bad mortgage backed securities.
The other point is that executives of large corporations like J.P. Morgan are supposed to understand that when they take over a company it can involve both upside and downside risks. On the upside, the company may have product lines or assets that the buyer did not fully appreciate at the time of the acquisition. On the downside, it may have liabilities such as the legal issues being raised in the Justice Department suit.
Believers in free markets would expect that a CEO like J.P. Morgan's Jamie Dimon understood such risks at the time he chose to buy up Bear Stearns and Washington Mutual. However the Post apparently feels that he and his bank need a special hand from the government to change the terms of the deal after the fact and release J.P. Morgan from the billions of dollars of liabilities they inherited when they bought the banks. Their concern for the desperate plight of the Wall Street bankers is touching, but those of us who believe in free markets must insist on contracts being respected and laws being enforced.
It is worth noting that J.P. Morgan apparently disagreed with the Post and thought that the government had a pretty good case since it settled for $13 billion.
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