CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press The WSJ Thinks Jamie Dimon and JP Morgan are Being Persecuted

The WSJ Thinks Jamie Dimon and JP Morgan are Being Persecuted

Monday, 28 October 2013 05:25

That's what readers of the paper's Review and Outlook column would discover today. The basic point is that a large part of the $13 billion settlement that JP Morgan reached with the Justice Department involves payments to Fannie Mae and Freddie Mac over misrepresentations about the quality of mortgages in mortgage backed securities sold at the peak of the bubble. The WSJ rightly points out that Fannie Mae and Freddie Mac are really big actors, who should have known what they were doing.

Unfortunately, if recent history has taught us anything it is that highly paid big businesspeople often don't have a clue what they are doing. For example, Gerald Levin, who was CEO of Time-Warner in 2000, essentially gave the company away for almost nothing when he agreed to a merger in which Time-Warner was sold for shares of AOL stock. Hewlett-Packard made a big investment to get into the tablet computer business, which it then abandoned almost immediately after its product came on the market. And, it seems almost no one on Wall Street saw the housing crash coming.

In short, big actors like Fannie Mae and Freddie Mac should know what they are doing, but often don't. This lack of competence on the part of people being paid tens of millions of dollars a year (yes, there is a serious skills shortage), does not excuse acts of fraud by others. JP Morgan is accused of making deliberate misrepresentations in its selling of mortgage backed securities. (In many cases, the misrepresentations were made by banks it acquired.)

If the charges of misrepresentation were not true then presumably Jamie Dimon, JP Morgan's CEO, would have been prepared to go to trial and show that the Justice Department was wrong. It seems unlikely that he would have given away $13 billion of the bank's money if he did not think there was a serious case.

It is also worth noting that Fannie Mae and Freddie Mac were buying these subprime MBS because they hoped to make money. They were losing market share and were getting pressure from the markets to get into a market that at the time was dominated by private investment banks like Citigroup and Goldman Sachs.

This assessment by Moody's of Freddie Mac in December of 2006 tells the story very clearly. Moody's indicated that it would have been concerned about Freddie's future prospects had it not made the decision to get more deeply involved in the subprime market. The idea that that Fannie and Freddie got into subprime to help poor people get homes is nonsense.

One final point which I should not miss an opportunity to belittle is the idea that Barney Frank was in anyway responsible for Fannie and Freddie's behavior. Barney Frank was a minority member of Congress until January of 2007. At that point, almost all the bad loans already had gone out the door. Minority members of Congress have as much influence over the actions of Fannie and Freddie as the average shoe salesperson. The folks who want to blame Barney Frank for the housing bubble obviously have no clue of what they are talking about or are making up stories to push an agenda.

Comments (5)Add Comment
JP Morgan and Jamie Dimon
written by JayR, October 28, 2013 8:59
This is actually the 7th, 8th or many more times lately that JP Morgan has been caught in some major scandal from the London whale billion dollar losses to bribing officials in China. Matt Taibbi calls JP Morgan a criminal enterprise. Here is a video of Matt discussing JP Morgan. I think Dean is actually being too soft on JP Morgan.

david cay johnston review has good piece on missing context on jp morgan fine
written by jamzo, October 28, 2013 10:52

6:50 AM - October 24, 2013
Missing context on JP Morgan

A liberal columnist tries the math that the business press should have done

By David Cay Johnston

"A crucial piece of context went missing in coverage of the recent news that JP Morgan settled with the federal government for $13 billion over mortgage misconduct mostly by institutions it acquired. That context: Just how much is $13 billion in penalties compared with the benefits to the bank from that conduct?"

written by Last Mover, October 28, 2013 12:08

The persecution ruse was ginned up after Dimon made an initial offer of $1B. The sock puppets want you to think it was a good faith offer that was abused in raising it to $13B, when Dimon knows well it was a bargain price to pay, to get him off the criminal prosecution hook.

According to this standard, underwater homeowners should be able to avoid foreclosure by offering in good faith 1% of the principal outstanding.
written by widgtetmaker, October 28, 2013 5:14
".......or are making up stories to push an agenda." C'mon, Dean, you're such a cynic.
Dean for got to mention
written by jumpinjezebel, October 28, 2013 8:43
That the bank had about twice the $13B amount in a contingency account.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.