Nothing like having a credulous, leak-dependent media to carry your messages.
There’s been a remarkable hue and cry about the pending JP Morgan settlement, as if the amount is somehow too high. As we’ve discussed repeatedly, the director of financial stability for the Bank of England, Andrew Haldane, already ascertained that a mere 1/20th of low-end estimate of what the banks ought to pay for all the damage they did would wipe our their market capitalization. So even if you think JP Morgan is only half as culpable as other banks (a point we will debunk in a post tomorrow) it would only be half as dead.
In other words, Dimon and all his crew should thank their lucky stars that they got off so well and didn’t have their banks turned into utilities. But that moment passed, so now we are haggling over price with ingrates.
The overwhelming cost of the settlement is representation and warranty liability. There are well established parameters for that. Once the settlement is final and terms are disclosed, we should have a clearer idea of what JPM paid relative to the dollar value of loans at issue. But the idea that JP Morgan would pay more than the prevailing rate is spurious. There would be every incentive for the bank to fight in court otherwise. As a New York Times story by Peter Eavis and Ben Protess points out:
The largest sum, more than $6 billion, will serve as compensation for investors like pension funds that suffered losses from mortgage securities sold by JPMorgan, Bear Stearns and Washington Mutual, people briefed on the settlement talks said.
And remember, JP Morgan is likely to try to stick the FDIC for the WaMu loans, and the estimates are that that could be as much as $3.5 billion.
And then we have the $4 billion in borrower relief, which as we stressed is junk credits with little economic value:
Another $4 billion will take the form of relief for struggling homeowners in cities like Detroit. The payout will serve as penance for the bank’s general mortgage practices, and does not stem from any particular mortgage securities or institution, according to one of the people briefed on the talks.
I would bet “general mortgage practices” = predatory servicing.
Oh another “the Feds are being mean to JP Morgan” canard is the idea that the bank was being fined for conduct of Bear and WaMu, after it was so
greedy gracious as to rescue them. Even the Financial Times editorial goes off on an embarrassing rant based on a completely erroneous assumptions here (as well as on the significance of the rep and warranty component of the total). Well, that’s not true either:
The remaining $2 billion to $3 billion will represent the only fine in the case, according to the people briefed on the talks. That fine, from federal prosecutors in Sacramento, involves a civil investigation into mortgage securities that JPMorgan itself sold in the run-up to the financial crisis. Despite the concerns that JPMorgan was being unfairly taken to task for the practices of Bear Stearns and Washington Mutual, investigations into the two firms are not expected to lead to any fines. Justice Department lawyers, one person said, decided against allocating fines to those firms because doing so might appear punitive.
Translation: Jamie Dimon, one of the most experienced financial acquirers on Wall Street, neglected to get a waiver for liability for bad mortgage origination practices from two known predatory originators. But he bullshitted his way out of that lapse after the fact.
Now why is the press running these “Oh, JP Morgan is being maltreated” disinformation pieces (aside from the obvious, that the bank is calling in favors?). First, the false idea that the government was overreaching means that those big numbers were supposedly not Dimon’s fault. Second, the Administration has every reason to quietly promote this PR campaign. It benefits from looking tough. Promoting that myth will discourage close examination of the details of the deal.
As our resident mortgage maven, MBS Guy, said in an e-mail:
In reality, JPM and Dimon are getting a pretty darn good deal from the government. I suspect when the settlement is actually disclosed, it will turn out that JPM’s payout for rep breach violations/FHFA stuff are actually lower than for other banks and lower than that BofA $8.5 bilion settlement. That’s another big reason for the full court press on “poor Jamie” stories – to mask the fact that JPM is getting a bargain.
I’m fully expecting this take to be accurate. Stay tuned.
Saw the PBS segment tonight on it, pro – con figurines Q&A.
skippy… absolutely surreal~
Now you are making me feel bad about turning them down, but 1. I has a conflict schedule wise, and 2. that PBS show is usually 4 people and everyone is super tame in their tone and the lefties are barely left of neoliberal.
PBS has perfected shilling for Corporations and Wall Street into a high art form. They will ALWAYS remember to wait for a few years before they go in all guns blazing to make some Frontline piece. I have for long wanted to commit physical violence on most of the anchors for enjoying a life style of wonderful job security, paid sabbaticals where they go write a book and make more money and retirement is basically something they think about when they are about 10 years from the grave. Jobs for life for these elitist shills. No one epitomizes ‘Washington Parasite’ more than PBS and NPR. I think the local PBS and NPR franchises are mugs for buying all their programming from the Washington Mother Ship. All the ‘moderate’ ‘Center-Right’ morons everywhere send in their contributions during every pledge drive to fund the long lovely careers of Robert Seigul, Melisa Block, Steve Inskeep etc etc. The only person worthwhile on PBS who does some serious reporting is Moyers. Everyone else plays the old ‘dance center now, dance right now’ two step.
With Frontline it depends on the topic. Their “league of Denial” was damning and well timed, except that the NFL settled. However, the concussion and brain trauma issue isn’t going away for them probably ever again. Where as Frontline’s financial coverage is always dated and then poor. They’ll wait, wait, wait while so much damage is being done; and then when they do cover a topic, their reporting will be soft and not very thorough. Moyers, on the other hand can be very tough on nearly everbody, including the Dems. until there is a major issue actually in play where the neoliberal Dems are clearly working with the GOP to loot the American people. His recent coverage of the shutdown/shakedown and debt ceiling was strictly standard mass media message; and if he has ever talked about the 14th amendment or any other legit means to put the lie to the debt ceiling, I’ve never seen it. In fact, in his interview with Yves back in 2011 talking about the debt ceilng, i thought one of her responses must have been edited to remove remarks she had to say about possible legit ways the Pres. had availble to prevent default.
You saved yourself a distinction you don’t want. Just the way you are is great!
I know this is a few days old, but I had a really good time listening to it.
“But, besides the crime, this is a great company!”
Victim? Only to the extant that they received undue pressure from the government to buy WaMu and BS. Because when you buy a known toxic waste dump, the toxic waste conveys.
Does everyone forget Jamie got a $29 billion or so subsidy for Bear? He was crowing what a good deal it was at the time (then he toned it down, someone must have told him it made the government look stupid). In fact, when it was discovered they’d screwed up the deal docs, they paid MORE to Bear shareholders and said they were glad (as in it would reduce animosity among employees they were keeping). You don’t pony up dough like that if you think you paid too much.
He actually wanted to buy Bear BEFORE it tanked, in early 2007. Everyone forgets about that too.
And for WaMu, he had also been interested in buying it prior to the crisis. The sub debt holders were crammed down, which John Hempton argues vociferously was unnecessary and overreaching by Sheila Bair. If so, that was also a big gimmie for Jamie.
Thank you Yves for continuig to pound the table on the “loan” to Chase to “buy” Bear. And for that ridiculous $1.9 Billion “purchase” of WaMu with a $40 Billion loan portfolio thrown in for free. [Bair hasnever explained that to my satisfaction especially after the IndyMac takeover where she voluntarily instituted principal writedowns. I knew a Bushite woman who had an IndyMac loan. She was behind on he payments. When IndyMac sent her a letter writing downhe principal by half or so she was furious. She refused to accept it. She wanted a bigger writedown
To me, struggling with 8 banks who were trying to take everything I had spentspent my life building by hook or crook I wanted to throw gas onthis horrible woman and set her on fire. She was so arrogant and selfrighteous.
Felix weighs in:
But does it matter? The people who want to believe this is a fine from a vengeful administration are also positive the financial crisis was caused by greedy homeowners who were defrauding the banks.
“Victim? Only to the extant that they received undue pressure from the government to buy WaMu and BS.”
Enough pressure isn’t possible to make Dimon, nor any other major business CEO, spend billions buying a business they don’t want to.
Dimon made a bad call. Now he should eat the losses like the rest of us.
Unless of course he was “encouraged” (that’s you I’m looking at Tim Geithner) to do the deal as a stealth bailout.
In Japan at the collapse of the bubble economy, the government again “encouraged” stronger institutions to take over weaker or failed ones. The problem was of course that the credit quality of the new combined entity was so drecky that the newly enlarged group was undercapitalised and needed implicit government support — tame regulators and bank examiners being typical.
One of these is playing out here in Britain http://ftalphaville.ft.com/2013/10/21/1673242/this-bank-will-remain-the-co-operative-bank/ — honestly, any real, proper business would have be allowed to fold long ago. The lengths governments will go to in order to keep banks — any bank, not just a TBTF — in a perpetual near death experience amazes even me.
The spin in the MSM should really come as no surprise. The neoliberal thought collective is dedicated to convincing the public that the banks should never be held accountable for these little system “glitches”. The only legitimate purpose for the government is to provide them with a support service.
Credit markets will supposedly be negatively affected by the penalties inflicted on J.P. Morgan and the like. Perhaps regulators should have thought of that before repealing the Glass-Steagall Act.
victim of stupidity:
Fractals, Physics & Police Power
Herd the critters into an urban prison, where they are to compete to avoid work; rent them time in the countryside turned into Disneyland; and have them vote on whether or not I have to participate. Go F yourself.
That nail sticking up is a plunger. Let’s watch the Yellen A-Team hit it with a hammer, again and again and again, until it gets a surprise, never saw it coming.
Fractals, physics and financial engineering are all quite interesting, but you do not need their language to understand the law of diminishing returns. Congress, and every other government, promises its middle class a higher return at less risk, with economic slavery, lower return on greater risk, for someone else, embedded in ‘free’ trade agreements, until it can’t, when government begins to boil in its own soup, in exchange for middle class compliance, which becomes law, via the miracle of democracy, for everyone that cannot escape its gravity, money issued for the purpose.
Social Security, Obamacare, and all the rest of the financially interdependent mechanizations, have reached the limit of diminishing returns. Because ponzi participation is decelerating, benefit recipients are swamping ignorant contributors, and Wall Street was kind enough to globalize the process, temporarily hiding all the financial losses off-book, until free cash became insufficient to serve the interest, which is what you are observing.
To live one more day, Congress is cutting out beneficiaries, hunting down contributors with increasing capital control and inflating taxation with real estate inflation, more of the same. The problem, for the participants, is that the momentum of capital control is hitting capital, an expected or unexpected consequence depending upon perspective. When the reactor turns into a bomb depends upon your location, your perception of time.
The ‘post-industrial’ tourist/service economy is nothing new; it’s feudalism, trotted out and failed every time for centuries. Ever been to Europe? Are you watching Canada? Property is removed from circulation, increasing rent relative to the middle class, which suddenly finds itself defined as labor, slowly boiling the frog that has been bred to live in the pan. The Nazis were simply those that did whatever was necessary to be boiled last, step by deliberative expedient step, back into the past.
From labor’s perspective, empire operation is quite simple. To the extent government lives within the means you have allotted, work publicly and accept its taxation. To the extent it does not, work privately and bank the result, in your own bank. Once the bombs start exploding, someone has to rebuild the economy. If you want to get a head start, design the bombs, AKs, debt instruments of destruction, or whatever else is appropriate to the time.
If you throw a match into an open tank of fuel, you get fire. If you ignite a gas under pressure, you get an explosion. If you connect the explosion to a transmission mechanism, you get propulsion, if you know what I mean. I can build any kind of bomb you like, with financial words, programming code or kinetic devices; just ask the old-timers in the US Navy.
The price of oil is going up in a depression for the same reason trailer park rent is going up, herd behavior.
So, the morons are rolling out their pot cartels for public consumption, and you are prohibited from growing your own by the same law, adding yet another layer of middlemen layers, and you expect quality and price not to head in opposite direction, by the law of diminishing returns? The answer is simple; don’t buy their crappy pot. Get out of the way and the empire inflates itself into implosion every time.
My tobacco will always be worth more than their pot to my customers, because my customers are not my enemy. From the corporate perspective, the customer is the enemy; the product is just a delivery mechanism, to the back of the bankruptcy line. Don’t bother telling me that legacy capital history will not repeat itself again. I’ll watch from a distance, when I have nothing better to do, which isn’t often.
You don’t need to break the law to break the buck. False positives follow false assumptions like night follows day. Life has survived every contrived market so far; no need to participate, for or against. There is always a bigger fulcrum to catch the collapsing fulcrums above. It’s a built-in function of time. Program accordingly, but don’t bother to program my job, unless you want to program yourself inside a bomb. Anytime you want my job, you can have it, but you might want to figure out what the H it is that I do.
Write a program, any program. Employ a little a little algebra and geometry, multiplication and division, to the 1s and 0s, and write another program. What happens to the language? Where does language come from? Do you really think geometry is the frontier of space? Don’t assume a dimension in perpetuity and expect a happy result.
Labor works for the old man, not a piece of paper, but enact as many laws to the contrary as you like. The curtain is blue, and it’s called State Police Power. But you have a purely community/municipal interest in ignoring stupid, and an inalienable right to self identity.
Passive investment, property and the income derived there from, are conventions. Try to keep them in perspective. Breeding humans as their derivatives produces automatons (every State completely defined) with associated observers prism, and you cannot reprogram automatons, with automatons, in groups. You have a lot of canaries in a collapsing coal mine, and no labor.
To protect and serve what? Do you really want the false assumptions of NSA programmers to be your boss? Labor has much better things to do than argue with an automaton banker about the definition of labor.
My crime – I did not honor the State’s paper. The collective told me that I had to get ‘certified’ to continue operating my crane, writing code, consulting Navy and fixing elevators, and had to accept its unilateral divorce decrees, by law. Funny, I told it to F off every time, and it expected a different result, every time, seeking to limit the scope of work with an army of illegitimate entitlement license make-workers, collectivized into self-exempted cults for the purpose.
Let me get this right. I’m suppose to listen to a majority of voters, listening to voices in their heads, echoes of the past, in a chain of command, listening to voices in its head, tell me how to do my job, to chase my tail round and round, expecting something other than gravity. I think not.
The State is not, nor will it ever be, competent to be my boss. Funny, how capital and middle class can’t do your job, but demands to be your boss, and calls it democracy, always with the latest and greatest version of Family Law, peer pressure extortion with no due process, to catch any leakage. It doesn’t want to issue me a license. No problem. I’ll blow up its industry, no magic required, just by looking at it, simple physics, the law of diminishing returns.
Labor is far from dead; it just moved forward, leaving the old economy to collapse. Keep your bubble gum, tie wire and duct tape. We don’t need it. When you are ready to stop throwing money down a certifiably insane rat hole, like BART…”If there is any lesson learned, it is that this can never happen [again].
I think the spectacle of Buffet’s post-Holder meeting shilling in support of Dimon, and for JPM in general may be a signal that things are not going Jamies way as much as Sorkin and his ilk would have us believe.
For one thing Buffet’s talking his book, as usual, He has a sizable stake. For another he usually keeps his folksy trap shut until it serves him best. oftentimes that’s when a disaster needs averting (i.e Goldman, Solomon,..)
Buffet’s been pretty vocal this week, and his assurance is almost always nothing more than reassurance that there’s nothing to see here, while he cuts a sweet deal for himself. My contrarian antennae start quivering madly whenever he shows up to the party.
Holder may not really give a *&(^ about hurting Jamies feelings, but Obama is unlikely to want to piss off Warren and his pals. So even giving Holder the benefit of the doubt in this case, that he really does want to do his job. The pressure on him is intense, and its not directly the result of Dimon’s power, but indirectly via Dimon’s ability to call in chits. As Dimon says, he has a responsibility to his shareholders, and he’s not talking about widows and orphans funds loaded to the gills w JPM stock.
Another point worth remembering,is Dimons key career achievement. With Weill he bulldozed through every regulatory barrier, with a huge assist from the Rubinites, to construct CITIgroup.
Yet once that was achieved, it seems Weill (and anyone else, ( presumably including Rubin himself,) sans, eventually, Bank One) had no further use for him. His mythic managerial skills were weren’t on evidence enough at that time, (or at least weill thought his daughters were superior) to save him from Weill’s (or a majority of CITI folk)reluctance to let him manage the empire Weill/Dimon had spent decades to construct.
It seems Dimon never really knew his place, and given the Whale debacle, it appears Weill did, and made the right move
by exiling Jamie.
So Dimon’s only ace, it seems to me, since he returned from his banishment , is his ability to cow the regulators. He has been extremely successful at that since he inherited the relatively sweet job of CEO of the smoothly run JPM just before all hell broke loose.
His job was never to manage the heretofore well run institution. His job was to browbeat the regulators and continue his career as an oligarch consolidator.
That era’s over, and now he’s a lion in winter.
He’ll be sent out to pasture, or slain, once Buffet,et al cash out. Just not yet.
For all his bluster, Dimon is the early 21st century Hollow Man.
His is not even a remotely interesting myth, so thank you for continuing to debunk it. It makes me sad to know that so much intellectual brainpower needs to be spent countering stupid thuggery clothed in fine suits.
Excellent discussion here on the Bloomberg-London channel on the JPM 13bil settlement. Gordon Kerr really takes it to da Bank in his comments (h/t Bonddad blog):
Alexis Goldstein eviscerated these same arguments along with Ed Canard on Chris Hayes. The segment ended by Canard telling Alexis that the banks would stop lending and the credit market would freeze up if she had her way (incarcerating perps). Alexis retorted that given the destruction created by the banks, a credit crunch isn’t the worst thing that could happen. Canard appeared disgusted.