The Boston Business Journal's Matthew L. Brown articulated the thoughts of many banking executives and attorneys when the news broke last week that JPMorgan Chase had agreed to pay the US Government a whopping $13 billion to settle claims arising, principally, if not exclusively, out of the steaming heap of goat custard that lay beneath the surface of Wamu and Bear Stearns. Chase bought those gems at the behest of the US Government in 2008 as part of the efforts of the governemt to prevent a meltdown of the US economy over the subprime mortgage securitization crisis and its consequences. As we discussed a few years ago, in the case of Wamu, Chase and the FDIC have been locked in mortal combat over whether the less-than-clear acquisition agreement and related documents required Chase to assume the liabilities related to that custard or whether it stayed with the FDIC as receiver for the Wamu. That battle continues and may be impeding the finalization of settlement documents.
Brown's point is more general and far-reaching. He claims that by asking Chase to step in and rescue the government from the consequences of those two entities going down in flames, and then beating Chase about the head and shoulders with a hockey stick for sins committed by those two entities prior to Chase's purchase of them, the government is jeopardizing the chances that any major players will ever step into the breach again in such a fashion, at least without a lot of belt-and-suspenders language i the acquisition documents that makes it perfectly clear, particularly to a federal court, exactly what liabilities are being assumed and what liabilities are not.
However, Brown argues that going after Chase for the liabilities of Bearn Stearns and Wamu is also egregious because of the respective responsibility of the two combatants in this aftermath--Chase and the US Government--for the losses.
Big banks’ mortgage securitization and credit derivatives practices in the years before the collapse were reckless, self-serving and parasitic. We’ve also learned — from books like Charles Morris’ "The Trillion Dollar Melt Down," published in March 2008 — that they were decipherable and predictable.
Regulators didn’t bother to decipher or predict the meltdown. And in the case of Bear Stearns and WaMu, they didn’t seem to do much regulating, either.
A $13 billion settlement will only sting JPMorgan Chase a bit. The more fervent feelings appear to be on the government’s side as it hustles for little bits of cash to cover for its own ineptitude.
"Hustles for little bits of cash." He's right, of course. Compared to the total amount of money and asset value lost by the perfect storm of stupidity, incompetence, greed, and venality by so many players in the game, including the executive and legislative branches of the US government, $13.1 billion is a pittance. Still, it's a lot of money to most bankers, and Brown's parting shot sounds prophetic: "It’ll be a long time, indeed, before a big bank answers the federal help line."