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Memo to Jamie Dimon: You Still Think Bear Stearns is Not Material??

rcwhalen's picture




 

Special thanks to Manal Mehta for his amazing notes. 

Update 1 -- Link to FHFA complaint 

http://www.fhfa.gov/webfiles/22597/FHFA%20v%20JP%20Morgan.pdf

A couple of years ago, JPMorgan Chase CEO Jamie Dimon told investors that the acquisition of Bear, Stearns & Co. would not be material to investors.  In the years that have followed, a tiny group of analysts and managers have watched as the Bear Stearns transaction has festered into a festival of fraud.  But most supposed Sell Side analysts and Buy Side investors who pretend to follow financials still don’t seem to get the joke.

The basic problem with Bear Stearns was fraud, massive, deliberate fraud.  The firm’s activities in the mortgage securities space were so sloppy and negligent as to rise the level of legend on Wall Street.  And now even Eric Schneiderman, the do-nothing NY AG, has finally been forced to take action against JPM.

“The New York attorney general's office has hit JPMorgan Chase & Co. with a civil lawsuit, alleging that investment bank Bear Stearns — prior to its collapse and subsequent sale to JPMorgan in 2008 — perpetrated massive fraud in deals involving billions in residential mortgage-backed securities,” reports the Wall Street Journal.

Now this mess is amusing and troubling both.  It is amusing that JPM did not seem to anticipate that the unliquidated claims against Bear Stearns from creating bad residential mortgage backed securities (RMBS) would eventually come back to haunt the bank.  Dimon and his bankers thought they were so cute stuffing the New York Fed with the accumulated detritus in Bear’s mortgage conduit – what later became known as the “Maiden Lane” vehicles.  

But none of the JPM bankersters gave any thought to the real liabilities of the Bear, namely the fraudulent activities of the failed bank’s mortgage securities department.  Those of us in the business knew there was something very wrong when Bear opened a retail mortgage operation to actually make loans, an activity that was not natural for the Bear.  Disclosure: I worked for Bear twice and have some insights into the risk culture at the bank.

What is really interesting is that the legal complaint filed by Schneiderman talks about sloppy procedures for loan selection, but still does not get to the real fun, namely multiple pledges of loans for different RMBS.  And you can be sure that Schneiderman does not really want to go that far because it might force him to ask the same question about the other, far larger issuers of RMBS.  

Remember, the whole point of the Robo-signing settlement is not consumer protection, but rather fraud.  The key question: Who’s got the note?  If you don’t have to deliver the note into an RMBS trust, then the door is wide open for securities fraud. 

What is really troubling is that while Schneiderman is making a big fuss about suing JPM over the Bear Stearns RMBS, he refuses to go after Bank of America, Wells Fargo, Citi, Ally and other large banks for precisely the same type of fraud and deliberate criminal acts as were committed by Bear Stearns.  The degree of negligence and stupidity displayed at Bear Stearns may have been more egregious than that at say Countrywide, but only in degree.  

Once again it is shown that the politicians like Schneiderman, who have aspirations for higher office, have no problem making an example of a small firm, but will never move directly against the top four banks for their own grotesque errors and omissions.  Schneiderman has been dragging his feet with respect to Countrywide  and Bank of New York for years, yet suddenly he has time to sue JPM over Bear Stearns?  What’s wrong with this picture?  

Keep in mind that neither JPM nor BAC have even begun to take sufficient reserves to cover a settlement of the claims facing both firms with respect to their RMBS.  BAC became the owner of the Countrywide mess by acquiring that firm w/o a bankruptcy. Likewise JPM bought Bear Stearns without a bankruptcy.  

Notice that you never hear anything about claims against Lehman Brothers or WaMu because most of these claims died in bankruptcy.  But, to add another funny, JPM also has liability due to the WaMu covered bonds that were conveyed by the FDIC’s receivership after the takeover.

So what happens with JPM and Bear?  One word: rescission.  My guess is that the fraud perpetrated by Bear Stearns in creating these rancid securities will eventually force JPM to repurchase some of the bonds from investors.  That is tens or even hundreds of billions of dollars of face amount of bad securities.  

So, Jamie, you still think that Bear Stearns is not material to JPM investors?   In case you did not guess, that is going to be my question for Dimon on the JPM analyst call.

 

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Wed, 10/03/2012 - 05:18 | 2851110 Sechel
Sechel's picture

Chris,

The Schneiderman suit is a non-event and I suspect not much happens for many reasons.

*Material seems hastily prepared and dusted off of previous private suits and info from the FCIC commission

*It was filed very late in the game after much of the statues of limitations are gone

*It was a civil not a criminal suit

*No indviduals were named

*DOJ was not included in the suit

*There was no joint press conference announcing this between DOJ and NY State A.G. Schneiderman

 

Agree that Bear transgressions appear the stuff of legend at this point and very much talked about behind the scenes, but this suit seems likely to follow Schneiderman's earlier suit on MERS which was settled for a trivial fine/penalty.

 

Schneiderman blew any credibility he had as an Attorney General when he caved in to support the farce that is the mortgage settlement. I suspect it's not even about Obama's re-election but a mere face saving measure on the part of Schneiderman who proably would like to seek re-election at some point or attempt higher office, but his caving in on the foreclosure settlement which eventually produced the 50 states signing on, shows that he was outwitted, outgunned and outsmarted, not attributes for a potential Governor.

Tue, 10/02/2012 - 21:37 | 2850504 swabeyjw
swabeyjw's picture

Am I missing something? Will not the RMBS insurers have a much bigger vested interest in this than any bond holders or self rightist goverment department? Marginal utility is much higher on survival, than on interest and principal loss.

Tue, 10/02/2012 - 18:55 | 2850021 Henry Hub
Henry Hub's picture

Remember Jamie something they told me in boy scouts. "A winner never cheats and a cheater never wins".

Tue, 10/02/2012 - 18:28 | 2849963 lynnybee
lynnybee's picture

there is no justice, you should know that by now.   there is only looting and scamming and lying.   

Tue, 10/02/2012 - 18:18 | 2849938 tony bonn
tony bonn's picture

very nice article - just knowing that someone else knows the thuggery and criminality of dimon and jpm.....of course the bought and paid for whores in the ag offices guarantee no prosecution, and when there is prosecution, it is of the wrist slapping sort.....but exposure of evil is still somewhat satisfying - not!

i want justice!!!! and it is time to take to the streets to get it!!!!

Tue, 10/02/2012 - 17:47 | 2849837 riley martini
riley martini's picture

 JPM traded up on the news . The charges were preaproved by JPM it s only for the Bear Stern fraud . JPM owns the POTUS and the courts TBTJ . BS is not material if it were the suit would not ave been filed by a DNC shill prosecutor .

Tue, 10/02/2012 - 17:39 | 2849826 lynnybee
lynnybee's picture

it's all fraud.   i am now unbanked and proud of it.   criminal bankers & criminal government.  

Tue, 10/02/2012 - 17:32 | 2849807 illyia
illyia's picture

You go Chris Whalen! I would love to hear that call. Maybe CNBS will broadcast it....

Tue, 10/02/2012 - 17:32 | 2849803 Tombstone
Tombstone's picture

Dimon is just another socialist who knows that no matter what happens, his fellow Commies, Barry and Benny, will be there with the bailouts to save his bank.  All courtesy of the forever-generous taxpayer.

Tue, 10/02/2012 - 17:23 | 2849774 “Rebellion to t...
“Rebellion to tyranny is obedience to God.”-ThomasJefferson's picture

If anyone thinks for a moment that someone other than the US taxpayer ultimatley bails out the entire disease filled, crooked and corrupt banking industry, they are fucking nuts.  This horror story is not going to end well. There are tens if not hundreds of trillions combined of unfunded liabilities on the books at these banks. Additionally, US banks are liable for European ,Chinese, Japanese, Middle East banking problems, and conversely.  

Tue, 10/02/2012 - 17:03 | 2849721 Son of Loki
Son of Loki's picture

"fraud never sleeps."

Tue, 10/02/2012 - 16:50 | 2849679 Thisson
Thisson's picture

Mr. Whalen - my review of the FCIC report lead me to conclude that Bear was the best actor in this space, rather than the worst, when it comes to the due-dilligence that was conducted on the loans that were purchased for securitization.  So it all goes downhill from here.

Tue, 10/02/2012 - 15:46 | 2849444 El
El's picture

Isn't the statute of limitations on fraud only six years?

Tue, 10/02/2012 - 15:44 | 2849435 Seasmoke
Seasmoke's picture

What about Goldman Sucks.....they did the same exact thing !

Tue, 10/02/2012 - 15:32 | 2849379 catch edge ghost
catch edge ghost's picture

What is really interesting is that the legal complaint filed by Schneiderman talks about sloppy procedures for loan selection, but still does not get to the real fun, namely multiple pledges of loans for different RMBS. And you can be sure that Schneiderman does not really want to go that far because it might force him to ask the same question about the other, far larger issuers of RMBS.

 

Remember, the whole point of the Robo-signing settlement is not consumer protection, but rather fraud. The key question: Who’s got the note? If you don’t have to deliver the note into an RMBS trust, then the door is wide open for securities fraud.

 

Law won't dig too deep,  else they would also discover the robo-buyers. And that would show Intent.

Tue, 10/02/2012 - 15:42 | 2849424 teribuhl
teribuhl's picture

If the law won't dig deep lawyers who think they can earn a few big bucks suing $JPM for shareholder fraud because they didn't reserve enough in RMBS putbacks or litigtion can surely cause $JPM some eps pain. No? The SEC and their banking regulator allowing $JPM to under reserve is also a real crime here. Which I think Chris is trying to say.

http://www.teribuhl.com/2012/05/25/could-jp-morgan-be-sued-by-stockholders-for-creative-mortgage-putback-accounting/

In May I wrote about JPM's creative rmbs putback accounting

Tue, 10/02/2012 - 17:31 | 2849800 illyia
illyia's picture

Do I feel some momentum? No? Oh. The floor is slanted...

Tue, 10/02/2012 - 16:52 | 2849687 Thisson
Thisson's picture

Hard to successfully sue a company for inadequate reserves.  Plaintiffs' securities lawyers sue over false statements, not "errors in judgment."

Tue, 10/02/2012 - 16:24 | 2849462 Seasmoke
Seasmoke's picture

WOW ! Teri Buhl comes out of the Zero hedge woodwork !!!......Pay attention to this lady !!!!

Tue, 10/02/2012 - 14:01 | 2849059 Joebloinvestor
Joebloinvestor's picture

I expect JPM to get government relief or the disclosure wars are gonna start.

If I was JPM I would put the screws to the government immediately because after the election, they lose all leverage.

Tue, 10/02/2012 - 15:34 | 2849385 teribuhl
teribuhl's picture

I reported the multiple pledges of loans by Bear back in Aug 2011 for DealFlow Media. The story has been behind a paywall but here is a copy for those interested-starts page 2. I agree with Chris - the NY AG left out alot in his fraud suit.

https://docs.google.com/file/d/12OSmDQCWnIQL-R_ZiX6gtuZF0pEN7FWfMgkTzs7iabnfywudH1V-tGEp2gdG/edit

Tue, 10/02/2012 - 15:50 | 2849473 Seasmoke
Seasmoke's picture

of course he did, because he is a FRAUD......how is his Task Force coming along ???

Tue, 10/02/2012 - 15:31 | 2849375 Muppet
Muppet's picture

Exactly right.  In fact more likely is that JPM already has a "get out of jail card".   I applaud the lawsuit, but it will go no where beyond some paltry fine.

Tue, 10/02/2012 - 15:40 | 2849423 Joebloinvestor
Joebloinvestor's picture

Probably in the form of a fine paid for by a Bernake issued loan @ no interest for 100 years or more.

Tue, 10/02/2012 - 13:32 | 2848949 shovelhead
shovelhead's picture

LOL

"Whaddya talking about, Judge?

I bought that car chop shop fair and square."

Tue, 10/02/2012 - 13:19 | 2848899 kaiserhoff
kaiserhoff's picture

Great Piece.  My eldest daughter just refied her mortgage for 3%.  She attributes this to the market, her credit rating, and crazy Ben.  I attribute it to the fact that she is a real estate lawyer, and the banks are scared shitless of anyone who might be well informed.

Here's what I'm wondering.  Even after the refi, what does she own?  How many other mortgage pools may think they have a stake in her house?  The whole problem with splitting mortgages into tranches, from the beginning, was that no one can track this shit.  So, on her next refi, I think she should hold out for 1.5%  After all, the ten year is 1.7 (sick joke).

You go, girl.  Ask them if they are feeling lucky.

Tue, 10/02/2012 - 13:37 | 2848975 Winston Churchill
Winston Churchill's picture

Hope she wrote the Title insurace contract herself,otherwise she is probably just

paying very expensive rent.

There's a Tsunami of wrongfull foreclosure reversals just starting their way thr' the courts.

Cases so far,90% are successfully reclaiming their property.

Tue, 10/02/2012 - 21:13 | 2850442 BidnessMan
BidnessMan's picture

30 year fixed price tax deductible rent. The place to be in hyperinflation.

Tue, 10/02/2012 - 13:09 | 2848858 curbyourrisk
curbyourrisk's picture

MARTIN ACT...........  USE IT..

Tue, 10/02/2012 - 13:20 | 2848904 kaiserhoff
kaiserhoff's picture

Please expand.

Tue, 10/02/2012 - 12:57 | 2848814 Atlantis Consigliore
Atlantis Consigliore's picture

so what QE Infinity $ 80 B a month MBS and rmbs sales to the FED to monetize;

thats a $ 1 trillion year funny Weimar dollars, vs worthless mortgages,

25% underwater??   only 12 Million foreclsoures to go.

Dos Condos selling hot 298 a quarter in Chik A Go.....

wait till the Chick  1% income tax, watch dat REELK ESTATE soar,  LOL.

florida anyone? texas?

 

 

Tue, 10/02/2012 - 12:49 | 2848770 aka Gil
aka Gil's picture

So, Jamie, you still think that Bear Stearns is not material to JPM investors?

I'd like to hear Dimon's response/reaction to that question.

Tue, 10/02/2012 - 16:38 | 2849644 Abbie Normal
Abbie Normal's picture

It's a tempest in a teapot.  Oh wait, that didn't work so well with the London Whale either.

Tue, 10/02/2012 - 12:47 | 2848765 ATG
ATG's picture

Even if the Fed keeps inflating these brain dead mortgage balance sheets to infinity and beyond, it is the debt default deflation death rattle at some future point to be determined as materials stocks take a dive today in recognition... 

Tue, 10/02/2012 - 12:48 | 2848764 buzzsaw99
buzzsaw99's picture

The JPM CEO used loss reserves to pay themselves bonuses.

Tue, 10/02/2012 - 13:10 | 2848860 LMAOLORI
LMAOLORI's picture

 

 

137 Banks used other taxpayer money to pay back the bailouts I don't know if JP was among them though and we don't have the promised transparency to find that out. The Bail Outs are still in the Red.

 

TARP Banks Still Unable To Repay Taxpayer Bailouts In Hundreds Of Cases

GAO: Banks Paying Back TARP with Federal Money


 

Tue, 10/02/2012 - 11:41 | 2848472 OneTinSoldier66
OneTinSoldier66's picture

But, but... but, we have Sarbanes-Oxley, and in recent history have added Ben Bernanke and Dodd-Frank. And every Banker wants the Volcker Rule implemented. We're saved!

 

</s>

Tue, 10/02/2012 - 12:37 | 2848718 sgt_doom
sgt_doom's picture

Hmmm...does this mean that ploy of Bear, creating R3 Capital Partners a few office doors down, and moving all their billions in debt to R3 and offshore, may actually constitute a fraud of some sort?

Who would have ever guessed?????

Reality Economics for Truth Seekers
 
The last several weeks I've heard over 40 people, and several Brits, on various news shows either incorrectly --- or falsely --- claim that the American economy is a consumer-based economy.
 
Wrong, wrong and wrong --- hasn't been such since at least 1999.
 
Today, the top 5 banksters in America account for the majority of the GDP, not only is this wrong in and of itself that such should be, but it's based upon a financial scam.
 
The banksters' creation, ownership and control of over $100 trillion worth of credit derivatives gives them that majority of the GDP --- the same credit derivatives which Bernanke's Federal Reserve buys up with his QEI, II and III --- naming them toxic assets and allowing the banks to create the next wave of credit derivatives.
 
Based upon these toxic assets/credit derivatives these banks peddle goods and services which make up a portion of that 70% consumption figure of the American economy we are always hearing stated --- yet we never hear the breakdown of that 70% consuming figure.
 
The vast majority of that 70% consumption derives from the top 20% of the population --- decidedly not the majority, simply the wealthiest, the logical outcome of the super-concentration of wealth predicated on the American fantasy-finance based economy.
 
It is really that simple.
Tue, 10/02/2012 - 13:54 | 2849033 shovelhead
shovelhead's picture

Hey Sgt,

you're pretty good at this stuff. A very overlooked point but a very large one.

Bullshit should only be counted as GDP if it is converted to fertilizer.

Tue, 10/02/2012 - 12:51 | 2848780 ATG
ATG's picture

In other words, consumer economy beyond life support.

 

Real median income declined since Reagan was President, Stockman Budget Director and USA went from creditor to debtor nation under their charge...

Tue, 10/02/2012 - 11:14 | 2848404 fabmax
fabmax's picture

BS stands for BullShit.

Tue, 10/02/2012 - 11:12 | 2848390 Quinvarius
Quinvarius's picture

Dimon did 24 hours of research before taking on the Bear liabilities.  That could never have ended well.  Dimon is probably the worst banking CEO that ever existed.

Tue, 10/02/2012 - 13:43 | 2848997 shovelhead
shovelhead's picture

The greatest CEO in the world can't be expected to know that fire sales involve damaged goods. :)

Tue, 10/02/2012 - 13:15 | 2848885 LMAOLORI
LMAOLORI's picture

 

 

I would love to see this come true IF WE DIDN'T HAVE TO BAIL HIM OUT THAT IS and knowing how it works we would.

JPMorgan Loss Could Be Next 'Shock' Event

Tue, 10/02/2012 - 12:54 | 2848796 ATG
ATG's picture

What is wrong with this picture?:

 

Dimon best-paid Bank CEO:

 

http://money.cnn.com/2012/06/20/news/companies/bank-ceo-pay/index.htm

 

Clawbacks, or will he finesse the crooked courts too?...

Tue, 10/02/2012 - 10:59 | 2848350 Northeaster
Northeaster's picture

Mr. Whalen,

While this post is interesting, especially for ZH readers, do you relay this insight to CONgress or any other regulatory agency, including main stream press? I understand it may not matter, or outright ignored, but I am curious if you do.

We also had in 2010 CONgressional testimony on C-SPAN by Adam Levitin that the banks are insolvent on just their HELOC exposures alone. Even with Fed intervention, nothing has changed has it?

Do you think the fraud will ever end? Of course with a bought and sold CONgress I'm confident every ZH reader will agree that it will not.

 

Tue, 10/02/2012 - 12:41 | 2848736 sgt_doom
sgt_doom's picture

You are definitely unfamiliar with RC Whalen, who has not only been a constant thorn in the side of non-responsive regulatory agencies, but explained to them the most recondite facts of the earlier manifestations of securitization --- a process which most decidedly did not begin in the late 70s as Larry Fink, Larry Summers, Timmy Geithner and all the other pseudo-experts out there have stated, but back in the early 1900s, and really exploded in the Roaring 1920s, leading to the Great Crash and the Great Depression, but was ended with the passage of legislation in 1933 --- or so they thought!

 

Tue, 10/02/2012 - 11:36 | 2848477 NotApplicable
NotApplicable's picture

Why do you waste your life paying attention to the circus acts?

Tue, 10/02/2012 - 10:47 | 2848313 markar
markar's picture

Not to speak of those illegal naked short positions on silver they inherited from BS and continue to this day.

Tue, 10/02/2012 - 13:08 | 2848806 ATG
ATG's picture

And partially covered by seizing 0MFG customer assets including long silver contracts, with little legal justice or remedy for the injured parties.

Ask Eric Himpton Holder Jr, Eric T Schneiderman, Cyrus R Vance Jr AGs/DAs: Where is justice consigliere?:

http://en.wikipedia.org/wiki/Consigliere

See a picture of EHH Jr re armed takeover of Columbia U ROTC: 

http://dailycaller.com/2012/09/30/as-college-sophomore-eric-holder-participated-in-armed-takeover-of-former-columbia-university-rotc-office

Do NOT follow this link or you will be banned from the site!