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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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Tue, 10/02/2012 - 11:08 | 2848381 GolfHatesMe
GolfHatesMe's picture

How about the two or three day "Self-Clearing" process to become a COMEX vault to deliver the shorts to themselves.  Not Material

Tue, 10/02/2012 - 10:36 | 2848277 Richard Chesler
Richard Chesler's picture

Fraud is Jamie's middle name.

Tue, 10/02/2012 - 15:53 | 2849484 Seasmoke
Seasmoke's picture

Shalom is Bernankes middle name

Tue, 10/02/2012 - 11:03 | 2848367 realitybiter
realitybiter's picture

It is only fraud if you get caught, prosecuted, and severely punished.  This has about a Holder's chance of happening.  "What's a Holder?"  A holder is when someone occupies a position where a real attorney general is supposed to be.  There's a new sheriff in town, and he is asleep.  Do not disturb unless it is a case about you ninnies whining about your constitutional rights that we stole.

It is only bankruptcy if you end up bankrupt.  Load yourself ub with enough derivative positions and you can reach across the til and take Grandma's Chase deposit.  Bankrupt?  Ha!  More like jackpot.

Tue, 10/02/2012 - 13:00 | 2848749 LMAOLORI
LMAOLORI's picture

 

 

+1 realitybiter and that's not going to happen that's obama's favorite banker. Obama's the only thing protecting JP Morgan from citizens with pitchforks he said so himself and Barry said he's really smart he has a Million in one of his accounts and other money in another. What Barry didn't say is how he was paid off for years by him and how the taxpayers ultimately pick up the tab or how the Morgue is paid back for all those bribes, i.e. jamie has a food stamp empire he makes over a half billion just on that!

Obama’s Portfolio: JPM Account, Treasurys

snip

President Barack Obama has called J.P. Morgan Chase & Co. one of the country’s “best managed banks there is” despite its recent $2 billion trading loss. His 2011 financial disclosure forms, released Tuesday, show he’s put his money where his mouth is.

Mr. Obama last year increased the amount in his checking account at J.P. Morgan Chase & Co. to between $500,000 and $1 million, according to the forms. In 2010 he had between $250,000 and $500,000 in the account.

JP Morgan’s Food Stamp Empire

JPMorgan's Paton Discusses U.S. Food Stamp Use

 

President Obama's Favorite Banker

snip more at link

I knew something was up but, I couldn't figure the connection. Now, in retrospect, it should have been obvious. JPMorgan Chase is at its core Chicago-based Bank One. Dimon moved to Chicago when he became head of Bank One. In record time, Dimon weaseled his way into the Chicago's old boys network that launched Obama's presidential campaign.

The Gifting of Washington Mutual to President Obama's Favorite Banker

More on the Gifting

Goldman Sachs and JPMorgan Chase Slapped Lightly on Corporate Wrists for Financial Malfeasance

http://www.allgov.com/news/where-is-the-money-going/goldman-sachs-and-jpmorgan-chase-slapped-lightly-on-corporate-wrists-for-financial-malfeasance-120929?news=845807

Not to worry obama won't prosecute him if he needs money they will get it from taxpayers and the courts will help him too!

Supreme Court gives banks foreclosure win

 

Tue, 10/02/2012 - 11:37 | 2848479 NotApplicable
NotApplicable's picture

Meh,  tempest in a teapot.

Tue, 10/02/2012 - 12:10 | 2848603 knukles
knukles's picture

I didn't say a damned thing about being material to share or debt-holders, employees, regulators or even recipients of charity and campaign contributions, asshole.
I said it was immaterial to my bonus.
Now fuck off and have a nice day.

Tue, 10/02/2012 - 15:47 | 2849449 Pladizow
Pladizow's picture

So Chris, you are saying the Fed will end up with these RMBS, right!

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