JPMorgan Chase and the US government recently agreed on a settlement amount of $13 billion to “clean” the financial mess the giant financial services firm helped create. The mess or the financial crisis of 2008-2009 placed many banks, lending institutions, investors and most importantly ordinary home-owners at bankruptcy.
The final settlement amount was settled after several dialogues and negotiations between Mr. Jamie Dimon, JPMorgan’s chief executive and Mr. Tony West, a top Justice Department official. Mr. Dimon representing JPMorgan acknowledged their contributions and participation that culminated in the 2009 financial meltdown which affected not only the US but other countries as well. And Mr. West knows that several lawsuits are the only remedy to compensate the victims of this financial breakdown. JPMorgan cannot afford to be involved in costly and time-consuming court litigations so they need to face the issues thru settlement deals.
Initially, Mr. Dimon offered $3 billion but the government did not budge saying the amount is too small. After several more negotiations the amount became $13 billion. Aside from the huge amount which is equivalent to ½ of JPMorgan’s annual profit, the bank was also forced to admit how it failed to inform their stakeholders (customers and investors) on the high risks of buying sub-prime mortgages from them.
However, several critics are quick to point out that the civil liabilities may have been resolved by this settlement but the criminal liabilities remain and may have been forgotten by the government. They want to hold accountable the officers and executives of these large financial institutions by putting them in jail. The settlement amount whether large or small may just be considered as the cost of doing business and the offense can be repeated in the future shared Bart Naylor, a policy advocate at Public Citizen.
Where the Settlement Amount Will Go
Based on information from the Justice Department, the settlement amount of $13 billion will be broken down into the following: $2 billion will go to the prosecutors in Sacramento, $4 billion as a form of relief to the affected home-owners especially in areas hardest hit by the crisis like Detroit and New York, and the remaining $7 billion will go to the federal agencies and state attorney generals as a form of compensation.
The agreement also includes prohibiting JPMorgan from recovering any of the amount thru the Federal Deposit Insurance Corporation. Aside from paying the government, the bank will pay separately in the amount of $4.5 billion several investment firms that bought the bank’s mortgage-backed bonds.
No One is Above the Law
The saying that no one is above the law not only applies to individual persons but also to corporations. Attorney General Eric H. Holder Jr. said that let this be a lesson for everybody especially corporations that are very profitable that they should be responsible enough to conduct their business because if ever they break the law they will be held accountable for doing this.
The Financial Crisis of 2008-2009
It was determined that the major reason why the financial crisis happened was the bank’s offer of risky sub-prime mortgages where the bank did not require any proof of income and no form of down payments from the prospective home-owners. Instead of extending prime mortgages the bank engaged in risky sub-prime mortgages.
And when the home-owners under the sub-prime mortgages category defaulted on their payments, the problems began to rear its ugly head. This eventually led to the staggering decrease of the prices of houses for sale in the market. Too many houses for sale led to the lowering of their selling prices. This scenario was repeated in several states in the US leading to the financial crisis of 2008-2009 where many banks, lending institutions, investors and the ordinary home-owners went bankrupt. JPMorgan Chase knows its fault and is more than willing to clean up its act to the tune of $13 billion.
By Roberto I. Belda