Gretchen Morgenson’s article in Sunday’s New York Times, “$13 billion. Yes, but What Took So Long?”, rightly commended the Justice Department for taking action against JP Morgan Chase for mortgage securities malfeasance and rightly asked why it took so much time for this action to occur.
In its Statement of Facts about the settlement with JP Morgan, the Justice Department cited information from reports produced by Clayton Holdings, a due diligence firm used by the nation’s biggest banks, as key evidence in its case. As Ms. Morgenson notes, the Financial Crisis Inquiry Commission (FCIC) released those reports in September 2010 and placed on them on the Commission’s website, where they remain today. Those reports show that major financial institutions, including JPMorgan Chase, knew about the defects in the mortgages they were bundling and selling, but did not disclose what they knew to the buyers.The FCIC’s final report, issued in January 2011, addressed this matter in some detail (see pages 165-170, including the chart on page 167) and found that the banks’ conduct raised “the question of whether the [banks’] disclosures were materially misleading, in violation of the securities laws.”
In addition to Ms. Morgenson’s question about why it took so long to bring this case, there are two other questions which need to be asked and answered in the wake of the JP Morgan Chase settlement.
1) The reports from Clayton Holdings include evidence related to more than twenty financial institutions. What about the other banks whose mortgage due diligence actions are catalogued in those reports?
2) In a March 2012 New York Times Op-ed, I noted there was no indication at that time that the Justice Department had thoroughly examined “who knew what when” with respect to the conduct revealed by the evidence from Clayton Holdings. The question remains, particularly in the wake of another settlement where shareholders are footing the bill: What about the executives who drove the improper conduct at JP Morgan Chase and other banks?
The sooner that these questions are answered with action, the better for our financial system and our country.