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Chris Whalen: 'Jamie Dimon Not So Brilliant After All'

When it comes to identifying risk, Jamie Dimon is no Evel Knievel.

"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."


Guest post submitted by Chris Whalen

Jamie Dimon's Bear Hug Turns Into Festival Of Fraud

You Still Think Bear Stearns Is Not Material??

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 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.

Special thanks to Manal Mehta for his amazing notes.


Last week's post from Chris:

Whalen On QE3: "The Core Problem Is Fraud"


Recent videos from Chris:

'Bank Of America Will Split Into Pieces Soon'

'What Did Bob Rubin Know About LIBOR Fixing?'

Whalen & Ritholtz: "Big 4 Banks Have To Cheat To Hide Their Insolvency"



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Reader Comments (17)

WASHINGTON (MarketWatch) — New York Attorney General Eric Schneiderman late Monday filed a lawsuit against J.P. Morgan Chase & Co. in civil court, alleging widespread fraud in the sale of mortgage-backed securities.

Oct 2, 2012 at 7:21 PM | Registered CommenterDailyBail
Okay so here is a stupid question. With the settlement that the states AG signed does that allow the NY AG to go after these guys. I thought by signing off on the settlement they allowed the banks to walk away unscathed.
Oct 2, 2012 at 7:33 PM | Unregistered CommenterSKINFLINT
Ours certainly did. For God's sake Gansler sold our state out. I can travel along the roads here and see all these empty homes all over the place. The local paper here is just full of foreclosure notices at least once a week, sometimes more. What an awful mess.
Oct 2, 2012 at 7:48 PM | Unregistered CommenterSKINFLINT
49-State Foreclosure Fraud Settlement Will Be Finalized Thursday


Forty-nine states, every one but Oklahoma, as well as federal regulators will participate in a foreclosure fraud settlement that will release the five biggest banks (Wells Fargo, Citi, Ally/GMAC, JPMorgan Chase and Bank of America) and their mortgage servicing units from liability for robo-signing and other forms of servicer abuse, in exchange for $25 billion in funding for legal aid, refinancing, short sales, restitution for wrongful foreclosures and principal reduction for underwater borrowers. The announcement will be made on Thursday.


But the suit that is being brought is by investors so it's a whole different ballgame. No criminal prosecutions will happen under obama that's for sure jamie dimon is his favorite banker. Obama has a million dollars in one of his JP Morgue accounts and other money in different accounts with him. They go way back to Chicago where jamie was paying obama off since he was a junior senator


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.


JP is also the food stamp king


Why Can't Obama Bring Wall Street to Justice?


Barack’s Wall Street Problem is Now America’s

Oct 2, 2012 at 8:34 PM | Unregistered CommenterLadyLiberty
On the mortgage settlement, Schneiderman caved in like a pumpkin on Devil's Night:


That's reason enough for suspicion about the Bear MBS suit, which reeks to high heavens both in terms of content (failing to allege multiple pledging--a slam dunk act of fraud--or fraudulent conveyance) and timing (one month before election). Criminal fraud has a statute of limitations of 5 years, and Bear died 4 years and 5 months ago. Who does Schneiderman think he's kidding with some bullshit suit for 7 months' worth of transactions? Where was he last year?

Schneiderman's selection of Bear as a target also reeks of shit.

Unlike Bear, the TBTF banks cotinued as ongoing criminal enterprises, which is exactly why Schneiderman, as Whalen points out, "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."

I don't know what would make me yawn more, seeing this lawsuit settled for an S.E.C.-style pittance, or seeing Schneiderman pursue higher office.
Oct 2, 2012 at 9:03 PM | Unregistered CommenterCheyenne
The settlement happened while I was on extended walkabout. Why did Oklahoma choose to stay out of the settlement, I wondered. I found the answer in LC's link.


"Oklahoma stayed out of the deal because the state’s Attorney General, Scott Pruitt, did not believe that the banks should face any penalty."
Oct 2, 2012 at 9:37 PM | Unregistered CommenterDailyBail
Did you guys hear that Romney is considering John "$35,000 Commode" Thain for Treasury Secretary?
Oct 2, 2012 at 9:46 PM | Unregistered CommenterPitchfork
So I heard, Ptich. Moreover, it appears that Mitt tried floating this turd AFTER Sheila Bair revealed the following about Thain when Hank Paulson called the infamous meeting with the 9 TBTF bank CEO's:

"The financial world was literally teetering on the brink of disaster, and the first question asked by John Thain, the CEO of Merrill Lynch, was not about how the system could be saved, the economy preserved, the integrity of the banks upheld. No. He ASKED IF HIS COMPENSATION WAS GOING TO BE CUT. This is the guy who spent more than $1 million putting new carpets in his office, paid for by shareholders—and then by taxpayers."


Mitt Romney couldn't run a more idiotic and self-destructive campaign if he tried. He should be CREAMING Obama--and he's trailing due to the fact that he was obviously living in a coma for the last 5 years.
Oct 2, 2012 at 10:25 PM | Unregistered CommenterCheyenne
Yeah I saw the story over the weekend and I still haven't got it posted.
Oct 2, 2012 at 10:29 PM | Registered CommenterDailyBail
I thought that Mittens wanted Jamie Dimon " I've got souls on the bottom of my shoes" for T-Sec.
Oct 2, 2012 at 10:34 PM | Unregistered CommenterSKINFLINT
Jonathan Weil identifes another fatal defect in Schneiderman's charade of a lawsuit: it fails to name a single individual. "You can’t have a fraud without fraudsters."

Oct 2, 2012 at 10:40 PM | Unregistered CommenterCheyenne
Let me save everyone from the agony of waiting to see how this plays out:

the usual dog and pony show results in nobody admitting to anything and a fine equal to about 5 individuals x-mas bonus is paid.

Did I miss anything?
Oct 3, 2012 at 9:36 AM | Unregistered Commenterblack
I have read all of the above data and find myself in the middle of the ocean on a raft, with no help in site. I think it is time for America to close down and start over. There are too may who practice fraud, running this country into the ground, taking the human race known today down the tubes to destruction. Next event will be Civil War, more so against any elected official anywhere. The the banks and other money handling entities. The whole nation will come down and the states can either form a new Nation with all new people, they can form relations with other countries or remain with themselves. I have seen the best of America and what we could do, but when you have people in power that steal, all is lost. Good Bye America, good bye.
Oct 3, 2012 at 1:51 PM | Unregistered CommenterJimmy Porter
Many moons ago, when Bank One, in Columbus, Ohio still existed, I worked with Dimon. He and Obama could toss midgets to determine the larger narcissist.
Oct 3, 2012 at 7:43 PM | Unregistered CommenterBackgammon
Thanks for the link Skin. Hadn't seen that.

Backgammon, give us a Dimon anecdote or two.
Oct 4, 2012 at 2:27 PM | Registered CommenterDailyBail
Civil suits are not adequate. This mess will not be cleared without criminal prosecutions and hard prison time for thousands od banksters.
Oct 4, 2012 at 3:50 PM | Unregistered CommenterHarry Johnson

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