Those Toxic Investments JPMorgan Sold? It Knew Exactly What It Was Doing
As The Wall Street Journal reports, the deal grew out of the law-enforcement agency's discovery of a 2006 meeting in which JPMorgan (JPM) executives decided to continue to sell shoddy mortgage-backed securities, despite red flags that should've prevented them from offering the investments.
Citing anonymous sources familiar with the deal, the Journal says Justice Department officials learned of the 2006 meeting while pouring over thousands of pages of documents during the last year.
From the Journal's report:
As Attorney General Eric Holder said Tuesday in a statement announcing the deal, "JPMorgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm's behavior," adding that investigations into other big banks' actions are "far from over."
Among the key pieces of evidence fueling the Justice Department probe were accounts of a 2006 meeting between J.P. Morgan executives and the company that had originated the suspect mortgages, where the two sides came up with ways to re-categorize suspect loans so that they would satisfy the bank's due-diligence standards, at least on paper, according to people familiar with the government's probe. The employee who had previously warned her bosses about the quality of the loans told investigators she approached a bank executive after the meeting, saying she still had concerns. She was told, in essence, not to worry, because the bad loans would be spread out over a number of bond offerings, these people said.
The next offering still had a high portion of such loans, according to people familiar with the investigation. Investigators say J.P. Morgan agreed to keep issuing bonds using the suspect loans -- what one person involved in the probe called "blowing past'' the bank's own internal warnings.
That may come as cold comfort to the millions of investors who lost billions of dollars when the investments led the 2008 financial collapse (from which the nation is still recovering) and to the millions of homeowners who either lost their home or whose houses will not soon be worth anything near what they paid for them just a few years ago. But for now, anyway, it'll have to do.