Pros and Cons of Criminal Charges on JP Morgan by Student’s Name Teacher’s Name Department’s Name 28th November, 2013 It all started during 2006 when the US Justice Department came up with discovery of meeting of JP Morgan Executives where despite of red flag signals from US department, the officials continued selling shoody mortgage securities. JP Morgan- one of the largets banks in US, came to mutual agreement with US Government Officials to pay $13 billion as part of civil settlement against charges over JP Morgan. (Barrett, 2013). The record penalty was the result of investigation held by Securities and Exchange Council and US Justice Department where they found that the big national banks were responsible for fueling the financial crisis. As for JP Morgan, where they acknowledged that indeed it told its investors about the mortgage loans in securities it packaged and sold although they were told by its employees of its loan quality, this gives a valid proof that national banks were indeed responsible for mortgage meltdown. However, these criminal charges on JP Morgan had both pros and cons in its own sense for the financial world and big banks. Pros: 1)No one is above the Law: After the time of financial crisis, JP Morgan was not the only national bank in US which got involved in trade of toxic loans related to mortgage. Before JP Morgan, it was Goldman Sachs-another large US Bank that faced the allegation of manipulating the trades in its own self interes, ended up in favor of SEC while GoldMan Sachs were asked to pay $500 Million during late 2011 in a deal called Abascus 2007-AC1 where the bank were alleged to mislead its investors on a deal related to Collateral Debt Obligation(CDO). (Eaglesham, 2011) The ab... ... middle of paper ... ...s/SB10001424052702303755504579208350707595282 Eaglesham, J. (2011, January 22). Bank Fine Hints at Feds' Playbook. Retrieved December 1, 2013, from Wall Street Journal: http://online.wsj.com/news/articles/SB10001424052702303936704576399801103678040 PAterson, S. (2013, October 24). J.P. Morgan Criminal Case Could Trigger OCC Action. Retrieved December 1, 2013, from Wall Street Journal: http://online.wsj.com/news/articles/SB10001424052702304682504579156022095052420 Rexrode, C. (2013, November 13). What J.P. Morgan’s $13 bln settlement means for neighborhoods, struggling homeowners. Retrieved December 1, 2013, from Marketwatch-the Wall Street Journal: http://blogs.marketwatch.com/thetell/2013/11/21/what-j-p-morgans-13-bln-settlement-means-for-neighborhoods-struggling-homeowners/ VaughnReynolds. (2013). JP Morgan Settlement:Impact on Financial Indsutry. VaughnReynolds.
Pitzer, Matt. "The Case Against Goldman Sachs." Last modified 04/21/2010. Accessed October 5, 2011. http://www.business.missouri.edu/ifmprogram/reports/2010WS/GS.doc
The Dodd-Frank Wall Street Reform and Consumer Protection Act’s policies haven’t really been implemented to the extent that regulators would have liked. Although the legislation takes many steps in addressing systematic risks in the United States financial system and improving coordination among regulators, some critics believe that alternative options might have been more effective. The coming years will give us a better understanding of how well the Dodd-Frank Act addressed these concerns.
From time to time, lenders and their attorneys announce that lender liability is no longer an issue with which the lending community needs to be concerned. What usually prompts this proclamation of the death of lender liability is a recent case in which a court has summarily rejected a borrower’s claim that the lender violated the duty of good faith and fair dealing. Many courts have rejected borrowers’ lawsuits which are based on allegations of the violation of the lender’s duty of good faith. Nevertheless, lender liability should continue to be an area of concern to lenders.
Dodd-Frank Act was “based on a set of beliefs about the causes and consequences of the housing boom and collapse that preceded the recession” (Johnston). This act ensured that mortgage terms are suitable for borrowers from lenders, imposing massive legal risks on any lender that decides to write mortgage contracts that do not meet up to “qualified” mortgages. In the early 2000s bankers and mortgage brokers used high-pressure sales tactics and even using fraud to sell
Although not as big as the 1929 crash, the crash of 2008 still had a huge impact on Americans. Unlike the crash of 1929, the crash of 2008 was caused by activities outside of Wall Street, namely, the failure of congress to pass the bank bailout bill. The bank bailout bill was made to bailout companies like HSBC and Lehman Brothers, who went bankrupt as a result of poor and illegal business practices. Some of these business practices included money laundering. Money laundering is when someone makes illegally obtained money look like it was legally obtained, or in other words, making dirty money look like clean money. The rejection of the bank bailout bill by congress sent the Dow into a nosedive, dropping almost 800 points in one day, the largest point drop in any single day in history. Another cause of this crash was the subprime mortgage crisis. This crisis occurred when companies hired rating companies like Standard and Poor’s to give good ratings to the mortgages that these banks were giving out to people. These mortgages were sold to other places, such as investment banks and government agencies, as mortgage-backed securities. Mortgage-backed securities are paid like regular mortgages, except that interest and principle payments don’t go to the company that lent you the money. For example, if you get a mortgage from Chase bank, Chase can sell your mortgage to the Federal Home Loan Mortgage Corporation (Freddie Mac). Freddie Mac then
Mortgage fraud has been increasing globally harming homeowners, businesses and the economy. New ways to detect and prevent mortgage fraud have been developed to discover and prevent criminals before the fact; rather than after the damage has been done. The article An Insight into the World of Mortgage Fraud in the US and UK by Beverly Houlbrook talks about mortgage fraud and how it is becoming more evident “as economies enter recessionary periods and house prices tumbles” (34). It states how the global mortgage markets are providing “more opportunities for professional, innovative fraudsters to exploit and profit from loopholes and system weaknesses” (34).
Countrywide Financial was an organization that was considered too big to fail, because of the large ranging impact its failure would have on multiple stakeholders throughout the world. Furthermore, the company carried billions of dollars in mortgaged home loans and was considered to be the largest home loan provider in the United States. But, somehow unknowingly to regulators this organization created a culture and environment within its organization of widespread corruption with unethical financial reporting. Sadly, the leaders of Countrywide Mortgage pursued greed instead of the financial security that its customers were seeking.
1 Post the 2007–2012 global financial crisis, few criticized them to have it mislead its investors and profited from the collapse of the mortgage market. Matt Taibbi went on to name it as a "great vampire squid" sucking money instead of blood. However, Goldman Sachs denied the charges saying that the customers were appraised of those bets and those bets were used only to hedge against losses.
This was the first global financial crisis since the Great Depression of the 1930s; it spread at an un-parallel rate across the world (Claessens et al, 2013). In the aftermath of the Great Depression it was universally believed by economists that the unregulated financial markets were to blame as they were fundamentally unstable, subject to manipulation by bankers, and capable of triggering deep economic crises and political and social unrest (Crotty, 2009). These are the same issues that occurred following the aftermath of the financial crisis 2007. It can be argued that the current crisis is the latest stage in a series of financial boom and bust cycles, in which there is a shift from light to tight financial market regulations. The global financial crisis (GFC) is seen as the deepest post-World War II recession (Blankenburg & Palma, 2009) with the United States being the epicenter of the crisis due to the housing bubble burst and sub-prime mortgages (McKibbin & Stoeckel, 2010). This essay will be focusing on the housing bubble, sub-prime mortgages, and the interconnectedness of the global banking system, the lack of transparency and regulation within the finance industry as the main causes for the GFC.
The forced liquidation of some $3 trillion in private label structured assets has been deprived from the financial markets and the U.S. economy has obtained a vast amount of liquidity that the banking system simply cannot restore. It is not as easy to just assign blame within these case however it is noted that the credit rating agencies unethical decisions practices helped add onto the financial crisis of 2008 and took into account the company’s well-being before any other stakeholders.
In previous years the big financial institutions that are “too big to fail” have come to realize that they can “cheat” the system and make big money on it by making poor decisions and knowing that they will be bailed out without having any responsibly for their actions. And when they do it they also escape jail time for such action because of the fear that if a criminal case was filed against any one of the so called “too big to fail” financial institutions it...
Eventually banks started to panic once they realized they were the ones who had to deal with all the losses in the market when subprime borrowers failed to pay their mortgages back, causing them to stop lending to each other, fearing that they would receive worthless mortgages. Interest rates between interbank borrowing costs rose, causing a mistrust and halt within the banking
Midway through 2007 financial markets began to collapse on news of heavy write-downs by major financial institutions. The housing market in the United States (US), which had been experiencing consistent growth since 1975, began to contract in the third quarter of that year while the delinquency rate had been rising since 2006 (Mortgage Bankers Association, 2008). Investors were uncertain how severe the losses would be but it was becoming more likely by the end of the year that a financial crisis was imminent: the amount of subprime and collateralized debt obligation (CDO) losses had surpassed US$120 billion and were expected to increase in 2008 (Gaffen, 2008). As economic conditions turned from bad to worse investors, academics and practitioners began to wonder how such a crisis could have been precipitated in the first place. Blame was placed on mortgage originators, the Federal Reserve and on the investment banks, to name a few. The credit rating agencies (CRAs), seldom in the spotlight, were also heavily criticized for their role in causing the crisis. CRAs certainly do play an important part in financial markets and Thomas Friedman, the Pulitzer Prize winning New York Times columnist, once remarked that there are two superpowers in the world: the US and Moody’s (Lowenstein, 2008). But did the CRAs really deserve blame or were they being held as scapegoats? In the past the agencies generally avoided significant criticism for their rating of corporate debt and government issues, but their role in the burgeoning structured finance market in the early 2000s was characterized by conflict of interest issues, poor risk modeling and ineffective government regulation. As a result low quality ratings proliferated the mar...
Today, we see a more highly consolidated industry than was present before the collapse. The large banks who were involved in the risky lending practices that caused the collapse now hold an even larger market share because of government bailouts, consolidation, and ability to internalize the cost of stringent regulations. Those small and regional banks who continued to uphold ethical lending practices either struggled to survive the economic recession were forced to sell to larger entities or close their
There were some cases showing the effect of credit risk due to operational risk, and many banks suffered huge losses. Even worse, some banks went bankrupt because of this. In other countries, for example, Bankers Trust had been investigated by the Procter & Gamble in 1994 for misleading and cheating in derivatives trading, which ...