Five Years Later, Banks Pay For Inciting Financial Crisis
Five years after shady banking practices sent the global economy plummeting into irreversible turmoil, the Justice Department is aggressively prosecuting large banks like JP Morgan Chase and Bank of America and seeing record payouts. On Wednesday, a jury found Bank of America liable for fraud committed by Countrywide Financial, a mortgage company that was acquired by the bank in 2008.
The case goes all the way back to 2007, when Countrywide created a program called “The Hustle.” The objective of the program was to give away as many prime mortgage loans (loans typically only accessible to people with high credit ratings who can afford large down payments) as possible, no matter the economic status of the applicant. The company then bundled thousands of loans and sold them to Fannie Mae and Freddie Mac, only to see 57 percent of the loans default.
Although a penalty has not been set yet, the court ruling comes on the heels of a $13 billion settlement by JP Morgan Chase. The bank struck a deal with the Justice Department as a penalty for mortgage securities they sold in the lead up to the financial meltdown. Many of the securities were sold by Washington Mutual and Bear Stearns, both of which were bought by JP Morgan during the fallout from the crisis at an incredibly discounted rate. Estimates have JP Morgan earning more than $16 billion in profit since acquiring those firms which will more than cover the legal penalties. As a result of the settlement, however, JP Morgan is trying to strike a deal with its own investors, estimated to be around $6 billion. A part of the settlement is tax deductible which could leave the financial giant with just a $9 billion bill.
That could leave JP Morgan Chase with a $4 billion profit off the Washington Mutual and Bear Stearns deals, not counting tens of billions in future earnings. Meanwhile, the US Bureau of Labor estimates that nearly nine million jobs have been lost since 2008 as a result of the financial collapse caused by these banks.