JPMorgan Chase, the nation's largest bank, and the Justice Department have tentatively agreed to settle lawsuits alleging misconduct in its marketing of faulty mortgage-backed securities prior to the financial crisis. The $13 billion cost to JPMorgan is the largest such payment, and Justice is letting it be known that this case is a template for proceedings against other big Wall Street players. But does the reported settlement serve the ends of justice?
It does impose a kind of general accountability. Though hardly the worst offender in the mortgage-security business, JPMorgan certainly got rich packaging and selling low-quality home loans, a game that, in hindsight, contributed to the downfall of the U.S. financial system. The money the bank is coughing up now amounts to more than half of its profits last year.
The problem is that our legal system is supposed to hold people accountable for specific violations of specific rules. That's not what happened to JPMorgan. The government's case rests not only on a sweeping assertion that the bank deliberately hoodwinked mortgage experts at Fannie Mae and Freddie Mac but also on a novel interpretation of a 1989 law that enabled Justice to sue after the usual five-year statute of limitations had passed.