Bill Black on JP Morgan settlement

Via the Real News is Bill Black on the JP Morgan setttlement:

DESVARIEUX: Okay. And because of these massive losses, now JPMorgan has to pay this $13 billion settlement. But it’s really being reported as this big step toward bringing the banks to justice for their role in the financial crisis. Do you actually agree with that point of view?

BLACK: No. Indeed, in the introduction, which was an accurate statement of how the Justice Department is presenting this, it’s actually inaccurate in many different ways.

So, first, most of this settlement has nothing to do with mortgage-backed securities. That’s only one of what are reportedly nine different areas of fraud by JPMorgan that are the subject of this settlement. And that means that the Justice Department is giving up the ability to prosecute, apparently, in eight of these nine areas. And so this–again, we’re talking on the basis of press leaks by the Department of Justice and by PR flacks for JPMorgan–we don’t have an actual deal that’s been made public. So all of this is tentative and could be factually inaccurate, because these people have an incentive to, of course, portray the deal differently.

But as it’s being portrayed in the press, they are going to give up the ability to prosecute for literally tens of thousands of frauds committed by JPMorgan’s folks, and they’re going to give up the ability to prosecute JPMorgan as well as the individuals.

The settlement is not $13 billion, although it’s being portrayed as that. It is at best $9 billion. And that’s because the other $4 billion represents what we call loan workouts. Loan workouts are something that you do as a bank because if you try to insist on the original deal, the borrower can’t repay, it goes to foreclosure, there are lots of losses. So in a loan workout you reduce the payments. And you do this not because of the goodness of your heart, but because the bank minimizes its losses by loan workouts. So what the Justice Department is agreeing is that JPMorgan can count all these loan workouts that it would have done anyway to minimize its losses as if they were part of a settlement. So disregard the $4 billion entirely.

That leaves us with $9 billion. But that $9 billion, unless there’s something not being reported again, will be reduced substantially, probably by about one-third, because these fraud expenses will be taxed deductible. In other words, the United States of America will pay a third of this supposed fine from the JPMorgan frauds to the United States of America.