JPMorgan Suit May Worsen Next Crisis

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JPMorgan Suit May Worsen Next Crisis

JPMorgan Suit May Worsen Next Crisis

Bloomberg-

The economic damage wrought by a handful of financial firms has left the American public clamoring for a pound of flesh. This week, New York Attorney General Eric Schneiderman tried to satisfy that desire. He chose a curious first scalp.

Schneiderman, who is co-chairman of a state-federal mortgage-fraud task force created by President Barack Obama, hit JPMorgan Chase & Co. (JPM) with a lawsuit alleging the kind of deceptive behavior all too common in the run-up to the financial crisis: creating and marketing defective mortgage-backed securities that blew up on investors. The conduct, however, took place not at JPMorgan but at Bear Stearns, the investment bank JPMorgan bought in a government-arranged sale as the financial crisis was unfolding.

Holding JPMorgan responsible for Bear’s sins might be a no- brainer had this been a normal market transaction. But the circumstances surrounding the acquisition were anything but routine. Over a panic-stricken weekend in March 2008, the U.S. pushed JPMorgan to buy Bear. Worried about the effects of a bankruptcy on the broader financial system, the government sweetened the deal by agreeing to purchase $30 billion of Bear’s risky mortgage assets.

[BLOOMBERG]

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