Who Should Stay At The Graybar Hotel?

A question of fairness.

Whether the financial crisis of 2008 ate a chunk of your liquidity or a goodly portion of the value of your 401(k), or even if you came away relatively unscathed, chances are you’ve been waiting ever since for justice to be served. With the trillions of dollars of wealth that disappeared, with the shady dealings of mortgage-backed securities and bundled sub-prime amortizations, surely there’s a guilty party somewhere who must be made to pay.

Four years later...and we’re still waiting. No major criminal cases have been filed, few fines have been paid, none but a handful of mid-level executives lost their jobs. If there’s a scale somewhere representing this vision of justice, then someone’s thumb must be firmly planted on one side.

So you might take heart to learn that the New York Attorney General’s office, with the blessings of the Justice Department and several other states, has filed a civil fraud suit against JPMorgan Chase & Company, alleging misrepresentation of the values of mortgage securities sold in 2006 and 2007. The case won’t result in anyone spending time in the ol’ Graybar Hotel, but it’s a start, right?

Actually, no.

Looking closer at the suit, we see that JPMorgan isn’t actually accused of any wrongdoing (nor is Chase, for that matter). Who sold the fraudulent securities? That would be the now-defunct investment bank Bear Stearns, which JPMorgan acquired at fire sale prices — $2 per share — in 2008.

But fair is fair. When you buy a company you also buy its liabilities, including responsibility for its criminal wrongdoings. That’s clearly why JPMorgan is on the hook here.

Maybe so. But as long as we’re introducing the concept of fairness, let’s give JPMorgan a fair shake. If you cast your mind back to those dark days of March 2008, you’ll recall the impending failure of Bear Stearns was sending shockwaves throughout the entire financial system, bringing it to the very precipice of collapse. JPMorgan certainly wasn’t looking for acquisitions just then; they were pressured into it by the Federal Reserve and the Treasury Department, with the argument (which still holds up in hindsight), that the economy just might depend on it.

We want justice too, and if justice is served by criminal and/or civil prosecution of the Big Banks, then we’re all for it. We just don’t think justice — or even common sense — is served by going after JPMorgan in this case. Because all JPMorgan is guilty of, in this case at least, is saving our collective necks.

The C4:

1. The financial collapse of 2008, which has been convincingly tied to the housing bubble and the introduction of sub-prime mortgage-backed securities, has to date resulted in very little in the way of criminal prosecutions or civil liability.
2. This has led to an understandable, yet not-always-rational yearning for justice. We get that. We’d also like to see the guilty punished. We just want to make sure the innocent aren’t swept up as well.
3. Is that what’s going on with the civil fraud case against JPMorgan? The suit alleges fraud committed by Bear Stearns, which JPMorgan acquired after the fact. The law is clear: a company is liable for the transgressions of any entities it acquires.
4. But sometimes fairness is more important than the law. Our nation’s financial regulators begged JPMorgan to buy Bear Stearns, and when JPMorgan did, they just might have saved our economy. Should they be punished for it? We don’t think so, but we’d love to hear your opinion. Please log in and let us know.

Is the tide rising?

Housing and employment show good signs.

The downturn we call the Great Recession, which was our nation’s worst economic crisis since the Great Depression, began in December of 2007. The recession itself (defined as multiple consecutive quarters of negative GDP growth) ended in June of 2009. However, as we’re all too well aware, the recovery has been slow, halting and uneven.

At last, we’re glimpsing an end to that. If the collapse of the housing industry was what presaged the downturn — and it was — then a housing recovery means good news for us all.

We now know that the rate of foreclosures in 2011 decreased 24% as compared to 2010. The number of homeowners 90 days or more delinquent on their mortgages was down to 7.3% of all borrowers as of December 2011, versus 7.8% the previous December. And the number of U.S. metro areas showing measurable improvements in their housing markets increased to 98, as of the first of this month.

Do we still have further to go, and are there dangers still ahead? Yes and yes. But don’t let that keep us from indulging in a bit of optimism.

The Dow is up and unemployment is down. The housing industry is on its way back. The tide is rising and all boats are being lifted. Let’s enjoy it, celebrate it, and then let’s roll up our sleeves and get back to work.

The C4:

1. The Great Recession (2007–2009) was triggered by a collapse of the housing and mortgage industries.
2. The recovery has been one of the slowest on record, with nearly 18 months (mid-2009 through 2010) of little or no improvement in housing and employment.
3. There’s ample reason for optimism. We’ve seen five consecutive months of improving employment numbers, and a steady rise of the major stock indices.
4. Within Ohio and across the nation, the housing market is recovering. Healthy housing will complete this recovery. Cheers to that!