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.

The Six Billion Dollar Email

Just 11 words in a mountain of data may ultimately be the smoking gun.

If there’s a moral to this cautionary tale, it’s this: know what’s inside those boxes you’re handing over.

The background is a multi-billion-dollar lawsuit between Oracle and Google (go ahead and call it the Battle of Silicon Valley), in which Oracle alleges the illicit use of its Java programming platform in Google’s Android operating system.

It started off as one might expect; Google denied wrongdoing, while (reportedly) preparing to pay a token settlement of a few million dollars. Then sometime last year came the discovery phase, where Google responded to Oracle’s subpoenas with a good old fashioned data-dump: truckloads of documents meant to overwhelm and confuse the other side’s lawyers.

But somewhere within those truckloads was a single damning email. It was from a Google engineer to Andy Rubin, head of the Android division. It said (paraphrasing here), “You know, we really ought to buy a license for Java.”

So much for settlement. The trial is now underway; its conclusion is by no means foregone, but legal observers say Google isn’t looking so good. Damages were initially estimated at $6.1 billion, but might be negotiated down to around a billion. That’s still enough of a hit — even to Google’s deep pockets — to spell an end to Android OS as freeware, and higher consumer prices on Android phones and tablets.

For the want of a nail? More like for the want of reading your own email. Or, better still, the true root cause: if you’re using someone else’s software, pay for it. Because ultimately you will...one way or another.

The C4:

1. In August 2010, Oracle (owner of the Java programming platform) filed suit against Google for the unlicensed use of Java in the Android operating system.
2. Responding to Oracle’s subpoena, Google inadvertently supplied an email which apparently acknowledges the use of Java, and the need to pay licensing fees.
3. The trial is ongoing. It could result in a billion-dollar judgment against Google that would inevitably impact the cost of Android devices.
4. Learn from Google’s mistakes: data-dumps can be self-defeating, and it’s always best to simply pay for the products you use.