Not so brilliant, after all

Chris Whalen on Jamie Dimon:

What is really interesting is that the legal complaint filed by Schneiderman talks about sloppy procedures for loan selection, but still does not get to the real fun, namely multiple pledges of loans for different RMBS. And you can be sure that Schneiderman does not really want to go that far because it might force him to ask the same question about the other, far larger issuers of RMBS.


Remember, the whole point of the Robo-signing settlement is not consumer protection, but rather fraud. The key question: Who’s got the note? If you don’t have to deliver the note into an RMBS trust, then the door is wide open for securities fraud.


What is really troubling is that while Schneiderman is making a big fuss about suing JPM over the Bear Stearns RMBS, he refuses to go after Bank of America, Wells Fargo, Citi, Ally and other large banks for precisely the same type of fraud and deliberate criminal acts as were committed by Bear Stearns. The degree of negligence and stupidity displayed at Bear Stearns may have been more egregious than that at say Countrywide, but only in degree.


Once again it is shown that the politicians like Schneiderman, who have aspirations for higher office, have no problem making an example of a small firm, but will never move directly against the top four banks for their own grotesque errors and omissions.


Schneiderman has been dragging his feet with respect to Countrywide and Bank of New York for years, yet suddenly he has time to sue JPM over Bear Stearns? What’s wrong with this picture?


Keep in mind that neither JPM nor BAC have even begun to take sufficient reserves to cover a settlement of the claims facing both firms with respect to their RMBS. BAC became the owner of the Countrywide mess by acquiring that firm w/o a bankruptcy. Likewise JPM bought Bear Stearns without a bankruptcy.


Notice that you never hear anything about claims against Lehman Brothers or WaMu because most of these claims died in bankruptcy. But, to add another funny, JPM also has liability due to the WaMu covered bonds that were conveyed by the FDIC’s receivership after the takeover.


So what happens with JPM and Bear? One word: rescission. My guess is that the fraud perpetrated by Bear Stearns in creating these rancid securities will eventually force JPM to repurchase some of the bonds from investors. That is tens or even hundreds of billions of dollars of face amount of bad securities.


So, Jamie, you still think that Bear Stearns is not material to JPM investors? In case you did not guess, that is going to be my question for Dimon on the JPM analyst call.

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