What a surprise. The big banks are not playing by the rules -- the rule of law, that is.
The Justice Department announced that it is pursuing a civil lawsuit against Bank of America on the grounds that the bank lied about the quality of the mortgages underlying its mortgage-backed securities (MBS) prior to the housing collapse and financial crisis. The Justice Department is still on a high from its successful civil lawsuit against Goldman Sachs Group Inc.'s (NYSE:GS) mid-level toxic securities shill, Fabrice Tourre.
The charges allege out-and-out fraud in Bank of America's soup-to-nuts loan origination and securitization of mortgages. Loans, bad from the start, were knowingly bundled and securitized into trade-able MBS, unbeknownst to buyers.
As we all know, this play went wrong (or worked spectacularly well, if you were short housing like John Paulson) and spread poison throughout the global financial system. It is alleged that this particular fraud led to losses of at least $100 million among investors who thought they were buying securities backed by mortgages that weren't worthless.
Bank of America Not Alone
Meanwhile, JPMorgan Chase announced that it was the subject of criminal and civil investigations by Justice for precisely the same misdeeds as Bank of America and Goldman Sachs. It is alleged that JPMorgan knowingly originated bad mortgages, packaged and securitized them and... you know the rest.
We also learned that JPMorgan may have been the first to do so in 2005. And the toxic securities of Bear Stearns, which JPMorgan picked up for a song just before the music ended in 2008, are thought to have cost investors $22.5 billion.
And with these revelations, JPMorgan and Bank of America join the Wall Street rogues gallery; to mangle Winston Churchill, a "grisly gang who work their wicked will." Three of the largest banks in the world, and they are being pursued like criminals.
But it actually gets worse, dastardly worse...