Last week the Justice Department announced that J.P. Morgan will pay a $13 billion settlement over its role in the collapse of the housing market. The huge sum amounts to the largest settlement in US history by a single company, and it’s just one of several recent settlements with major financial companies stemming from the financial crisis that destroyed $16 trillion in household wealth, caused 8.7 million job losses, and left 12 million homeowners owing more on their homes than they were worth. It’s almost as if the banks are actually being held accountable and finally paying the price for lying to investors and making millions selling shoddy mortgage products.
Except the settlement is actually a great deal for the bank — and for the bloated financial industry as a whole. That’s why J.P. Morgan’s stock soared to a 52-week high after the settlement was announced and why financial industry insiders greeted the news with relief. Now that there’s a settlement that’s adequately large and historic in scope, Wall Street thinking goes, bankers and brokers can move ahead with a fresh slate, leaving behind culpability for the financial crisis and continuing to rake in profits free of guilt, tarnished credibility, or any imperative to change course.
The settlement is also not nearly as big as it seems. About $7 billion of the payout will be tax-deductible, which will likely reduce its bite by a few billion. Most of the money is devoted to minimizing a small share of the vast damage the banks’ behavior created, and only $2 billion is being paid as a fine that penalizes it for those behaviors.
The total amount of the settlement is a vast sum by most standards, but it’s only about half of the bank’s annual profits for 2012. And the bank was ready to pay much more. It had already set aside $28 billion specifically for expenses related to litigation and many financial analysts predicted they’d have to tap much more from the fund.
Still, there’s some good that comes from the deal. About $4 billion will fund assistance for homeowners in the form of lower loan rates, reduced mortgage payments, and other assistance; investors who suffered from the banks’ malfeasance will receive $7 billion in compensation. Since all the major banks engaged in similarly dangerous practices as J.P Morgan, it’s expected that the deal will serve as a precursor for settlements with other institutions.
The larger purpose of the settlement, though, was to hold accountable the most powerful and wealthy industry in the world. It’s doubtful that will be a lasting outcome. It’s been frequently noted in recent years that not a single executive of a Wall Street firm has faced criminal charges due to the fraudulent practices that triggered the financial crisis. No major firm has even been forced to admit wrongdoing or law-breaking. The J.P. Morgan settlement doesn’t change this. The bank did have to accept a “statement of facts” that acknowledges many of its most irresponsible practices, but that statement falls far short of a true admission of wrongdoing or law-breaking.