Jamie Dimon’s $13 Billion Secret
In his public comments the day the settlement was announced, New York State Attorney General Eric Schneiderman, co-chair of the task force that President Obama created to investigate and prosecute wrongdoing in the mortgage-backed securities market, said, “Since my first day in office, I have insisted that there must be accountability for the misconduct that led to the crash of the housing market and the collapse of the American economy.” He likes to think he made a good start on that promise by collecting some $613 million of the JPMorgan settlement for New York.
Soon after taking office in January 2011, Schneiderman—a former state legislator from Manhattan’s Upper West Side (and the first state legislator since 1918 to be elected New York attorney general)—“cross-examined” the junior attorney in his office who had been working with other state attorneys general on what became known as the National Mortgage Settlement. In that deal, announced in February 2012, five of the nation’s largest banks agreed to pay $25 billion to settle claims related to home foreclosures in the aftermath of the financial crisis. The litigation arose out of the so-called “robo-signing” scandal, in which banks foreclosed on homes even though they no longer had the original mortgage documentation. (As part of the settlement, JPMorgan paid $1.21 billion to the federal and state governments and provided an additional $4.21 billion in various forms of mortgage relief to homeowners. The country’s five largest mortgage servicers—JPMorgan among them—also admitted they “routinely” signed foreclosure documents “without really knowing whether the facts they contained were correct.”)
Schneiderman’s staffer explained that no documents had been subpoenaed and no witnesses deposed related to the underwriting of mortgage-backed securities. The behavior of the bankers leading up to the financial crisis didn’t seem to be on anyone’s agenda. Schneiderman was furious. He couldn’t understand what was going on. “At first I thought, ‘Maybe there’s some cabal, like Treasury and the OCC [Office of the Comptroller of the Currency] and these pro-bank people, stopping the aggressive Justice Department folks,’” he recalls. One senator came to see him and warned him that people in Washington were “trying to rewrite history” about the causes of the financial crisis. There didn’t seem to be a conspiracy to thwart the prosecution of Wall Street bankers, the senator explained, just timidity and indifference.
In March 2011, Schneiderman went to Washington and met with Iowa Attorney General Tom Miller, who was heading up negotiations with the banks on the robo-signing settlement. Schneiderman says he asked Miller if anyone was looking into pre-crash wrongdoing. “My conversation with him indicated to me that no one had investigated,” he says. “No one was going to investigate.” (Apparently unbeknownst to Schneiderman, “there were definitely existing DOJ investigations throughout 2011,” West says. But it makes sense that Schneiderman never knew about them because the Justice Department kept that information close to the vest.)
Schneiderman says he and Miller also spoke about the status of the legal release from additional liability that the banks wanted as part of the settlement. Scheiderman wasn’t surprised to hear that the banks wanted to be released from liability regarding the underwriting of mortgage-backed securities prior to the financial crisis, but he was horrified to learn that Miller and the other attorneys general were prepared to give it to them. After speaking with Miller, Schneiderman decided that he would not sign a general release as part of the settlement. “He didn’t like it,” Schneiderman recalls of Miller’s reaction.
Miller disputes Schneiderman’s account. There was never the slightest chance that the banks would be released from any claims regarding their manufacture and sale of mortgage-backed securities, he says. “We had certain goals in mind concerning robo-signing, principal reduction, monetary relief, monitors—and we achieved all those goals, and we were never, in a thousand years, going to give them a relief on securities.” Another official close to the National Mortgage Settlement negotiations adds, “There is this allegation that has persisted to this day that we were going to give away the farm, that we were going to release everything, and it was only because of Eric Schneiderman [that we didn’t]; where he stood firm, and he interceded, and he said, ‘You can’t do that,’ and his bravery stopped that from happening. Totally, 100 percent false.”
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Once Schneiderman returned to New York, he decided that his office would conduct its own investigation into the Wall Street banks’ wrongdoing in the years leading up to the financial crisis. Joseph R. Biden III, the Delaware attorney general and son of the vice president, heard about Schneiderman’s controversial decision not to sign on to the mortgage settlement and thought he was doing the right thing. The two agreed to work together.
“I informed myself quickly about how bad this was,” Schneiderman says. “It was even worse than I had realized, because it was so out in the open. It was like a bank robbery without masks or gloves. There had been bad behavior. People knew it was bad behavior. It wasn’t too hard to understand. It was unbelievable to me, actually, and I had a hard time even accepting the fact that there weren’t investigations going on, because how could you not investigate this?”
When New York Times business columnist Gretchen Morgenson wrote about the Schneiderman-Biden partnership in June 2011, she reported that subpoenas had been sent to Deutsche Bank and Bank of New York Mellon. After the column appeared, Schneiderman called Biden and asked why the banks weren’t responding. Biden’s answer shocked him further. Miller, he explained, had assured their colleagues in Washington that Schneiderman would eventually agree to the settlement. (Biden declined a request to be interviewed.)
Schneiderman moved quickly to clarify that he had no intention of signing the National Mortgage Settlement as it then stood. He went to see Thomas Perrelli, who’d preceded Tony West at the Justice Department. (Perrelli, now at the law firm Jenner & Block, did not return a phone call seeking a comment.) He went to the White House. He went to see Housing and Urban Development Secretary Shaun Donovan (who now directs the Office of Management and Budget). At each stop, Schneiderman says, he was told in no uncertain terms that he had to sign the deal. At times the conversations, even among political allies, became quite heated.
Schneiderman’s comments to the media further angered his colleagues. He told a Rochester, New York, newspaper that he was “stunned” to learn that no documents had been subpoenaed or depositions taken regarding the underwriting of mortgage-backed securities before the financial crisis, and that he would oppose “a quick, cheap settlement.” He said the attorneys general negotiating the settlement “had no leverage.” He said he would not give the banks a “full release.”
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