When New York Attorney General Eric Schneiderman filed a civil lawsuit  against JPMorgan Chase earlier this month, alleging widespread mortgage-backed securities fraud at Bear Stearns—which the JPMorgan Chase acquired during the financial collapse in 2008—CEO Jamie Dimon got huffy. “I’d put this in the unfair category,” Dimon said in a speech  not long after. Dimon thinks JPMorgan Chase did the government “a favor ” by taking over Bear Stearns, and several industry insiders spun reporters after the suit was filed that this was simply a good deed being punished.
This defense was unfortunately advanced by Representative Barney Frank this week. “The decision now to prosecute J.P. Morgan Chase because of activities undertaken by Bear Stearns before the takeover unfortunately fits the description of allowing no good deed to go unpunished,” he said . “The federal officials involved believed that the failure of Bear Stearns would have terribly negative consequences for the economy, and they urged J.P. Morgan Chase to do a good deed by taking over an institution which, I believe, the bank would never have sought to acquire absent that urging.”
Whether JP Morgan Chase would have sought to acquire Bear Stearns absent the government’s urging is an interesting hypothetical, but what’s clear is that they did benefit from it. Let’s briefly review some facts:
The federal government took $30 billion of toxic assets off of Bear Stearns’s books—that was a condition laid out by Dimon  and accepted by the Bush administration.
JPMorgan Chase also got all kinds of other goodies from the feds—$25 billion in TARP funds, $390 billion in emergency loans from the Federal Reserve, and usage as a clearinghouse for the Fed’s emergency lending program, which allowed the bank to collect massive fees. Bloomberg News estimated that JPMorgan Chase got $457 million, risk-free, by investing the below-market loans from the government.
In the following months, Dimon kept telling investors it was a good acquisition that would increase JPMorgan Chase’s bottom line. “The Bear Stearns merger provides a unique opportunity to enhance our ability to serve clients by adding new capabilities in prime brokerage and clearing and by improving strength in equities, mortgage trading, commodities and asset management. We welcome the employees of Bear Stearns and look forward to working together to build increased franchise value,” he said  in April 2008.
As part of the deal, JPMorgan Chase acquired the Bear Stearns office in downtown Manhattan—which on the open market was valued as high as $1.4 billion, though it also was saddled with some debt obligations. Still, the building value is slightly higher than the $1.2 billion JPMorgan Chase paid to acquire Bear Stearns—something The Wall Street Journal called a “potential coup .”
Putting aside the clear benefits of the acquisition for JPMorgan Chase, there’s the simple question of legal liability. Along with all the dollars, JPMorgan Chase was accepting liability for whatever Bear Stearns had done, and of course Dimon knew that at the time.
“I disagree with the notion that misconduct should not be pursued because a company changes hands,” said former New York attorney general Eliot Spitzer in a statement. “The attorney general’s lawsuit catalogs evidence of platform-wide wrongdoing, and it is a necessary action to bring accountability for the mortgage meltdown and the financial collapse. Widespread misconduct should not disappear simply because one bank has been acquired by another.”
Phil Angelides, the chair of the Financial Crisis Inquiry Commission, agreed. “The contention that J.P. Morgan should be spared from legal scrutiny for misconduct at Bear Stearns is misplaced. J.P. Morgan decided to purchase Bear Stearns with significant assistance from the U.S. taxpayers, knowingly taking on Bear Stearns’s assets and liabilities,” he said.
Activists who have followed the issue are also up in arms over Dimon—and Frank’s—assertion. “To absolve Bear’s current owners of any responsibility or accountability for the massive fraud committed against American homeowners and workers is insulting,” said Brian Kettenring of the Campaign for a Fair Settlement. “This filing was a critical first step to real accountability. It should be commended and built upon, not torn down by legislators making excuses for Wall Street.”