Tags: JPMorgan | indict | financial | too big to fail

Financial Institutions Are Not Too Big to Indict

By    |   Friday, 25 Oct 2013 07:59 AM

In September 2011, the Federal Housing Finance Administration (FHFA), as conservator for Fannie Mae and Freddie Mac, filed lawsuits against 17 financial institutions, certain of their officers and various unaffiliated underwriters. These suits alleged legal violations related to the sale of residential private-label mortgage backed securities to Fannie and Freddie.

By some estimates, the total value of these mortgages may be close to $200 billion.

In recent days, JPMorgan Chase reached a $13 billion tentative agreement to compensate the FHFA, institutional investors and consumers for misleading sales and marketing of its mortgage products.

Many financial cognoscenti believe there are many financial institutions that are too big to fail. That is, taxpayer financing of these operations is preferred to failure, since failure would imply severe economic consequences to the general economy.

This premise is seriously being questioned.

In recent speeches, Preet Bharara, the U.S. Attorney for the Southern District of New York whose office is handling the JPMorgan case, disputed this theory saying "I don't think anyone is too big to indict — no one is too big to jail," according to The New York Times.

Warren Buffett suggested the same in an interview with TV anchor Charlie Rose. Buffett believes "too big to fail" does not imply too big to punish. He went on to say that he believes executives at these financial institutions who commit excessive wrongdoing should be left broke.

This type of adjudication would incentivize more responsible behavior in the future.

According to the Economic Policy Institute, the CEO-to-typical worker-compensation ratio was 20 in 1965, 383 in 2000 and 273 as of 2012. This level of compensation for many financial CEOs does not sit well with shareholders and the general public, especially when the severe mismanagement of these firms has such negative ramifications for shareholders, employment and income for the overall economy.

Not too big to indict does not imply failure and economic catastrophe. The penalties incurred can be administered and amortized over a long period of time to ensure a stable righting of the financial and economic ship.

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In September 2011, the Federal Housing Finance Administration (FHFA), as conservator for Fannie Mae and Freddie Mac, filed lawsuits against 17 financial institutions, certain of their officers and various unaffiliated underwriters.
JPMorgan,indict,financial,too big to fail
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2013-59-25
Friday, 25 Oct 2013 07:59 AM
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