New York Attorney General Eric Schneiderman dropped a bomb on JPMorgan early Monday evening: a multi-billion dollar lawsuit that accuses the bank's subsidiary, Bear Stearns, of defrauding investors. You're probably familiar with the allegation. Nearly a decade ago, Bear Stearns started selling some shady mortgage-backed securities, advertising the toxic assets as having been carefully evaluated and then making the duped buyers pay in cash. It was a great (alleged) scam and helped Bear Stearns become one of the most profitable investment banks on Wall Street -- until the house of cards collapsed bringing the U.S. economy down with it.
When we heard the news about the lawsuit, we weren't a bit surprised. We were very curious, though. If Bear Stearns started packaging these crappy products back in 2005 and the financial crisis hit in 2007, what took the government so long to sue JPMorgan, who bought Bear Stearns for a song in March 2008?
Well, there are a couple of ways into this question. The first is pretty straightforward. Schneiderman's lawsuit is the first filed by the federal mortgage task force set up by the Obama administration in January. (It's still got that new task force smell!) The idea behind creating the new group, to quote the State of the Union address that Obama used to announce it, would be to "hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans." The task force united law enforcement groups from the Securities Exchange Commission to the I.R.S., and according to Schneiderman, working together "enables us to go places where each of us individually could not go." Long story short, if the government waited for the task force to get ramped up, they'd have a better chance of winning their cases against the big banks and their intimidatingly deep pockets. Yay, winning!