Why'd It Take So Long for New York to Sue JPMorgan?

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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!

There's a second theory. We were careful to quote President Obama's announcing the formation of the new task force during his State of the Union address because we're pretty sure that was a carefully planned move. It's hard enough to explain what mortgage-securities fraud is, much less how you catch the crooked bankers who were (allegedly) doing it in the lead up to the financial crisis. But when the president shows up at the Capitol in his sparkly motorcade to announce the formation of an awesome new task force that will make those bankers pay, he looks like Captain America in a grey suit. When said task force pulls the trigger on their first lawsuit five weeks before election day, Obama looks like a candidate who keeps his promises.

We're not trying to say that the Obama administration put a hold on suing any banks until it would matter most in the polls. The New York Times is:

The lawsuit's filing, just days before the first presidential debate and a little over a month before the election, may be a way for the Obama administration to try to convince voters that it is working to hold mortgage miscreants accountable for wrongdoing. But, lawyers say, filing a case is not the hard part; winning it is.

All that said, the road to retribution is going to be a long one. JPMorgan has actually been dealing with a number of fraud lawsuits related to Bear Stearns for a few years, some of which will probably take a few more years to resolve. Meanwhile, the bank's spokesman said that they were " disappointed that the New York A.G. decided to pursue its civil action without ever offering us an opportunity to rebut the claims and without developing a full record." In other words, he can't believe the government is suing so soon.

This article is from the archive of our partner The Wire.