It's Simple - Think Like A Criminal

When you see that money is flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed.  Ayn Rand, "Atlas Shrugged" (Francisco D'Anconia money speech)

A good friend and colleague asked me my thoughts on the recent blogosphere posting over the weekend about the disclosure in JPM's 10-Q of pending litigation related to mortgage originations at JPM, Bear Stearn and Wash Mutual totalling $120 billion.

The original source article which discusses this litigation is HERE

Let me be clear about one thing before I express my view on how this will turn out. I am 100% convinced that the housing bubble was precipitated and perpetrated by complete fraud, corruption, racketeering and felony activity. I think the people who were running the big banks involved like Countrywide, Washington Mutual, Bear Stearns, Merrill, Lehman, Bank of America, Wells Fargo and JP Morgan should be properly and rightfully investigated and prosecuted in criminal jurisdictional venues that are free from political influence and cronyism. Given that the Government, especially the Obama Justice Department, not only refuses to investigate and prosecute the big banks - thereby enabling the massive fraud and corruption to continue - we know this will never happen.

Many people over the past few years have asked me how I've been able to discern and predict the massive dislocations and events of collapse that have occurred and are unfolding. It's really quite simple. You just have to understand that our system has been taken over by, and is being run by, criminals. So you just have to think like a criminal. Once you free your thought process from any assumptions that people in power are "good" and our leaders are working for the people who voted them in office, then you can think objectively and thoughtfully about what is happening in the United States.

I read through the litigation disclosure in the footnotes to JPM's latest 10-Q. Here's the LINK

If you read carefully and between the lines in the sections preceding the part about the potential $120 billion face value liability, you'll see that much of JPM's recent mortgage-related litigation has ended in settlements or is being litigated with many plaintiff claims being denied or substantially reduced in scope. Part of the problem in litigating plaintiff claims of fraud is the law and legal precedence gives the courts a lot of leeway for interpretation in how legal theory and precedence is applied. For instance, if you read through the footnote that starts on pg 158 of the 10-Q, you'll see that plaintiffs named JP Morgan as a defendent on claims related to Bear Stearn and Wash Mutual on the theory that JPM was the successor to Wash Mutual. Claim denied.

Quite frankly knowing what I know about the legal process, especially at the District court level, plus hearing plenty of war stories from a good friend who is a trial attorney in Denver, most District court judges are the by-product of heavy political and economic influence. Why? Because in many States like Colorado, County court judges are appointed by the Mayor and District court judges are appointed by the Governor. In other words, the process of judicial appointment has been completely politicized. If you don't think that politicians' decisions about judicial appointments are influenced by economics, then you are miserably failing the requirement of thinking like a criminal in order to understand what is happening in this country. If you think like a criminal, you'll understand that in our current legal system judicial decisions at the District court level are heavily prejudiced in favor of the party with bigger economic influence.

Circling back to the $120 billion disclosure in JPM's 10-Q, understand that this is a number that JPM's auditor required JPM to disclose on the premise that there might be a 2% chance that JPM would ultimately be subjected to a claim this big. But also, per the previous comments, understand that the likelihood of ultimately seeing some kind of actual settlement of even 10% of this amount is quite low. Why? Again, think like a criminal. Does anyone really believe that a District court judge is going deny the many motions of objection or dismissal that JPM will inevitably file using tenuous legal arguments and barely relevant appellate court citations in order to object to most of the claims?

To be sure, ultimately there will likely be some kind of settlement. But it will be at a small fraction of the $120 billion total prima facie claim and it will ultimately be predicated on the ability of JPM's counsel, Sullivan and Cromwell and Greenberg Taurig, to beat down the plaintiffs with litigation chicanery. Greenberg Taurig specializes in buying politicians and influencing the Government. I'll take Greenberg's ability to maneuver the courts and defend JP Morgan over any plaintiff attorney in the country.