Chase New to California But Not to Corruption - Brightwork Research & Analysis

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Executive Summary

Excerpt from the book Real World Banking and Finance

Introduction

This is an excerpt from the book.

Real World Banking and Finance, by Dollars and Sense.

It describes how Chase has been involved in banking fraud for some time. None of this affected Chase’s ability to buy other banks after the crisis. Now this terrible bank “serves” California.

https://www.dollarsandsense.org/bookstore/infobanking.html

Chase

his brief roster offers just a glimpse of the full range of Chase Bank’s brushes with the law since 2000. And there is good reason to take a look at what megabanks such Chase have been up to in the past seven years. The new century was ushered in by /hat may have seemed an obscure piece of legislation, but one that is significant in ts impact on the U.S. financial system: the Gramm-Leach-BIiley Act, signed by Bill Clinton in November 1999. The new law repealed the remaining regulations of the L933 Glass-Steagall Act and related Depression-era laws that had created a range of banking-industry regulations designed to prevent future financial meltdowns. From the standpoint of the big bankers, the 1999 law meant their industry hi finally turned a corner. Opponents of Glass-Steagall within the banking industry lad sought its repeal for over six decades. While earlier laws had chipped away at its regulatory regime, the 1999 law finally reversed the most critical regulations. Free to expand and diversify in new ways, many banks reacted cautiously. But lot Chase. In September 2000, Chase Manhattan merged with JP Morgan to form .P. Morgan Chase & Co. Then, in July 2004, Chase merged with Bank One, under the new name JPMorgan Chase & Co. (Yes, the same name minus some periods and spaces.) The roster of Chase’s dubious practices over these seven years is one piece of the puzzle in coming to understand the new, post-Glass Steagall banking regime. Chase has clearly been a more frequent target of legal action in recent years than any other large bank, so it may not be typical—or perhaps fewer of the crimes and misdemeanors of the other megabanks have come to light. Either way, a portrait of the new 21st-century Chase bank illustrates the kinds of business practices that megabanks can now pursue. Chase has engaged in plenty of questionable behavior (and gotten into plenty if legal scrapes) on other fronts as well. For one thing, it is the silent partner to a whole range of businesses—such as payday lenders, pawn shops, and check cashing stores—that prey on low-income households with little or no access to mainstream financial services. These businesses are part of a fringe banking system that has propped up the profits of Chase and the other “legitimate” financial corporations that finance the shabby storefronts. Consumer groups have criticized Chase )r closing bank branches in low-income neighborhoods—South Bronx, for exam 3le—and then financing check cashing stores in those same neighborhoods.

Chase also engages heavily in subprime lending in low- and moderate-income neighborhoods—not only mortgages, but also auto, home equity, and other loans. Banks typically portray subprime loans as a legitimate attempt to provide credit to borrowers whose income or credit history prevent them from qualifying for loans at lower interest rates. But in many instances, the story is a shadier o shadier one According to studies conducted by Inner City Press, a nonprofit watchdog group in New

Both suits contended that the bank assisted Enron in manipulting assets and thereby lake its 1999 profits look higher than they actually were. Formed by Merrill Lynch, this subsidiary was named LJM2—perhaps one of the many Enron offshoots with Star Wan nspired names. In December of 2000, Mahonia Ltd., a firm controlled by Chase and located on the Channel Islands off the coast of England, purchased oil and gas contracts from its repurchase as revenue But Chase was not only facilitating Enron’s creation and manipulation of legally questionable partnerships. At the same time, the company was also selling Enron stock to investors—despite possessing insider information that would have given pause to any honest investment adviser. Chase and other banks, therefore, were charged with instigation by helping Enron hide debt in off-balance-sheet partnerships providing false information to the public about Enron stock they knew was shaky. Later in 2002, more federal and shareholder charges followed. The CEO of Chase was accused of lobbying Moody’s Investor Service not to downgrade Enron’s ratings while lase tried to arrange a merger between Enron and Dynegy, Inc. The resulting false appearance of Enron’s financial strength misled the public into investing billions of dollars. Three of Chase’s “special purpose entities” (Choctaw Investors, Cherokee Finance and Zephyrus) engaged in unusual lending transactions with Enron subsidiary Sequoia Financial Assets. These “loans” were repaid in full on the last day of the month, only to 3 loaned again the next day. The arrangement apparently was designed to covertly borrow hundreds of millions of dollars in undisclosed loans. n June of 2005, Chase agreed to pay $2.2 billion to settle the class-action lawsuit for its role in assisting Enron in accounting fraud that cheated investors out of billions of dollars.