It appears Uncle Sam has found a way to raise the roof on the debt ceiling: call in the chits on Wall Street banks.
In the past two weeks, several large, high-profile financial companies that have been under investigation by regulators and the Justice Department for offenses — in some cases dating back to the housing crisis — have moved much closer to what are sure to be record settlements.
The timing couldn’t be better for the government, which, if you believe Treasury Secretary Jack Lew, will run out of money Oct. 17.
That’s in just two weeks. But it’s enough time to cut some big, brash deals if the Obama administration and Congress need diversionary headlines to defuse the outrage that will be pointed at them for consistently waiting until the last minute.
It’s reminiscent of the beloved J. Wellington Wimpy, the gluttonous scammer in the “Popeye” cartoons, whose catchphrase was, “I will gladly pay you Tuesday for a hamburger today.”
The bankers have already had their burgers in the form of TARP and quantitative easing. And they’re still carbo-loading on sides of QE fries from the Fed. But now they’re facing their “Tuesday”: It’s time to pay up.
Just last Thursday, JPMorgan Chase CEO Jamie Dimon had a sit-down with Attorney General Eric Holder at the Department of Justice to discuss a possible settlement that would put an end to probably multiple criminal and civil charges.
In a clear effort to make a point, the G-men even checked Dimon’s NY state driver’s license before allowing him to enter the DOJ building.
This is about the closest thing to a perp walk a banker has done yet. Dimon has not been charged with wrongdoing, but he needed to be brought in, in order to make a point.
The numbers believed to have been discussed for JPMorgan are mammoth, $11 billion in total. That’s $7 billion in a cash penalty and another $4 billion in customer/consumer relief.
And JPM just paid $920 million to regulators last week to settle the “tempest in a teapot” London Whale charges.
JPM is certainly not alone in the onslaught of settlement/fundraising negotiations taking place.
Also currently negotiating a settlement is SAC Capital Advisors, the hedge fund run by billionaire Steve Cohen.
In SAC’s case, prosecutors are believed to have proposed a $1.5 billion to $2 billion settlement to settle criminal insider-trading charges against the firm.
Cohen hasn’t been charged with insider trading, but several portfolio managers at the firm have been indicted. SAC recently settled civil insider-trading charges with the SEC for $602 million.
On Wednesday, Citigroup said it had agreed to pay $395 million to Freddie Mac to resolve issues in 3.7 million mortgages it sold to the government-sponsored housing-financing company.
In July, Citi paid Fannie Mae, the cousin of Freddie Mac, $968 million.
Not to leave Wells Fargo out, on Tuesday a US District Court judge ruled that the Justice Department’s case against it for mortgage-related misconduct can proceed.
And Bank of America’s “hustle” trial began in court last week; the feds are claiming that Countrywide, prior to its acquisition by BofA, misled Fannie and Freddie about the quality of the loans they bought in 2007 and 2008.
Are all these financial settlements really on the table to help tide the government over for a few days?
Not directly. But what better way to deflect the outrage that will surely be directed toward Washington if Americans see DC’s incompetence result in a government shutdown.