How Much of JPMorgan's $13 Billion Fine Will Taxpayers Foot?

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http://www.commondreams.org/headline/2013/10/23-8



***SNIP


Yet, JPMorgan may be able to write off a huge swath of these expenses.

"Section 162(f) of the tax code bars deductions for fines and penalties paid to the government, but JPMorgan might be able to negotiate an agreement to classify the payments as something else," Kim Dixon and Brian Faler of Politico write. "Those payments labeled compensatory or for restitution are more likely to be deductible."

"I think it's a safe bet that a substantial portion of the deal will be deductible," Dean Baker, co-director of the Center for Economic and Policy Research, told Common Dreams.

The wording of the final agreement will determine which penalties are tax deductible. "If the settlement is formally called a penalty or fine then it would not be deductible," said Baker. "If it's something other, like compensation, then it probably is."

Steve Rosenthal, a former corporate lawyer and fellow at the Tax Policy Center, told Politico it is likely that the FHFA payments will be written off as tax deductions. “I am guessing it is probably described in a way that allows JPMorgan to deduct,” he said.

[BelgianMadCow]

1. And there's also 4 billion of "loan workouts" in there

that would have happened anyway, but will be allowed to count against the fine. Working out a loan means reducing the amount that has to be paid back for mortgages that are in distress. Window dressing.

edited to add correct phrase: "loan workout"

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2. +1

[BelgianMadCow]

3. Bill Black breaks it down on TRNN

in this excellent segment.

We do have to note this is preliminary - there have been leaks, but the settlement isn't out yet.

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4. bil black is a breath of fresh air. nt

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5. Big Bank Punishments Don't Fit Their Crimes

http://www.commondreams.org/view/2013/10/23-8



With the Justice Department desperate to rehabilitate its image as a diligent prosecutor of financial fraud, securing headlines along the lines of “the largest fine against a single company in history” is a lifeline. In a tentative deal, the Department would force JPMorgan Chase to pay a $9 billion fine and commit $4 billion to mortgage relief, to settle multiple investigations into their mortgage-backed securities business. The bank stands accused of knowingly selling investors mortgage bonds backed by loans that didn’t meet quality control standards outlined in its investment materials. JPMorgan Chase wants to “pay for peace” in this deal, ending all civil litigation around mortgage-backed securities by state and federal law enforcement, though at least one criminal case would remain open.

But for the Justice Department to truly start fresh, and fulfill their mission of stopping corporate fraud and preventing it from occurring again, they will have to compel JPMorgan to admit full liability for deliberately selling rotten mortgage securities. And here, federal agencies have revealed themselves as more interested in extracting public relations value by getting banks to admit something resembling wrongdoing, rather than forcing them to confess more widespread transgressions which would increase their legal exposure. Though agencies like the Securities and Exchange Commission (SEC) have announced “get-tough” procedures on extracting admissions of wrongdoings in financial fraud settlements, in practice they serve as nothing more than insincere apologies.

Even massive fines, like in the mortgage-backed securities case, are not sufficient as deterrents against illegal corporate behavior that harms the public. JPMorgan has dedicated reserves to pay such fines, and the cash essentially comes out of the pockets of shareholders in the form of lower dividends and a reduced stock price. While corporate executives invested in their own company have a lot to lose there, so do relatively innocent holders of index funds that happen to include JPMorgan stock. Moreover, $3.5 billion of this particular cash settlement may come out of the hide of the FDIC, as part of a dispute over who owns liability for the failed bank Washington Mutual, which JPMorgan bought in 2008. And, the company gets to write off regulatory fines as a tax deduction, saving billions more. Finally, if this deal works like those drawn up by the feds in the past, the $4 billion in mortgage relief is hardly a punishment, allowing the bank to get credit for routine actions in its financial interest—modifying loans for borrowers brings in more money than foreclosing on them, for example, and donating homes they cannot sell frees them from maintenance and upkeep (JPMorgan recently donated $250 million in homes). So what looks like a debilitating $13 billion penalty is actually much lower, with no meaningful impact on future behavior.

The real exposure here for JPMorgan Chase concerns whether they will have to admit they knowingly sold mortgage securities to investors backed by shoddy loans. That’s because a damaging admission could be used as evidence in private litigation from investors worldwide, many of whom are actively suing JPMorgan and other banks. With mortgage-backed securities a multi-trillion-dollar market, this would defeat the purpose of a “pay for peace” deal, and cause many more headaches for the bank than it relieves. Outside of actually sending executives to jail, forcing serious admissions of wrongdoing in the settlements would create the best deterrent for future misconduct; if outside entities can capitalize on them and sue for damages, the crime would no longer pay.

[BelgianMadCow]

6. "Moreover, $3.5 billion of this particular cash settlement may come out of the hide of the FDIC"

"loan workouts" -> minus 4 billion
tax deduction -> minus 1/3 rd of the sum, say 3 billion
FDIC -> minus 3,5 billion

Hm, that leaves maybe 3 billion as actual fine. And they had set aside 28 billion. What a shakedown, as the financial press is trying to paint it.

[annabanana]

7. Then my kid's speeding tickets should be deductible too...

right?

[leftyohiolib]

8. yet again no one goes to jail

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9. inequality before the law -- the hall mark of our modern lives. nt