“Ordinary people lost enormous amounts of money” when JP Morgan Chase sold millions in faulty loans – and taxpayers still paid a big chunk of its billion-dollar settlement with the government, investigative journalist Matt Taibbi told RT.

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In recent story published in Rolling Stone, Taibbi detailed how a former JP Morgan employee Alayne Fleischmann helped the Justice Department in its investigation against the bank. Eventually, a $9 billion settlement was reached. However, that agreement did not require the bank to admit guilt for fraud – and it all came about to keep the information Fleischmann divulged from surfacing.

Speaking with Thom Hartmann on RT’s ‘The Big Picture’, Taibbi said that Fleischmann, a deal manager at the company, criticized JP Morgan’s banking practices when she realized that the normal procedures on due diligence and compliance on loans were not being handled in the usual way. These loans were to be packed into securities and re-sold to investors (pension funds, hedge funds, insurance companies), but the due diligence department wasn’t forthcoming with information, and deal managers were told not to send emails with their inquiries.

As a result of JP Morgan’s decision to sell these loans despite knowing they were defective, Taibbi said Americans suffered dramatically.

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“Everyone who bought them experienced massive losses,” he said. “What a lot of people don’t understand in the financial crisis is that if you have a pension, or you were involved in a mutual fund or your state’s retirement fund was invested in mortgage backed securities, you probably woke up at some point in late 2008 and noticed that 30 to 40 percent of that fund had disappeared. In large part, this was because banks like Chase and other companies were selling these defective products to investors, and they were experiencing massive defaults and massive losses."

“So everybody who bought into this pool of loans lost an enormous amount of money. And for the most part it was ordinary people. One group of litigants that I talked to was largely comprised of construction workers in the West; their retirement fund was invested in this stuff and they lost $50 million in the first year that they bought in. Ordinary people lost enormous amounts of money because of this behavior.”

Fleischmann herself previously told Democracy Now that some 40 percent of the loans had serious defects.

“When we tried raising this issue with our superiors, what actually happened is they just started yelling at the diligence managers who were clearing the loans, sort of yelling, berating them, making them do reports over and over again … So what actually happened is these loans started being cleared,” she said.

Fleischmann was laid off from her job at the bank before she could see something was wrong and she alerted her supervisors several times to the problem she was seeing. Taibbi said that she learned Chase was reselling defective loans while speaking with the Justice Department, and the information she held helped the agency prepare a civil complaint against the bank.

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When JP Morgan learned that a complaint was about to be presented against it, Taibbi claims the company phoned the Justice Department and resumed negotiations over a settlement.

“Chase paid … about $9 billion, and of course none of that is money that’s coming out of their own pockets. That’s all the shareholders’ money.”

Taibbi noted that $7 billion of the settlement was tax deductible, meaning “American taxpayers coughed up $2.4 billion of this settlement for JP Morgan Chase. An ordinary person, when they suffer a criminal penalty, they cannot deduct that from their taxes… because the government very specifically did not call this a ‘penalty’ in the settlement … that allows the bank to deduct that money, which means all of us get to pay a big chunk of that fine for them. Which is incredible.”

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