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1

JPMorgan is one of the institutions that led to the collapse of US housing market between 2006 and 2008. During the period, millions of house owners in the US defaulted on high-risk mortgages. Investors who had bought securities created from bundles of mortgages incurred huge losses. However, JPMorgan was not a direct party to the collapse of issuance of mortgages. Securities were foisted by the Bear Stearns and the Washington Mutual. The company in entangled in the crisis due to its decision to absorb the two firms that needed a reliable partner to survive the 2008 financial crisis. Therefore, the only mistake JP Morgan did was to incorporate the two businesses and take on all the liabilities. In addition, by the time JP Morgan was buying off the two companies, the housing sector was already in a crisis.

The company would have avoided the penalty if it had declined to absorb the two companies. In this case, it would be far from any liability incurred by the companies. In case the partnering was necessary, JP Morgan should have investigated thoroughly to make sure that it bought the two institutions with the maximum information possible. The sound investigation would have unearthed the risks of the two companies. With sufficient information, JP Morgan would have avoided the risk by evaluating the total value of the firms before buy off. However, because the partnership already took place, JP Morgan should argue that the Bear Stearns and Washington Mutual did not disclose information about the spurious securities. The bank’s intention was to bail them. Therefore, the two companies decided to partner with JP Morgan to run away from a crisis they had caused (Lenzner).

 

Part 2

JP Morgan should be criminally investigated. During the period that JP Morgan served as Bernard Madoff’s banks, suspicious transactions involving billions of dollars were made and they did not take any step to report. JP Morgan applied weak risk management processes and procedures.

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