It must be nice to be a bankster. That cylindrical object currently throbbing its way past your sphincter muscle belongs to them. The SEC has just agreed (yes, agreed) with JPMC on a penalty for the latter's "alleged" fraud. And what was this penalty, you moan? A whopping 154 million USD. An enormous sum, no? Let's do a little math: It's important to consider the "alleged" fraud in the context of the entire economic collapse and not just the profits from the derivatives scam for which they "agreed" to pay this fine.
A brief review: JPMC and other banksters cobbled sub-prime mortgages together and sold them as bonds. These were christened collateralized debt obligations (CDO). Selling the loans downmarket was an advantage for the mortgage originators as getting them off their books allowed them to make new loans. This led to banks and other mortgage lenders to write riskier and riskier loans as they knew they would not be holding them for very long. A housing bubble resulted, and CDOs became Wall Street's best selling investments. Soon originators couldn't write loans fast enough to slake Wall Street's demand for new product. This in turn led to even riskier lending practices, which in its turn led to CDOs full of loans which almost certainly were headed for default. Nevertheless, banks like JPMC continued to concoct new CDOs and pass them off to the insipid rich who continued to trust the investment banks which hawked them.
This was despicable enough, but it got even worse. JPMC was one of the banks which pioneered the credit default swap (CDS). Essentially, it was an insurance policy one could buy against one's investments going bad. A naked credit default swap is where the person buying the insurance doesn't actually own the underlying investment. It is simply a wager that a given investment will not pay off.
JPMC and other gang-bankers not only passed off junk bonds as sound investments, they secretly bought naked CDS against them. In other words, they sold John Doe a CDO of their own construction telling him it was a good, safe, low-risk investment knowing that that was untrue, then placed a bet with their bookie, in this case an insurance company, that the underlying mortgages would not be collectible. So they made money from the sale of the CDO to Doe, then they get paid off when the the CDO they created went bust. Needless to say, the sell-garbage-and-bet-against-it scam quickly became the business model, and a lucrative one.
I am not even going to bother to research how much JPMC made selling bad CDOs, but I know it was a considerable sum much in excess of the fine they have now been assessed. They did land office business during one of the greatest housing bubbles in history, and got paid again when it burst.
Perhaps of even greater value than the proceeds garnered from the CDO/CDS ruse, was the damage the CDOs did systemically. Bear Stearns was left holding the bag when the mortgages underlying the CDOs they held began to default. Bear's stock price dropped about 90 percent and they were teetering on the brink of bankruptcy. At that moment, with the blessing of the U.S. government, JPMC stepped in to "rescue" Bear with an offer to buy. The faltering investment bank was sold to JPMC for about 250 million USD, about seven billion less than it would have cost just weeks before and less money than it took for the New York Yankees to sign star infielder Alex Rodriguez. It was a steal in every sense of the word.
So for illegal activity in which they made tens of billions, they were fined 150 million.
Bear cost JPMC 250 million, I wonder how much the SEC cost them...