Sen. Bob Corker (R-TN)

But it wasn’t JP Morgan’s losses that Corker seemed concerned with. Instead, with advocates for stronger financial rules (including President Obama himself) pushing for a re-examination of pending regulations instituted by the 2010 Dodd-Frank Wall Street Reform Act, Corker was worried that the JP Morgan losses would bolster the case for a stronger Volcker Rule — the yet-to-be-finalized regulation that would ban federally-insured banks from engaging in certain types of risky trading:

CORKER: I fear that you’re under pressure, that a lot of calls are being made, that the administration is concerned that the American people are going to wake up and look at the last three years as a bad dream. … This big Dodd-Frank bill really doesn’t address real-time issues. And what you’re going to do is cause this Volcker Rule to become something that it was never intended to be.

Watch it:

Regulators are indeed facing pressure to strengthen the Volcker Rule, and as I wrote yesterday, that pressure is legitimate. Though it is unclear whether JP Morgan’s trade would have been subject to the rule, it is clear that the Volcker Rule as proposed was stronger than it is in its latest draft form. But JP Morgan and its cohorts on Wall Street played a major role in watering it down. That lobbying created a loophole that may have kept JP Morgan’s trade legal even under the rule.

Risky trades designed to make bank’s massive profits — known as proprietary trades — were at the center of the financial crisis that ultimately ended with taxpayers bailing out America’s biggest banks. Regulations like the Volcker Rule (and others included in Dodd-Frank) are aimed preventing taxpayers from having to foot the bill again in the future. The JP Morgan loss has given regulators and policymakers a golden opportunity to re-examine those rules and make sure they are sufficiently strong.

That may seem an inconvenience to lawmakers, like Corker, who opposed the regulations in the first place. To Americans who have to backstop this risky trading even when it goes drastically wrong, though, the chance to strengthen the rules should be a welcome one.

JP Morgan Chase’s $2 billion trading loss is “exactly why Wall Street reform” is so important, President Obama said in his first interview since the bank announced the massive loss last week. Obama signed the Dodd-Frank Wall Street Reform Act, which could ban risky trades like the one that hit JP Morgan, in 2010.

JP Morgan CEO Jamie Dimon announced the loss last Thursday, sparking stock losses and reminders of the 2008 financial crisis across Wall Street. In Obama’s interview, which will air this morning on ABC’s “The View,” the president referenced the federal bailout that resulted from that crisis and said a similar loss at a weaker bank may have caused yet another bailout, ABC News reports:

“JPMorgan is one of the best-managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we got and they still lost $2 billion and counting,” the president said. “We don’t know all the details. It’s going to be investigated, but this is why we passed Wall Street reform.”

“This is the best, or one of the best-managed banks. You could have a bank that isn’t as strong, isn’t as profitable making those same bets and we might have had to step in,” Obama said. “That’s exactly why Wall Street reform’s so important.”

What Obama didn’t mention was how successful Dimon and JP Morgan were in watering down Wall Street reform. The bank has spent nearly $10 million since the beginning of 2011 on lobbying, focusing largely on the Volcker Rule, a regulation that would largely prohibit risky proprietary trading at federally-insured banks. The trade that caused JP Morgan’s losses would likely still have been legal under the Volcker Rule, but only because of a loophole that JP Morgan lobbied for.

Obama is right that JP Morgan’s situation demonstrates the need for Wall Street reform. But it also makes clear that the new rules need to be strong and immune from Wall Street’s lobbying influence if we don’t want a repeat of the 2008 crisis.

JPMorgan Chase CEO Jamie Dimon announced on a conference call yesterday that the bank suffered $2 billion in losses from a risky trade that turned sour. The trade dents Dimon’s case that Wall Street can responsibly manage itself and yet again proves the need for a strong Volcker Rule, which could largely ban such risky trades at federally-insured institutions.

“There were many errors, sloppiness and bad judgment,” Dimon said as the company’s stock fell in extended trading. “These were egregious mistakes, they were self-inflicted.” Those errors, however, could have been prevented were it not for extensive lobbying efforts from banks like JPMorgan, which has spent nearly $10 million on lobbying since the beginning of 2011 (including nearly $2 million already this year). Dimon, in fact, was in Washington just last week to personally lobby the Federal Reserve to weaken the Volcker Rule.

Those lobbying efforts have worked. Dimon insists that the trade-gone-wrong was a hedge, not a proprietary bet, and as such would not be banned under Volcker. The only reason that’s true, however, is because Dimon is referring to the trade as a “hedge” to exploit a loophole Wall Street banks and their Republican allies helped insert into the watered-down version of the Volcker Rule that was included in the Dodd-Frank Wall Street Reform Act. That’s a loophole Sens. Carl Levin (D-MI) and Jeff Merkley (D-OR) have been trying — unsuccessfully — to close, as Bloomberg notes:

Levin and Merkley, in their February comment letter, pushed regulators to tighten the exemption for hedging, calling some of what may be allowed a “major weakness” in the rule.

Dimon acknowledged that the losses would lead to scrutiny and calls for a tougher Volcker Rule yesterday, saying the blunder “plays right into the hands of a bunch of pundits out there.” What Dimon ignores, though, is that yesterday’s massive loss — big even by JPMorgan’s lofty standards — does in fact exemplify the need for such a rule. For years, banks have made billions in profits from risky bets like this one, but when too many of the deals went bad in 2008, they turned to taxpayers for a bailout.

Thursday’s events prove that Wall Street hasn’t learned its lesson from the last crisis, and that America’s “too big to fail” institutions are too irresponsible to avoid failure. The Volcker Rule, watered down as it may be, is aimed at preventing that. Unfortunately, Dimon and his Wall Street colleagues remain committed to making sure it won’t.

Back in January, American Banker reported that JP Morgan Chase — the nation’s biggest bank — was potentially robo-signing credit card documents. Robo-signing, of course, is the pernicious practice banks used to approve foreclosures without verifying basic information about borrowers or complying with property law.

Today, American Banker is back with allegations from former JP Morgan employees that the bank did indeed robo-sign documents when suing delinquent credit card borrowers, enabling it to run up its credit card collections into the billions of dollars, while short-circuiting the legal process:

JPMorgan Chase & Co. took procedural shortcuts and used faulty account records in suing tens of thousands of delinquent credit card borrowers for at least two years, current and former employees say. [...]

“We did not verify a single one” of the affidavits attesting to the amounts Chase was seeking to collect, says Howard Hardin, who oversaw a team handling tens of thousands of Chase debt files in San Antonio. “We were told [by superiors] ‘We’re in a hurry. Go ahead and sign them.‘”

In many instances, the records of the firms that JP Morgan had contracted with to handle the documents did not match the records that the bank itself had, but the lawsuits against borrowers went ahead anyway. Some firms’ records didn’t match the banks in 20 percent of cases. In many instances, a whistleblower alleged, the bank was claiming borrowers had much more debt than they actually had.

Two former employees also allege that the bank directly destroyed borrowers’ records. “I understand there were documents trashed, yes,” one said. An internal Chase document also shows that borrowers’ correspondence with the bank was being dumped onto an unmanned desk and left unanswered.

Last year, a former JP Morgan Chase employee candidly admitted that commercial bankers see customers simply as people to be “exploited” via fees. “I don’t say this lightly, but the consumer is simply an income stream and exploiting that is the purpose of the banking organization,” he added. And when it comes to collecting on credit card debt, it seems there are no lengths to which the bank will not go, legal or not, to make sure it gets paid.

Scandal enveloped multiple Wall Street megabanks in 2010 when it was discovered that throughout the housing bust and the foreclosure crisis that ensued, the nation’s largest banks were caught robo-signing — the practice of approving foreclosures without verifying mortgage information and fabricating other loan documents. At the time, the banks promised to end the practice and attempted to escape blame by tying the scandal to low-level employees.

In reality, bank managers knew about the potentially illegal and fraudulent practices and in some cases directed them, according to a report by the inspector general of the Department of Housing and Urban Development. At Bank of America, Wells Fargo, and other banks, documents were rarely verified, and even when employees raised concerns they were told by management to proceed, the New York Times reports:

At Wells Fargo, now the nation’s largest mortgage servicer and originator, employees told the inspector general’s office that the company’s management had assigned them bogus titles, including “vice president of loan documentation,” even though they had no training in document review. Before becoming vice president, one employee worked at a pizza restaurant. [...]

As at Wells Fargo, employees at JPMorgan Chase took on titles like “vice president of Chase Home” even though “the titles were given by Chase for the sole purpose of allowing individuals to sign documents and came with no other duties or authority.”

There were other indications that management knew about the practices. At Bank of America, employees raised concerns but were told by management to proceed; Wells Fargo squashed a study into foreclosure practices and told the employee conducting the study to continue signing documents without reading or verifying data; and Citigroup management admitted that the bank regularly signed foreclosure documents without verification, even as the bank was telling regulators that internal reviews found its practices to be sound. Despite promises to stop when the scandal broke, banks continued robo-signing for at least another year.

The IG report falls in line with recent accounts provided by former Wall Street employees and whistleblowers. A Bank of America whistleblower last week said the bank had intentionally prevented homeowners from getting federal mortgage help, and a former JPMorgan employee told Reuters in November that exploiting consumers was “the purpose of the banking industry.” An investigation into 400 San Francisco-area foreclosure cases, meanwhile, found that nearly every one of them had potential legal issues.

“I believe the reports we just released will leave the reader asking one question — how could so many people have participated in this misconduct?” HUD Inspector General David Montoya said in a statement. “The answer — simple greed.”

One of the most pernicious practices in which the nation’ biggest banks engaged during the lead up to the financial crisis was pushing minority borrowers into subprime loans, even when many of them qualified for prime loans. Wells Fargo had perhaps the most horrifying practices in this department, calling the subprime loans that they pushed in poor, black neighborhoods “ghetto loans.”

This rampant predatory lending helped inflate the housing bubble; a Center for American Progress investigation actually found huge racial disparities in lending at the big banks that wound up getting bailed out, with minority borrowers far more likely to receive high-priced loans.

One former banker for Chase — James Theckston — told the New York Times’ Nick Kristof that not only did his bank push minority borrowers into higher-priced loans, but senior executives then tried to cover up the racial disparity in their banks’ lending:

One memory particularly troubles Theckston. He says that some account executives earned a commission seven times higher from subprime loans, rather than prime mortgages. So they looked for less savvy borrowers — those with less education, without previous mortgage experience, or without fluent English — and nudged them toward subprime loans.

These less savvy borrowers were disproportionately blacks and Latinos, he said, and they ended up paying a higher rate so that they were more likely to lose their homes. Senior executives seemed aware of this racial mismatch, he recalled, and frantically tried to cover it up.

“The bigwigs of the corporations knew this, but they figured we’re going to make billions out of it, so who cares? The government is going to bail us out. And the problem loans will be out of here, maybe even overseas,” Theckston explained.

In 2006, Chase made high-price loans to 16.4 percent of white borrowers, while nearly half of black borrowers and more than one-third of Hispanic borrowers received high-price loans. These disparities help explain why, according to a new report from the Center on Responsible Lending, Latinos and blacks are twice as likely to have been impacted by the housing crisis as whites. In fact, “approximately one quarter of all Latino and African-American borrowers have lost their home to foreclosure or are seriously delinquent, compared to just under 12 percent for white borrowers.”

To keep her home, Mardee Jerde scrambled to meet her bank’s demand that she pay almost $50,000 in overdue mortgage payments immediately. After a car accident kept her from working for 11 months, she was forced to mail in to the bank the entire settlement that she won from a lawsuit over the crash, leaving the Minnesota resident with practically nothing to live on.

Two days after receiving her $49,825 in the mail, Jerde learned that she would lose her house anyway because Chase Bank had rejected her application for a permanent loan reduction–for the second time. Merde, who had done everything Chase asked of her, felt betrayed:

“If I had known that [the bank would foreclose anyway], I never would have sent that money. I would have been out of my mind. That was given to me to live on. Now I have nothing…The only thing I’ve got bought and paid for is a lot in the cemetery. And I might be camping on it.”

Jerde can reclaim her house if she can somehow pay off her outstanding mortgage balance of over $200,000 by Aug. 23.

Sadly, Jerde’s story is not uncommon. In June, the Obama administration announced that JP Morgan Chase, Wells Fargo, and Bank of America would no longer receive federal funds from its Making Home Affordable Program after the three banks “failed to meet basic program requirements.”

One Making Home Affordable Program — the Home Affordable Modification Program (HAMP) — is meant to help struggling homeowners like Merde by arranging for permanent loan reductions. But as of June, less than 700,000 housing loans have been permanently modified, out of the 3 to 4 million projected. June saw the fewest loan modifications under the program since April 2009.

Minnesota real estate lawyer Carl E. Christensen blames the low numbers on the banks. “The banks put out their hand and say, ‘We’re going to help you,’ and then stab people right in the back,” Christensen said. “Nobody ever gets loan mods. I meet with up to a dozen people a week and have been doing this for two-and-a-half years. I’ve only seen five modifications, and only one that ever gave any substantive benefit.” Yesterday, Chase Bank sold off the home of a U.S. soldier who had returned from Iraq that very same day.

– Sarah Bufkin

Tim and Aaron Collette

As ThinkProgress previously reported, Chase Bank had been planning to foreclose on the home of the family of Aaron Collette, who was serving in Iraq. Aaron’s father Tim had fallen on hard times following the recession, and the bank was refusing to work with the family to negotiate for new terms. After an intense pressure campaign from activists and Sen. Jeff Merkely (D-OR), the bank decided to delay the foreclosure past the original June date.

Yet when Aaron Collette returned home to the states this week for what should have been a warrior’s homecoming, he faced his father’s home that had been foreclosed on instead. On the very same day that Collette returned from Iraq, Chase sold the house back to itself during auction proceedings on the local courthouse’s steps. Local news station News 21 covered the event. Watch their report:

Despite the fact that Collette’s family will soon have to leave its home, they remain hopeful that they can help other people keep their residences. “We are going to continue to move forward, because there’s tens of thousands of more people who have not yet lost (their homes). And for those who have lost them, we might be able to try to get them back,” said Tim Collette.

Ironically, the day before the Collette family had their home sold off to the bank, JP Morgan Chase CEO Jamie Dimon bragged to Chase bank employees at a barbecue in Vancouver that his company was helping veterans keep their homes. (HT: Michaelmoore.com)