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To understand today’s current mortgage crisis and spreading recession, look to an internal memo from Wall Street banking giant, JPMorgan Chase. For something that ended up so badly, the memo begins with a fun title: “Zippy Cheats & Tricks.”
The Cheats & Tricks document, written on corporate letterhead, is addressed to the broad network of mortgage brokers associated with Morgan. The memo tells these brokers how to get risky, sub-prime loans okayed by “Zippy,” which is the bank’s in-house automated loan-approval system. In the days of the housing boom, Morgan executives clamored for brokers to bring in more of these loans, because they could be packaged and sold at high profits to wealthy investors.
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However, many of the homebuyers being hustled to take those sub-prime loans had low incomes, no assets, and little prospect of being able to keep up their payments. Normally, the Zippy approval system would reject their applications – unless cheats & tricks were brought into play. The memo tells brokers to falsify the income numbers on the borrower’s application: “Inch it up $500 [per month] to see if you can get the findings you want,” the memo gaily urges. Since it was bank policy not to bother verifying the income and asset information, these bad loans zipped right through Zippy, brokers collected their fees, Morgan made millions in sub-prime profits, and all was right with the world – until financially-strapped borrowers began to default in droves.
This is Jim Hightower saying… Of course, JPMorgan honchos have disowned the Cheats & Tricks memo as the work of some unnamed rogue operator. But the top executives can’t hide. They’re the ones who created the whole sub-prime con-game, who put loan volume ahead of loan quality, who chose not to verify, who set the ethical tone, and who put their own greed ahead of the interests of their customers and their country.
“JPMorgan’s ‘Cheats & Tricks’ memo,” San Francisco Chronicle, March 28, 2008