J.P. Morgan Securities settled SEC charges that the bank fixed municipal bond bids over a period of years. The SEC announced the settlement's terms on Thursday. An article on the subject appears in today's Washington Post.JPM is the third bank to stand accused of essentially soaking taxpayers, who, after all, are muni bonds' financial and moral backbone. The other two institutions are Bank of America and UBS. One didn't detect corporate remorse over this episode: JPM's stance, according to the Post's story, was that the problem was cleaned up, and life goes on.
Where were the ratings agencies in all of this? Of course, the three firms which form the bond rating oligarchy performed their finest "hear no evil, speak no evil, see no evil" routine for these fixed bids as well as unsullied muni offerings. No doubt the trio will claim they had no idea price rigging occurred. It will have as much credence as Claude Rains' declaration in Casablanca that he was shocked to discover gambling in Rick's Cafe Americain.
The larger issue is that the muni bond market has historically been a cash cow for underwriters. They have been more or less at liberty to set the rules, change the game when it suited the banks, and convince retail investors of the bonds' allegedly minimal financial risk. The motivation for institutions to change their corrupt ways seems counterintuitive to the potent aphrodisiacs of power and monetary gain. Meanwhile, the corruption, as we are continuing to discover, runs deep and often silently.
The image from Casablanca shows Captain Renault accepting his gambling winnings from Bogey's croupier.
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