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JPMorgan's "Cheats & Tricks" memo


The deepening of the financial crisis has led to a new round of finger-pointing. The blame game can go too far, of course, but on the whole I think it’s healthy for a society to pause and figure out what went wrong before it blunders ahead. As George Santayana said, those who cannot remember the past are condemned to repeat it.

With that philosophical preamble, allow me to point you to an excellent article that appeared last March in The Oregonian newspaper. It exposed a memo by someone inside JPMorgan Chase (we still don’t know who) instructing lending officers how to commit fraud and get loans approved by the bank’s computer, known as Zippy.

The memo’s title says it all: “Zippy Cheats & Tricks.”It is a primer on how to get risky mortgage loans approved by Zippy, Chase’s in-house automated loan underwriting system. The secret to approval? Inflate the borrowers’ income or otherwise falsify their loan application.

Hat tip to Barry Ritholtz, who mentioned The Oregonian piece in an Oct. 2 blog post.


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