NEW YORK ( TheStreet) -- Our fearless leader, Jim Cramer, was on the TV last week bemoaning the huge settlements JPMorgan Chase ( JPM) is now facing over the scandals preceding the 2008 economic collapse. He was particularly upset that Bank of America ( BAC), which bought just as many bad assets as Morgan during the crunch, seemed to come out better. It's true that we've reached the stage of finance where $8.5 billion starts to look cheap. That was the size of the settlement Bank of America signed with institutional investors in 2011, covering the bad bonds issued by Countrywide Financial, which Bank of America bought in 2008. (In 2011, Bank of America also reached a much smaller settlement -- $335 million -- with the Justice Department over allegations of discriminatory lending practices at Countrywide.) The $8.5 billion settlement's exact size is still being litigated, and it could still cost another $16 billion to $22 billion, according to one analyst we interviewed last month.
That would hurt. Bank of America earned $2.5 billion in the third quarter, and has earned $8.6 billion for the year so far. The proposed settlement would wipe out 2013, and the risk remaining is substantial. But it wouldn't destroy the bank. Bank of America has more than $2.1 trillion in assets. JPMorgan Chase, the largest U.S. bank, has more than $2.4 trillion. What's most upsetting about the proposed Morgan hit isn't so much the number, although $13 billion is more than half a quarter's worth of revenue. It's that it doesn't lift the threat of criminal litigation down the road. The Obama administration has, since it took office in 2009, faced huge criticism from voters over its failure to prosecute any of the people who caused the 2008 meltdown. The excuse given by administration supporters was triage. Getting the system operating had to come first, investigations would follow.
Such investigations take time. The cases are complicated. All those involved have excellent lawyers. Now, with banking profits at record highs across the board, is a great time for the legal system to do its thing.
Steve Ricchiuto, MZUHO Securities chief economist, and Bob Michele asset management global CIO with JP Morgan (JPM), joined BloomberTV's 'Bloomberg GO' to discuss the economy and the Fed raising rates.