[By Larry Goldfarb]

The issue of prosecuting JP Morgan for the sins of Bear Stearns took on increased urgency as Barney Frank, the outgoing Democratic Congressman and powerful former chairman of the House Financial Services Committee, weighed in. He said federal and state officials should reconsider holding financial firms liable for the wrongdoing of institutions they absorbed at the government's urging.

"The decision now to prosecute J.P. Morgan Chase because of activities undertaken by Bear Stearns before the takeover unfortunately fits the description of allowing no good deed to go unpunished," said Frank, who was also the co-author of the 2010 Dodd-Frank financial reform law.

New York Attorney General Eric Schneiderman sued JPMorgan, the nation's largest bank by assets, on Oct. 1 over mortgage-backed securities packaged and sold by Bear Stearns. But Schneiderman gained support from former New York Attorney General Eliot Spitzer who said in a statement that the complaint catalogs evidence of "platform-wide wrongdoing". "It is a necessary action to bring accountability for the mortgage meltdown and the financial collapse. Widespread misconduct should not disappear simply because one bank has been acquired by another."

Federal officials urged JPMorgan "to do a good deed by taking over an institution which, I believe, the bank would never have sought to acquire absent that urging," Frank  said. He also drew a line between what he said were fair legal actions and unfair ones, noting he was not advocating for immunity for banks. For example, he said Bank of America should probably be shielded from government legal action related to Merrill Lynch, which Bank of America took over in part because of federal officials' urging. However, Frank said he was aware of no federal urging that led former Bank of America CEO Ken Lewis to take over Countrywide.

For further information, please read [Reuters, 10/22/12]