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Why Barney Frank Is Wrong About JPM Lawsuit

Photo: Getty Images

Many intelligent people are not at all enthusiastic about the recent lawsuits various government operatives are filing against the banks that survived the financial crisis. The correct response is approximately this: not enthusiasm but reluctant support.

(Read more: BofA Suit: New Look at the 'Lincoln Law')

I know it's easy enough to find the recent spate of bank lawsuits a bit unseemly, even if you don't fully subscribe to Barney Frank's theory about the injustice of the government suing banks like JPMorgan Chase and Bank of America over the activities of financial institutions they acquired at the urging of government officials during the financial crisis.

(Read more: Barney Frank Defends JPMorgan Against Bear Stearns Suit)

As those of us who were paying close attention during the crisis know all too well, arms were twisted, the executives believed they were being good citizens by making the acquisitions they did, and the crisis might (not would—but only might) have been far worse if JPMorgan and Bank of America hadn't been willing to acquire Countrywide, Wachovia, Washington Mutual, Merrill Lynch, Bear Stearns and so on.

These weren't deals that would have happened without the full cooperation—and often insistence—of regulators.

But we cannot overlook the fact that JPMorgan and Bank of America absorbed not just the risks of these acquisitions—they got the gains as well.

Both banks now receive substantial amounts of income from lines of business they acquired during the crisis. It seems fair enough that they should also inherit the legal liabilities associated with that income.

Imagine that a managing director at one of the banks showed up at, say, Dorsia for lunch. He lacks a reservation but he knows the young lady in the hip-hugging black pants at the front desk quite well. She gives the managing director one of the tables reserved for someone else—someone less important, less well-known to her—who is running a few minutes late. And, as a matter of fact, this someone else soon calls to cancel the reservation altogether.

When the check comes, the managing director in our metaphor objects.

The reservation was made by someone else entirely. Certainly he and his guests have eaten the meal—but this was partly done as a favor to the restaurant, which otherwise might have gone unoccupied. Isn't it miserly for the restaurant to demand that in addition to eating the lunch the bankers now pay for it?

Someone call Barney Frank and alert him to the injustice.

(Read more: NY Mortgage Suit Against JPMorgan Could Be Model for Future Cases)

- by CNBC Senior Editor John Carney

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