Together We'll Forge Documents (NYSE:WFC) (NYSE:JPM)

Shares of Wells Fargo plunged over 4% on worries of the foreclosure scandal which is brewing in the United States. The scandal involves foreclosures on houses by the banks without the necessary documentation and the foreclosure of houses using robo-signers which is when workers involved in forclosures indicate the documentation is present when it is not. J.P Morgan the second largest bank in the U.S. already took a charge in their third quarter report relating to the mortgage foreclosure scandal. Despite this charge JPM posted $4.4 billion of profit. Investors are afraid that Wells Fargo will have to report a similar charge. It has been reported Xee Moua a vice president of loan documentation for Wells Fargo, the second-largest US mortgage servicer, had pushed through 500 foreclosures a day.

JPM is currently looking into improper practice on the foreclosure of 115,000 homes. The CEO of The Markets Are Open Allan Edwards said "even if triple the amount of houses looked at and write them all off to zero you still get an amount lower than the current market capitalization decrease in J.P. Morgan stock." Edwards is referring to the fact JPM and WFC stocks have lost over 10 billion in market cap which is probably 10 to 20 times more than what the incident will cost.

These events prove that the market often overvalues risk which is why stocks reach unreasonably low levels as is what happened in 2009.