Accountability is NOT The Word of the Day

(Skepticism is warranted, given the Obama administration's handling of all issues related to mortgages and foreclosures. - promoted by desmoinesdem)

Not when it comes to the banksters, anyway.  While I would like to be optimistic on this topic, I think the claim of victory is premature, at best.  

Last night I heard that Huffington Post was reporting that the White House has created a new unit to investigate the financial collapse and the mortgage crisis, and Eric Schneiderman would chair it.  I got excited until I read the article, at which point hope mostly died.

 

 Schneiderman isn't running it; he's a part of a five-member committee.  He isn't independent.  It's part of an existing task force that has spent three years doing exactly nothing about the massive criminality in the banking industry that has been apparent to almost everyone but the DOJ and the SEC.  Anything the task force finds can be kept under wraps by DOJ, so we may never know what it decides not to pursue.

The unit will not supersede the efforts already underway by the Department of Justice. Instead, it will operate as part of the president's Financial Fraud Enforcement Task Force. In addition to Schneiderman, the unit will be co-chaired by Lanny Breuer, assistant attorney general at the Criminal Division of the Department of Justice, Robert Khuzami, director of enforcement at the SEC; John Walsh, a U.S. attorney in Colorado, and Tony West, assistant attorney general in the Civil Division at DOJ.

Who are these people who are the cochairs?  Breuer was Holder's partner at Covington and Burling.  That firm wrote the legal opinion letters that enabled creation of horrendous title recording system and fraud factory known as MERS.   Both Holder and Breuer did work for banks while at the firm.  There is a big revolving door between their firm and the DOJ.  The banks C&B represented have significant potential liability relating to MERS, among other issues.  Breuer's participation on this committee is a massive appearance of conflict, if not an actual conflict of interest.

Robert Khuzami is SEC chief of enforcement, and would seem like a good choice if you knew nothing about him.  Yves Smith:

Why hasn’t the SEC been tough on CDOs, even though they were at the heart of the crisis?….
Look no further for an answer than the SEC chief of enforcement, Robert Khuzami, Stewart’s primary and probably sole source for this article. He was General Counsel for the Americas for Deutsche Bank from 2004 to 2009. That means he had oversight responsibility for the arguable patient zero of the CDO business, one Greg Lippmann, a senior trader at Deutsche, who played a major role in the growth of the CDOs, and in particular, synthetic or hybrid CDOs, which required enlisting short sellers and packaging the credit default swaps they liked, typically on the BBB tranches of the very worst subprime bonds, into CDOs that were then sold to unsuspecting longs. …..

Any serious investigation of CDO bad practices would implicate Deutsche Bank, and presumably, Khuzami. Why was a Goldman Abacus trade probed, and not deals from Deutsche Bank’s similar CDO program, Start? Khuzami simply can’t afford to dig too deeply in this toxic terrain; questions would correctly be raised as to why Deutsche was not being scrutinized similarly. And recusing himself would be insufficient. Do you really think staffers are sufficiently inattentive of the politics so as to pursue investigations aggressively that might damage the head of their unit?

This is the same chief of enforcement who had his butt handed to him by Judge Rakoff in New York, in rejecting a settlement with Citi.  The court's order is worth a read for its blistering takedown of the SEC and its lack of enforcement.

The remaining chairs, via David Dayen:

John Walsh is unfamiliar to me (though he comes with decent credentials), and I know two things about Tony West: his previous experience has little to do with financial fraud, and he’s the brother-in-law of California AG Kamala Harris, one of the holdouts on the foreclosure fraud settlement….

Dayen fears the fix is in to undercut the “Justice AGs” who were refusing to go along with the whitewash of a settlement being pushed as recently as Monday of this week by Tom Miller and Shaun Donovan.  Schneiderman was seen as a leader in that group, but now he has joined the forces that have been striving to give the banks a free pass.

Yves Smith suspects the same.

Now we have a committee full of people who have made numerous statements in the media and to Congressional committee minimizing the severity of the mortgage mess. Are were to believe they all had a conversion experience on the eve of the State of the Union address? …

And it seems awfully plausible that the aim of getting Schneiderman on board with an Administration “investigation” is to undermine the effort by 15 Democrat attorneys general to devise their own strategy for dealing with mortgage abuses. We’ve heard reports privately that some of the defecting AGs are in a panic.
….
It’s clear what the Administration is getting from getting Schneiderman aligned with them. It is much less clear why Schneiderman is signing up. He can investigate and prosecute NOW. He has subpoena powers, staff, and the Martin Act. He doesn’t need to join a Federal committee to get permission to do his job. And this is true for ALL the others agencies represented on this committee. They have investigative and enforcement powers they have chosen not to use. So we are supposed to believe that a group, ex Schneiderman, that has been remarkably complacent, will suddenly get religion on the mortgage front because they are all in a room and Schneiderman is a co-chair?

Neil Barofsky, former Inspector General for TARP and a prosecutor tweeted his reaction:

If task force created either b/c DOJ hasn't done an investigation, or b/c 3 yr DOJ investigation a failure, how does Holder keep his job?

Good question.  Eliot Spitzer didn't seem to be buying it either.  Last night on Olbermann he said he would need to know more about this, and we should see what Beau Biden does.  No sign of a positive statement from the Delaware AG.

I got a joyous email from MoveOn this morning, cheerleading for this new committee.  Dayen has a longer list of progressive groups who have dropped their activism on this issue overnight.  I wish they would do a little homework, since this is coming from an administration that has done everything it could to jam a pathetically small settlement in exchange for letting the banks off the hook for billions in liability, up to and including this very week.  For a detailed review of why the settlement is an awful idea, read Adam Levitin at Credit Slips.  And for an even more excruciating review of the claims that are not being investigated by anyone but a few state AGs (now possibly minus one), I recommend Bill Black.

Here, the defense counsel were far more audacious – they are demanding immunity not only from prosecution, but even from investigation, and they are demanding immunity for crimes they committed that have never been investigated by the state and local prosecutors.  The foreclosure fraud cases, while enormous, are by far the least of the banksters’ worries.  The potential loss exposure from the foreclosure fraud is measured in the tens of billions of dollars.  The potential loss exposure from fraudulent home loan originations is in the trillions of dollars – and a trillion is a thousand billion.  The banks’ CEOs are demanding, for a puny $25 billion, a release from liability for foreclosure fraud.  That is obscene on multiple levels.

But what came next went beyond scandal as usual.  The banks then demanded a lagniappe – a little something extra, for free, in a New Orleans restaurant – they wanted immunity for loan origination fraud.  The slight difference is that this lagniappe is worth trillions of dollars to the frauds.  It sickens me to inform the reader that the Obama administration is eager to provide the frauds with this lagniappe.  The Department of Housing and Urban Development (HUD), led by Secretary Shaun Donovan, is actively pushing this scandalous deal, with strong support in the background from Treasury Secretary Geithner.  The silence of Attorney General Holder, and President Obama, on this travesty is exceptional. 

Apparently some of this criticism has gotten through, so now we have the appearance of Something Being Done.

I am not optimistic because I do not believe this passes the most cursory smell test.  My only question is:  what persuaded Schneiderman to go along?

If you would like to see state AGs continue to push for investigations and prosecutions, you can find contact info here.  (Offer not applicable in Iowa, where Tom Miller has been leading the charge on the settlement.) Special attention should be paid to Kamala Harris in California.  Appointing her brother-in-law on the task force is a sign that the administration is trying to up the ante on pressuring her, after other tactics failed, including giving her state the biggest piece of the settlement pie.  Nevada AG Catherine Cortez Masto has been relentless in bringing old-fashioned criminal cases, working her way up the food chain from the small fry to the big fish.  Martha Coakley in Massachusetts and Beau Biden have also been acting like real prosecutors.  You could thank them, and encourage the other Democratic AGs who have been reported as holdouts: Hawaii, New Hampshire, Missouri, Mississippi, Maryland, Kentucky, Minnesota, Oregon and Montana.

  • good luck, but

    Democratic AGs who have been reported as holdouts: (MD)

    The simple answer: a whole lot of them are thinking of their future careers and fundraising.

    For example, “holdout” Doug Gansler (MD-AG) will be running for MD-Gov in 2014. Exiting term-limited Gov (and DGA head) O’Malley will probably be studying a map of Iowa’s 99 counties.

    In the race for cash, Gansler has about triple the amt of other candidates w/ 4.1 mill already banked. You don’t get the big bucks for a Dem primary in a Dem state by bucking the system. He’s “studying the problem” under “pressure” from groups like MoveOn. So,

    r list of progressive groups who have dropped their activism on this issue overnight.  I wish they would do a little homework,

    Oh, I think they have done their homework. I’m sure Gansler will now say the citizenry is satisfied that appropriate action has been taken. This is the problem when “progressives” allow themselves to be “represented” by a handful of interest groups that are not much more than party mule support outfits.

    Kamala Harris — I never really bought into her stance. She has big-time ambitions.

    Beau Biden didn’t run for DE-Sen because he thought he’d lose. Put him down as someone w/ something who isn’t going to end a career by bucking the system.

    Schneiderman? Either this was a set-up from the beginning, to allow the “progressives” to look properly progressive, just like Congressional progressives vote the “right” way, or he signed up after getting the “most important election of our lifetime” lecture. I vote for the former as he really didn’t get too much done while rebel poster boy.

    You might as well ask why Elizabeth Warren is running for US Senate, of all things.

    The reality of our politics is that we have an ex-Senator, a Dem, barking out loud that Dems need to get in line on SOPA/PIPA or there’s no Hollywood money. I just find it hard to make excuses about what’s going on at this point.

    • I don't disagree with your general point

      Kamala Harris has clearly had her finger in the wind and her conversion to “Justice AG” is relatively recent.  Politicians are the same the world over.

      However, Biden has done something Schneiderman managed to avoid: file a lawsuit.  I think he’s suing MERS.  I wrote to thank him.

      • not familiar w/ details of Biden's action

        I suppose I have a hard time believing that Joe Biden’s son is going to be a leader on this.

  • MoveOn lost me a long time ago

    I don’t even open most of their e-mails anymore. Too many times they have made excuses for the Obama administration, shifted blame onto others or been cheerleaders for weak half-measures.

  • statement from Tom Miller

    released on January 23, 2012:

    State Attorneys General from both parties, along with our federal partners, are today discussing the details of the progress we have made so far in settlement negotiations, including the terms we must still resolve. We have not yet reached an agreement with the nation’s five largest servicers, and we won’t reach a settlement any time this week.

    Waiting to see how many AGs come back to the table following this week’s Schneiderman announcement?

    • I have a bad feeling about it.

      But maybe Nevada or Delaware, who are already litigating, will step up to lead.

  • Beau Biden was just on MSNBC

    today (January 26), and said he is not likely to sign on to the settlement Miller’s group is working on, because it lacks enough accountability, it wouldn’t provide enough relief, and it would prevent him from moving forward on some cases his office may pursue (he didn’t specify but said they are investigating mortgage origination issues as well as servicing problems).

    • Thanks. I saw it.

      I updated the Dk version of this with the video, but ran out of time yesterday to do it here, and thought I would wait and start another diary as we watch this unfold.

      The interesting bits were his questions at the end:  How many prosecutors, FBI agents, and investigators will be assigned to this task force?  Also, his statement that the banks think the regulators are too scared to peel the onion, as he put it, which was an implicit criticism of what Miller has been doing.  Must see TV. http://video.msnbc.msn.com/dyl…

      Ratigan has been ferocious lately, bless his heart.  He had a real estate consultant on with Biden who just ripped everybody in DC for their inaction.  Yesterday he had Howard Dean talking about how to fix health care.  

  • Thanks for this post

    Please keep on the story.  More on Miller would be useful, too.  What became of our former consumer advocate?

    • He is carrying water for the Obama administration

      I do not think his good guy reputation will survive this kabuki settlement negotiation, which appears to be: (choose one or more options) completely incompetently handled (a settlement has been expected “within weeks” for well over a year over a year); an intentional smokescreen for letting the statutes of limitations run on bank misconduct; a PR stunt to let the administration appear to be doing something about the mortgage mess; or a real effort to settle for a pittance and let the banks off the hook.  (Your mileage may vary.)  The feds, in the persons of Deputy AG Thomas Perelli and HUD Sec’y Shaun Donovan seem to be really in charge.  Yves Smith has a brutal catalogue of the reasons for Miller’s growing credibility gap over time here.

      What’s in it for him?  Who knows?  Maybe he wants to be AG after Holder leaves. His relationship with Obama dates back to Harvard Law, his wife is or was a bank executive, and his contributions from that sector suddenly soared when he was put in charge of the investigation.  

      • could you clarify?

        Obama dates back to Harvard Law

        Miller first served as AG in 1979. Obama was still in high school.  

        • I would have to look for where I first read that a long time ago.nt

        • they weren't at Harvard at the same time

          You’re right, Miller’s a lot older. Obama started Harvard Law School in the late 1980s. I think the Harvard alumni connection was an important reason Miller endorsed Obama early in 2007, though. Miller is not a buck-the-establishment guy, so it was out of character for him to endorse someone other than Hillary Clinton. I seem to remember hearing him say in a speech or interview that Harvard faculty he knew spoke highly of Obama, and that influenced his decision. Can’t find a link on that now.  

          • but there's nothing the matter with that

            the endorsement.

            It’s another thing to say that Miller is corrupt because both Obama and Miller are HLS alums.

            I did some google-searching, and I see references to the two being “college roommates.” That simply is not correct, and it undermines legitimate skepticism.  

            • I don't know that he is corrupt.

              I would say that, like Lucy, he has some ‘splainin’ to do.

              Contributions:

              Nearly half of the money Miller raised in 2010-$338,223 of $785,103-was donated after the October 13 announcement that he would be coordinating the 50-state attorneys general investigation…..

                 Miller raised $785,000 in 2010, more than double the $327,196 he raised for his 2006 and 2002 campaigns combined.

                 Miller’s 2010 campaign was unprecedented in the amount of contributions received from outside of Iowa: $497,000, or 63 percent of his 2010 total, came from out-of-state donors. This is a significant break from his previous two reelection campaigns, when less than one-tenth of his campaign funds came from outside of Iowa.

              Even more interesting is that it was the lawyers and donors from the finance, insurance, and real estate (FIRE) sector from outside of Iowa who were largely responsible for this reversal. Out-of-state lawyers and lobbyists gave Miller $261,445 in 2010, which is 88 times more than they gave over the previous decade. Out-of-state donors from the FIRE sector gave Miller $56,150 in 2010, compared to $3,500 in 2006 and $1,000 in 2002.

              And then, from the department of watch what I do, not what I say, there is his kicking Schneiderman off the committee for the following remarks:

               

              New York Attorney General Eric Schneiderman expects to lead opposition to what he called a “quick, cheap settlement” of a 50-state investigation into foreclosure practices. Schneiderman put the monetary settlement being discussed with the largest U.S. mortgage servicers at $20 billion to $25 billion and said he will take “the hardest line” against it.

                 The probe began in October. New York launched its own investigation two months ago and, Schneiderman said, has found the problem is much deeper. He said he was “stunned” to find the multi-state probe so lacking that no documents or witness depositions had been obtained.

                 “We have no leverage,” Schneiderman said during a meeting Monday with the Democrat and Chronicle editorial board.

              One of the Registers of Deeds who has been leading the charge, John O’Brien, said Miller should step down he was so outraged by Miller’s treatment of Schneiderman, and the terms of the settlement.  O’Brien is the guy who sent over 30k fraudulent recorded documents to Holder and Coakley.  No word on whether he has received a reply.

              Yves Smith shredded the settlement terms at length here, among other things because most of it translated to asking the banks to obey the law.  One lawyer she consulted told her that for a private lawyer to settle without investigating what damages were would be malpractice.

              No one would accuse Miller of being stupid.  So what is motivating him?

              • you don't have to convince me

                but I think your argument is much stronger w/o the purely circumstantial (attended same law school). You’re right — there’s plenty for Miller to explain.

          • as far as I can tell

            Tom Miller likes centrists:

            It’s that argument that appealed to Iowa Attorney General Tom Miller, who has endorsed Lieberman.

            “I think that he would be our strongest candidate in a general election against President Bush,” Miller said. “We really need a centrist candidate people can have confidence in.”

            • That is remarkable political analysis.

              Lieberman as a strong candidate in a general national election, and against George Bush at that.  Lieberman was Republican Lite back then. Now he is even more so.  Voters would have chosen the real thing.

          • I stand corrected. nt

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