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.