Republicans frequently criticize President Obama as an adversary of capitalism: they say he wants to “put free enterprise on trial” (Mitt Romney) or that the president believes the country’s problems “must be the fault of those people on Wall Street” (Mitch McConnell).
But oddly, when Obama announced in January the formation of the Residential Mortgage-Backed Securities working group, Republicans were completely silent. The working group’s stated purpose is to investigate and potentially prosecute major Wall Street firms, but no Republican presidential candidate or member of Congress publicly criticized the effort.
Behind the scenes, however, Republicans are keeping a close eye on the group—and letting the members know they are watching. The Nation has exclusively obtained a letter to the working group from Representative Patrick McHenry, a North Carolina Republican with major Wall Street donors. The letter openly questions the purpose of the working group, and asks some intrusive questions about funding, staffing and expenses—and reminds the members that the House Committee on Government Oversight Reform, of which McHenry is a member, can investigate “any matter” it chooses.
The letter, which was sent to several members of the working group in early February, lays out seven questions and demands an answer within two weeks. The questions are:
1. Please explain in detail the mission and goals of the Residential Mortgage-Backed Securities Working Group.
2. Please provide a detailed accounting of the Residential Mortgage-Backed Working Group’s anticipated staffing, funding (both state and federal sources), and expenses.
3. Please distinguish in detail how the work of the Residential Mortgage-Backed Securities Working Group will differ from the existing work of the Financial Fraud Enforcement Task Force.
4. Insofar as the Financial Enforcement Task Force has achieved “limited success” and “has fail[ed] to produce any major prosecutions stemming from the housing crisis,” how will the Residential Mortgage-Backed Securities Working Group achieve different results?
5. The Office of SIGTARP recently announced a 72-month sentence for a defendant convicted of defrauding financial clients who sought mortgage modifications. If the Office of SIGTARP continues to pursue convictions stemming from illegal mortgage-related activities, please explain what enforcement gap the Residential Mortgage-Backed Securities Working Group will fill.
6. Please explain how the work of the Residential Mortgage-Backed Securities Working Group will be affected by any settlement agreement executed by state attorneys general and large financial institutions. Will such a settlement affect the Residential Mortgage-Backed Securities Working Group’s ability to pursue actions against the financial institutions who are parties to the settlement? If so, how?
7. To the extent that the work of the Residential Mortgage-Backed Securities Working Group is not duplicative or redundant and actually succeeds where other efforts have failed, will the settlement agreement with state attorneys general preserve all avenues of relief and compensation for any newly identified homeowner who was not in default yet foreclosed upon anyway?
The letter closes with a rather ominous reminder:
The Committee on Oversight and Government Reform is the principal oversight committee of the House of Representatives and may at “any time” investigate “any matter” as set forth in House Rule X. We request that you provide the requested information as soon as possible.
In fairness, some of the questions—particularly the later ones—are good and echo concerns raised by some progressive and housing advocates.
But inquiries into the working group’s finances and operations are disturbing particularly in context of McHenry’s major donors. According to the Center for Responsive Politics, three of McHenry’s four major donating industries are from Wall Street: Financial/Credit Companies, Commercial Banks and Investments/Securities. Bank of America, Wells Fargo and the American Bankers Association are all in the top ten individual donors to McHenry.
McHenry signed a letter in March to Treasury Secretary Tim Geithner, questioning the settlement between the federal government, forty-nine states and five major banks—including Wells Fargo and Bank of America—that expressed “significant concerns about its effect on the financial system.”
The Congressman also created a stir last summer during his aggressive questioning of Elizabeth Warren during a hearing on the Consumer Financial Protection Bureau, in which he repeatedly called her a “liar.”
A person close to the working group told me there wasn’t much doubt to McHenry’s intentions, from his or her vantage point. “This is obviously a fishing expedition conducted on behalf of the big banks and Congressional Republicans who are panicked by the aggressiveness of the investigation,” the source said.
The letter tracks with what Representative Brad Miller told me this week—that he believes Congressional Republicans, on behalf of the industry, are watching the RMBS group closely.
Miller has not seen the letter, but when I described the contents to his office this morning, he released a strongly worded statement.
“There’s a pattern here. Congress has a proper oversight role even into criminal investigations, but there’s a point where oversight ends and interference begins,” Miller said. “I really cannot see a difference between what congressional Republicans are doing now to hinder regulatory and even criminal investigations of the financial industry, obviously on behalf of the industry, and what the Keating Five did a generation ago.”
He continued: “I suspect that what is different is not the conduct but the ethical standards in Congress, and even more disturbing, what the nation expects of Congress. A generation ago regulators made a grave error in giving in to political intimidation. I hope the Department of Justice will not repeat that error.”
McHenry’s office did not return a request for comment.
UPDATE: The Department of Justice confirmed it responded to McHenry’s request, and downplayed any industry influence: “The department received a letter from Representative McHenry containing typical oversight-related questions regarding the Residential Mortgage-Backed Securities Working Group’s efforts and the department was happy to respond,” said Adora Andy, DOJ spokeswoman.