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(AP Photo/Matt York)
After years of complaints from immigration rights groups about the administration’s deportation policy—which is expected to toss 400,000 immigrants from the country this year—the White House announced a significant policy shift this morning. The Department of Homeland Security said that young people (between 16 and 30) who have no criminal histories will be issued work visas allowing them to find work and stay in the country.
Despite the stark-naked political motivations—to win over Latino voters and box out Congressional Republicans, who have been talking about introducing legislation with similar intent—the policy change is still meaningful. (And it shouldn’t really be a surprise that politicians do things for political reasons, though I think undocumented young people could legitimately wonder why this wasn’t enacted two years ago, when it was clear the DREAM Act was dead in Congress).
Under the new policy, as many as 800,000 young undocumented immigrants could stay in the country indefinitely if they are between 16 and 30, have no criminal histories, have been in the country for at least five continuous years, and graduated from high school (or obtained a GED, or served in the military). Under those qualifications, they can obtain a two-year visa with no limits on how often it can be renewed.
This is doubtless a huge relief to many people who came to the country without documentation when they were young and have known no other home, and have been trying to build a life while under constant fear of deportation.
Unlike previous easements of deportation policy, like last summer’s announcement that only people with criminal histories would be targeted, this shift is important because the government will issue work visas conferring legitimate legal status on people instead of just granting an understanding that they won’t be deported. Also, the policy is affirmative, meaning one can approach DHS and apply for the visa instead of waiting to be caught by authorities.
But there are several important caveats. Since this is an executive action, it could (and likely would) be reversed by President Romney in six months. Granted, the administration had no choice to go this route, since House Republicans have already declared the DREAM Act dead, but undocumented young people still know they are walking on shaky ground even with the new policy.
Previous administration efforts to ease deportations also create reasons to be skeptical. Though the administration claimed it would exercise discretion and deport only those with violent criminal histories, deportations only dropped an almost imperceptible two percent.
Without question, the new policy isn’t enough and the undocumented need a comprehensive immigration strategy to be enshrined through legislation. But with Republicans like Rubio already saying the new policy is “welcome news,” the administration may be pulling the debate to the left and making a comprehensive solution more likely.
In fifty years, when historians look back upon the current era of unbridled financial sector influence on American government—unless all historians are by then employed at CitiBankofAmericaChaseOne Institutions of Higher Learning™—Wednesday’s hearing of the Senate Banking Committee will be an instructive example of our perverse power structure.
Jamie Dimon, CEO of the JPMorgan Chase, the country’s largest bank, appeared before the committee after a clear screw-up: traders at JPMorgan placed a series of complex bets that resulted in $2 billion in losses and counting.
This should be of great concern to the Senate. Since deposits at JPMorgan Chase are backed by the federal government, risky market gambling could create the need for another massive public bailout of a normally profitable private bank.
But instead, a vast majority of the Senators at Wednesday’s hearing repeatedly praised Dimon’s wisdom and executive acuity while politely soliciting his opinion on how he thought his own bank should be regulated. That shouldn't be too surprising if one examines the bank's political giving--members of the committee received $522,088 of the bank's cash in recent years, with $296,557 going to Democrats and $285,531 to Republicans. (See the graphic above).
And Dimon happily played the part. To underscore who is the boss, he first demanded and received a one-week delay in the hearing after being summoned by the chairman, Senator Tim Johnson, and then showed up on the appointed day wearing cufflinks with the presidential seal to take questions from his underlings.
“We’re here quizzing you,” Senator Bob Corker (R-TN) explained to Dimon in a typical exchange. “If you were sitting on this side of the dais, what would you do to make our system safer than it is, and still meet the needs of a global economy like we have?”
Rather than focusing on the clear and present danger presented by JPMorgan’s risky financial maneuvers, Corker then invited Dimon to opine on the “societal good” of his bank, and asked, “What would society be like without these institutions?” (Dimon eagerly expounded on the value JPMorgan chase provides to the public, particularly “mothers and veterans.”)
Instead of pressing for tougher controls, Senator Mike Crapo (R-ID) asked Dimon, “What should the function of the regulators be?”
Some Senators even asked Dimon what regulations he’d like to dismantle. “I would like to come away from the hearing today with some ideas on what you think we need to do, what we maybe need to take apart that we’ve already done, to allow the industry to operate better,” said Senator Jim DeMint (R-SC).
At one point, after being overloaded with invitations to help out, Dimon offered that “me and lots of other folks, we’ll do whatever you want, we’ll even get apartments down here. Let’s go through [the regulations] in detail.”
But in a different world, Dimon should have had to navigate some tough terrain. His bank’s error makes a strong case for tough regulation of high-stakes financial gambling at commercial banks, and he had to pretend it didn’t.
The important context is that two years ago, the financial industry lost a legislative fight over the Volcker Rule, which would prohibit risky, proprietary trading by federally insured banks. But the rule is still being written by regulators who are trying to navigate a complicated question: How do you permit simple hedging—where a bank makes financial bets against some assets to protect itself in the event of a downturn—but disallow larger-scale, profit-driven betting?
JPMorgan’s position was that the massive losses they incurred were a simple hedge against existing bank positions, which somehow went bad through incompetence by lower-level executives. In Dimon’s telling, the bank originally took out credit default swaps—that is, financial instruments similar to insurance that would pay off if a certain company or index went sour—in order to safeguard the bank’s assets.
“If you look at the position, what it was meant to do is—in benign environs, maybe make a little money, but if there was a crisis, like Lehman, like Eurozone, it would reduce risk dramatically by making money,” Dimon said.
Perhaps that was the original intent, but JPMorgan traders in London began layering very complex bets on top of it, and even began selling insurance on a large index, the IG9, instead of buying insurance. (Hedge funds caught wind of this position, bought a lot of JPMorgan insurance on the IG9, and proceeded to pummel its value, thus incurring massive losses at the bank.)
Dimon needed to pretend that what happened was simple incompetence, a hedge gone wrong, and not a desire to make profit through trading—that would be a direct violation of the spirit of the Volcker Rule and might cause regulators to beef it up. (Financial investigator William Black calls this overly broad definition “hedginess,” a tribute to Stephen Colbert’s characterization of the Bush administration’s “truthiness.”)
Here’s Senator Jack Reed (D-RI) trying to pin Dimon down on this point—an unfortunately rare moment during the hearing:
REED: In 2011 or '12 at some point, the bet was switched. And now you started rather than protecting your credit exposures, taking the other side of things—selling credit protection. Which seems to me to be a bet on the direction of the market unrelated to your actual credit exposure in Europe, which looks a lot like proprietary trading designed to generate as much profit as you could generate. [This] seems to be inconsistent, again, if this is simply a risk operation and you’re hedging a portfolio. How can you be on both sides of the transaction and claim that you’re hedging?
DIMON: I think I’ve been clear, which is—the original intent was good. What it morphed into I’m not going to try to defend. Under any name, whatever you call it, I will not defend it. It violated common sense in my opinion.
This was Dimon’s refrain throughout the hearing—that a good idea somehow “morphed” into a bad one, almost as if it was a cancer that nobody could predict nor control. “The way it was contrived between January, February and March, it changed into something I cannot publically defend,” he said at another point.
Would a strong Volcker Rule have prevented this evolution towards risky proprietary bets? Of course it would have, but Dimon has been the lead proponent to make sure it doesn’t, personally visiting the Treasury Department several times this year and spending over $10 million on behind-the-scenes lobbying in the past two years.
When asked directly if a strong Volcker Rule would have prevented the losses, Dimon gave a response that harkened an image of Sylvester the Cat professing innocence as yellow feathers dangle on the edge of his lips. “I don’t know what the Volcker rule is, it hasn’t been written yet. It’s very complicated,” Dimon said. “It may very well have stopped parts of what this portfolio morphed into.… I just don’t know.”
His bank’s influence runs deeper than even the donations given to a majority of the committee and visits to the Treasury. JPMorgan also employs at least eight lobbyists that used to work on the Senate Banking Committee, and one current committee staffer used to work for the bank.
This aggressive lobbying and donation strategy was, as yesterday’s hearing demonstrated, a successful hedge of a different kind—one that seems to be protecting the bank’s backside after steep losses in both the balance sheet and public perception. Several protesters erupted into chants of “Stop foreclosures now” and “This man is a crook,” but were quickly escorted out by US Capitol Police and arrested so the hearing could begin.
JPMorgan Chase CEO Jamie Dimon will appear before the Senate Banking Committee on Wednesday to answer questions about his bank’s risk management, or lack thereof—how was it that a too-big-to-fail institution took dangerous gambles that recently resulted in multibillion-dollar losses?
But there are deeper questions likely to come up as well. One is why Dimon is allowed to sit on the New York Federal Reserve’s board of directors, along with several other titans of finance. At the twelve regional Federal Reserve Banks, there are nine-member boards of directors. Six of the seats are selected by banks from the region—although, somewhat hilariously, the banks are supposed to pick three directors to represent their interests, and then three directors to represent “the public’s interest.”
But if the job of the Federal Reserve is to maintain the safety and soundness of Wall Street banks—a task often at odds with the banks’ short-term, greed-driven motives—why are the heads of those institutions allowed to be a part of it at all?
Some new data released Tuesday by Senator Bernie Sanders puts this inherent conflict of interest in sharp relief. Sanders revealed, for the first time, detailed information about which bank executives benefited from Fed actions during the financial crisis, and how much they got.
The Dodd-Frank legislation, thanks to a provision inserted by Sanders, required the nonpartisan Government Accountability Office to study these conflicts of interest at the Fed and issue a report. It did so in October, issuing a detailed study which found that allowing members of the banking industry be on the Federal Reserve’s board of directors creates “an appearance of a conflict of interest” and poses “reputational risks” to the Federal Reserve System.
The GAO laid out several conflicts of interest, but was not required to name specific institutions—but that’s what Sanders released today. He found that during the crisis, at least $4 trillion in zero-interest Federal Reserve loans went to the banks of at least eighteen current and former Federal Reserve regional bank directors.
JPMorgan got a quite a few handouts from the Fed while Dimon sat on the board of directors, Sanders notes. It received $390 billion in emergency Fed funds while it was being used as a clearinghouse for emergency lending programs. It got $29 billion to acquire Bear Stearns, and got an eighteen-month exemption from risk-based leverage and capital requirements. JP Morgan also got the Fed to take risky assets off the Bear Stearns balance sheets before it was acquired.
One might argue that these actions would have been taken anyhow—to, for example, help repair the damage Bear Stearns was causing financial markets. And every major financial institution received money from the Fed at some point during the crisis. But it’s incredibly hard to argue Dimon and others should have seats at the Fed while it’s negotiating these goodies with their banks.
Among the other conflicts revealed by Sanders’s report:
Jeffrey Immelt, the CEO of General Electric, served on the New York Fed’s Board of Directors from 2006‐11. General Electric received $16 billion in low-interest financing from the Federal Reserve’s Commercial Paper Funding Facility during this time period.
In 2008, the New York Fed approved an application from Goldman Sachs to become a bank holding company, giving it access to cheap Fed loans. During the same period, Stephen Friedman, who was chairman of the New York Fed at the time, sat on the Goldman Sachs board of directors and owned Goldman stock, something the Fed’s rules prohibited. He received a waiver in late 2008 that was not made public. After Friedman received the waiver, he continued to purchase stock in Goldman from November 2008 through January of 2009 unbeknownst to the Fed, according to the GAO.
Sanford Weill, the former CEO of Citigroup, served on the Fed’s board of directors in New York in 2006. During the financial crisis, Citigroup received over $2.5 trillion in total financial assistance from the Fed.
James M. Wells, the chairman and CEO of SunTrust Banks, has served on the board of directors at the Federal Reserve Bank in Atlanta since 2008. During the financial crisis, SunTrust received $7.5 billion in total financial assistance from the Fed.
James Rohr, the chairman and CEO of PNC Financial Services Group, served on the Fed’s board of directors in Cleveland from 2008–10. PNC received $6.5 billion in low-interest loans from the Federal Reserve during the financial crisis.
The full report is here.
Sanders and Senator Barbara Boxer have introduced legislation that would end these conflicts of interest by prohibiting anyone who works for, or even invests in, companies that are eligible for aid from the Federal Reserve from sitting on a board of directors. Sanders singled out Dimon when announcing his legislation late last month. “How do you sit on a board, which approves $390 billion of low-interest loans to yourself?” Sanders said. “Who in America thinks that makes sense?”
Sanders also spoke to MSNBC’s Dylan Ratigan Tuesday afternoon about the conflicts:
Brooksley Born, a former head of the Commodity Futures Trading Commission, and Democratic members of Congress hold a press conference outside the US Capitol to speak out against CFTC budget cuts advanced by Republicans. Photo by George Zornick
If you held a contest to determine the most important government agency nobody’s heard about, the Commodity Futures Trading Commission would be a strong gold medal contender. Charged with overseeing commodity futures and options markets—which, when the CFTC was created in 1974, mainly involved agricultural futures—the agency now oversees the absolutely massive financial derivatives market on Wall Street, as well as oil futures markets.
This means that the relatively tiny agency has tremendous influence over the financial sector’s biggest money machine—one that has already helped bring down the world economy once within the past few years. And oil speculation is a significant factor in driving the prices Americans pay at the pump.
But perhaps taking advantage of the CFTC’s obscurity, Congressional Republicans have made a brazen attempt to slash the agency’s budget and reduce staff. The House Appropriations Subcommittee on Agriculture sent out a budget that provides only $180.4 million to the CFTC, which is a $24.6 million cut from last year’s already anemic funding level. This is well below the $308 million in President Obama’s budget request, which supporters of Wall Street reform universally agree is still too low anyhow. The Republican request would likely lead to lay-offs at the agency, according to Congressional staffers familiar with the matter.
Late last week, Congressional Democrats—and one former head of the CFTC—gathered outside the Capitol building to communicate the gravity of the cuts, especially at a time when the Dodd-Frank reforms are expanding the agency’s mandate.
“The House Appropriations subcommittee’s failure to increase the CFTC’s budget to reflect these increased responsibilities—and indeed its irresponsible proposal to cut the CFTC’s budget by $25 million—are efforts to eviscerate vitally important financial regulatory reform and to cater to the interests of Wall Street rather than the needs of the American people,” said Brooksley Born, who ran the agency from 1996 to 1999.
“What the Republicans are doing is voting to take the cops off the beat. Wall Street is incapable of policing itself,” said Representative Ed Markey. “The invisible hand of Wall Street markets has waved off concerns, waved off regulations, and then reaches into our pockets and takes our money.”
The CFTC regulates index-based credit default swaps and interest rate swaps, which are bets on very complex arrays of factors—the value of entire indexes, or credit arrangements between entities. The Securities and Exchange Commission handles the relatively simpler single-name credit default swap, which is just a bet on the default of a single entity.
The Dodd-Frank bill required that the CFTC write new rules to make these trades open and transparent—right now, they are conducted on the phone, which is an easy way for people on Wall Street to mislead investors (and each other, and often and somewhat accidentally their own firm) about the true value of the already complex financial products.
Alexis Goldstein has an in-depth breakdown of this issue here, but essentially the CFTC is working on creating a framework for market participants to freely trade derivatives in a transparent fashion. It’s an enormous market of several hundred trillion dollars, and creating that framework is just one part of the CFTC’s responsibilities.
Enforcement is also a lot of work—the failure of MF Global has created a huge drain on the agency’s resources, because substantial chunks of the staff had to investigate missing futures custom funds from one of the company’s subsidiaries, according to Congressional staffers familiar with the matter. The JPMorgan imbroglio also appears to be getting a lot of attention from agency staff.
As noted, the CFTC also oversees the oil futures markets, in which speculators can easily monkey with the global price of gasoline. The St. Louis Federal Reserve found that speculation in oil markets was the second-largest factor in the past decade’s price increases, behind demand.
Yet the CFTC has a relatively tiny budget, compared to other regulatory agencies, and has grown only 10 percent since the 1990s. This is despite a massive explosion in the size of the products it regulates—Representative Sam Farr of California estimates that the CFTC budget represents six seconds of trading on the derivatives market.
And now, the budget cuts planned by Republicans. They are remarkable given that Wall Street regulation and high gas prices are volatile elections issues, but Democrats think Republicans believe nobody will notice.
“The [Dodd-Frank] legislation is too popular to repeal, but one can kill it by not funding it. It’s a death by a thousand nicks,” said Farr at least week’s news conference. “The president’s ask isn’t that much money, but without it, it can cripple the regulators. Make no mistake about this, the swap dealers don’t want it to be regulated.”
The proposed budget cut is also astonishing given the massive risk that unregulated derivatives pose to the financial system, demonstrated quite clearly less than four years ago.
“There’s one question every American should ask,” said Representative Gerry Connolly. “Given the meltdown that occurred in 2008, given the fragility of the world economy, given the fact that so many European banks hold too much European sovereign debt, given our recent economic performance numbers when you look at a [derivatives market] margin…valued in excess of $600 trillion—unregulated, with this action, what could go wrong with that?”
This morning, House Speaker John Boehner’s spokesman blasted out an e-mail titled “ ‘A Suicidal Tetrahedron’? ‘The Dodecahedron of Mutually-Assured Destruction’?”
It wasn’t a tribute to an obscure work of the late Ray Bradbury but rather a fairly accurate description of the Democratic Party’s scrambled position on another darkly named event: Taxmageddon, the year-end expiration of the Bush tax cuts.
“Folks—The conflict among Washington Democrats over stopping the largest tax hike in history is now far too complicated to be described by the usual ‘circular firing squad’ cliché,” wrote the spokesman, Michael Steel. He noted that President Obama, Nancy Pelosi and Chuck Schumer, Kent Conrad (the Senate Budget Committee chair), Bill Clinton and Larry Summers all have varying proposals for dealing with the expiration of the Bush tax cuts.
Steel is being a bit disingenuous when he invokes Clinton and Summers, since for one thing they have no actual say on policy, but more importantly, didn’t really break from anyone. All Clinton said was that he felt the post-election lame-duck Congress would probably have to briefly extend the tax cuts while the parties worked out a deal; he wasn’t, as Republicans tried to claim, saying the Bush tax cuts should be permanently extended.
But that doesn’t mean the Democratic Party actually has a coherent stance on tax policy—and it should really come up with one quickly, since the Republican policy is well known and easy to understand: tax cuts for everyone.
For Democrats, Obama stakes out the left side of the party debate: the White House reiterated this week it will not extend the Bush tax cuts for earners over $250,000, even temporarily.
Pelosi and Schumer, meanwhile, are pushing for the expiration of tax cuts for those earning over $1 million, because they think it will be a simpler public relations task. “The 250 [cutoff] never made it.… If we can get the $1 million people, and above, to pay their fair share, we get a lot of money,” Pelosi said last week. “If that’s easier for the public to understand, then we should go that route.”
Conrad, the powerful chair of the Senate Budget Committee, said last week that it “might make some sense” to extend all of the Bush tax cuts temporarily while the parties hammer out a solution—the same thing Clinton said. Conrad didn’t state a preferred outcome, though he did suggest Congress would “fundamentally reform the current corporate and individual tax system.”
This strikes me as a looming disaster and massive strategic miscalculation. How can Democrats not have a coherent battle plan for the biggest legislative face-off in recent memory?
Should Democrats prevail in November, how will they enforce a mandate on tax reform if different parts of the party were calling for substantially different things?
The party needs a coherent message on taxes, and should probably embrace one that isn’t so reactive. All current plans propose the extension of some Bush tax cuts and the retirement of others. But as several people have already pointed out, the smart move here would be saying to hell with the Bush tax cuts, and advancing a new Obama tax package—a program of progressive tax restructuring that substantially reduces the deficit while making the tax code more equitable.
The party can pair this with a plan to defuse the other ticking time bombs set to detonate on New Year’s Eve: the deep cuts forced by the budget sequesters mandated by the debt ceiling deal, and the expiration of the payroll tax and extended unemployment benefits.
If Democrats run on a coherent plan for Taxmageddon and win, they have a good chance of implementing it. If Obama keeps the White House, holds the Senate, and wins back the House, he can enact a tax policy pretty freely—a tax package would be exempt from the filibuster in the Senate under reconciliation.
But if the party is divided, history shows that Republicans will exploit those divisions to skew the outcome in its direction. A scrambled Democratic Party is even more dangerous if the election has a mixed outcome: say, Obama in the White House, but Republicans keep the House of Representatives. There will have to be serious negotiations, and Democrats won’t be able to present a unified front.
Elected members of the Democratic Party aren’t the only ones who need to get this together, either. There’s been precious little outside pressure from progressives to get Democrats to form a coherent Taxmageddon policy. Progressives should either present a plan and demand Democrats get behind it, or at least press for some clarity about the party’s ideas while drawing red lines around unacceptable concessions.
Absent that pressure, progressives could expend a tremendous amount of energy to re-elect Democrats in November, only to see them turn around the very next month and entrench a terrible tax policy that is only mildly less regressive than the Bush tax cuts.
There’s real danger here. Sure, election year Obama wants to raise taxes on people earning over $250,000. But recall that last summer Obama was apparently willing to extend all of the Bush tax cuts and even lower some top rates in exchange for $800 billion in revenue from “closing loopholes”—a nebulous, and perhaps impossible, goal.
Katrina vanden Heuvel and Robert Borosage made a persuasive argument in this week’s issue for a sustained inside/outside game from progressives to “expand the limits of the current debate.” If Taxmageddon isn’t a good place to start, I’m not sure what is.
Representative Jesse Jackson Jr. (D-IL) is joined by, left to right, Ralph Nader, Representative Dennis Kucinich (D-OH) and Representative John Conyers (D-MI) at a press conference outside the US Capitol on June 6, 2012, to call for an increase in the minimum wage. Photo by George Zornick.
If today’s minimum wage workers earned the same as their counterparts in 1968, they would receive $10.58 per hour. That, unfortunately, is $3.33 more than the current federal minimum wage.
This would be a serious problem at any time, but it’s particularly relevant now, as the awful economy has forced millions of workers into minimum-wage jobs. (And they’re the lucky ones).
To that end, Representative Jesse Jackson Jr. has introduced the “Catching Up To 1968 Act of 2012.” Within sixty days of being enacted, it would raise the federal minimum wage to $10 per hour, and beginning one year after that, would index it to the Consumer Price Index. For workers that rely on tips, the bill would mandate the cash wage to be 70 percent of the minimum wage and never less than $5.50 per hour.
“We’ve bailed out banks, we’ve bailed out corporations, we’ve bailed out Wall Street, we’ve tried to create sound fundamentals in the economy—now it’s time to bail out working people who work hard every day and they still only make $7.25,” Jackson said this morning at a news conference outside the US Capitol. “The only way to do that is to raise the minimum wage.”
Ralph Nader and Representatives Dennis Kucinich and John Conyers also attended the news conference—a roster of liberal stars if there ever was one. But it’s important to note that raising the minimum wage has often found bipartisan support. Rick Santorum, for example, wrote legislation to increase it, and until recently even Mitt Romney supported tying it to the CPI.
And with 30 million workers receiving minimum wage, it should certainly be a viable political issue. “These are not just liberal workers or progressive workers or conservative workers or libertarian workers,” said Nader. “This is a unifying issue in our country at a time when there are few declared unifying political issues.
“What is missing is a unified drive by elected members of Congress to provide the requisite courage to challenge the merciless oligarchy, which includes the big-box stores like Walmart and McDonalds, and compel them to adjust their pay.”
Kucinich added that it was a tough sell inside the Beltway, but an easy sell outside of it. “We live in a bubble here in Washington, DC. This place is dripping with wealth. Wealth is just cascading into the capital to buy elections,” he said. “But when you get outside Washington, DC, and you get to the cities and the townships and the villages of America, there are people struggling to survive. There are people who can’t make it on $7.25 an hour if they even have a job.”
The federal minimum wage increased in 2007, from $5.15 an hour. There hasn’t been any evidence that it caused businesses to hire less workers, and in fact research has shown that an increase in the minimum wage doesn’t create an increase in unemployment.
The seminal academic work on that topic was done by Alan Krueger, who is now chairman of the White House Council of Economic Advisers. But alas, despite a campaign pledge to raise the minimum wage to $9.50 by the end of 2011, President Obama has been silent and inactive on the issue.
But it’s a great way for the administration to essentially issue a stimulus package without calling it that. People earning $7.25 per hour—that is, $15,080 per year—are already living on the brink of poverty and are extremely unlikely to save the extra $2.75 per hour, but will instead spend it. Raising the minimum wage will pump badly needed spending power into a struggling economy, which would more than offset any corresponding decline in hiring.
Economist Dean Baker recently told the Huffington Post that it was a no-brainer, politically and economically. “I’m hard-pressed to see why we shouldn’t have the same [minimum] wage we did in the late ‘60s” when adjusted for inflation, he said. “This isn’t welfare. By definition, we’re talking about people who are working. It gets a lot of sympathy from the public, and guess what? It's good for the economy right now.”
The investigation into widespread fraud on Wall Street leading up to the financial crisis will now have a proseucting attorney to help the effort. Virginia Chavez Romano,a former assistant US attorney in New York, was hired by Eric Schneiderman, the New York attorney general and co-chair of the task force. She is not an official hire of the working group, but rather will assist Schneiderman in his efforts as co-chair.
Romano participated in the criminal indictments of Credit Suisse employees earlier this year for falsifying prices tied to collateralized debt obligations. This is just the sort of fraud the working group wants to go after, though you can look at Romano’s case history in two different ways.
While it’s terrific to go after mispricing CDOs—this is really at the heart of the crisis—Credit Suisse itself was not charged in that case, but rather relatively lower-level employees were indicted. If the working group is now interested in actually going after institutions for this behavior and Romano can help, great. If we’re just going to see indictments of folks on the trading desk, that’s generally not the sort of prosecutions that force systemic change on Wall Street.
But Romano’s hiring is no doubt another step forward, and it shouldn’t go unnoted that she has experience prosecuting criminal cases of financial fraud. The addition of Romano comes after Matthew Stegman was hired as coordinator in May and also on the heels of an all–working group meeting in Washington late last week.
That meeting drew over 250 agents, analysts and investigators from several states and law enforcement agencies to the Securities and Exchange Commission headquarters.
I spoke with Acting Associate Attorney General Tony West during the meetings, and he said there is definitely forward momentum. “We’ve been discussing a number of cases that are ongoing, a number of investigations that have been going on for some time, as well as new targets, new areas of opportunity, new legal theories that we want to bring to bear to certain specific factual scenarios, specific targets—and it’s proving to be quite a productive meeting,” he said.
I asked West if criminal prosecutions were being discussed at the meetings, and he said they are “very much a part of this working group” and added that “we will not be deterred from pursuing wrongoing by individuals or insitutions.” But he also sounded cautious notes about the difficulty of actually winning.
“I sometimes wish that we could do what you see on TV in terms of these courtroom dramas and just say ‘something is wrong’ and then get a conviction,” West said. “If you’re talking about these cases, you’re talking about fraud that you have to prove in a criminal case beyond a reasonable doubt, you have to prove criminal intent—that someone intended to mislead someone, you have to prove there was a misrepresentation, a lie, that someone lied and that lie mattered, it was material, and they intended to deceive whoever it was they were deceiving.
“That can be quite tricky in these cases where so much of what went on was siloed so that people were necessarily separated and the process was broken up, but that’s not deterring us from looking for criminal violations of the law, looking for fraud,” West said. “But wherever we find it, whether it’s criminal or civil, we’re going to pursue it.”
Meanwhile, the Department of Justice is on the defensive about its record of prosecuting financial fraud, which no doubt raises the stakes for the RMBS group. The heat is coming from an unlikely source this time: Republican Senator Chuck Grassley.
In March, Grassley criticized DOJ officials in a hearing for the department’s “terrible” record of prosecuting high-ranking Wall Street officials and institutions. DOJ later responded that it had brought “thousands of mortgage fraud cases over the past three years, and secured numerous convictions against CEOs, CFOs, board members, presidents and other executives of Wall Street firms and banks for financial crimes.”
This is news to pretty much everyone, so Grassley demanded a list. He just received that list today—past the deadline he gave, as JD Supra notes—and while it was extensive, it didn’t break down any specific cases of mortgage fraud, because DOJ said it “does not maintain [such] statistical data.”
Absent from the list, in any case, was any high-profile prosecution of Wall Street mortgage fraud that led to the financial crisis, because it doesn’t exist. Grassley said the response “substantiates my suspicion” that it “isn’t going after the big banks, big financial institutions or their executives.” The RMBS working group certainly has the power to change that, and despite some clearly positive developments, it still remains to be seen when—or if—it will.
This story has been updated to reflect the fact Romano is not an official working group hire per se, but will help Schneiderman as a co-chair.
Occupy Our Homes engaged in a dramatic faceoff this morning with US Marshals and local police in northeast Washington D.C., less than a mile from the US Capitol building. About thirty Occupiers arrived at the home of Dawn Butler around 8 am, in the 900 block of Maryland Ave NE, to block a looming eviction—and what followed left one Occupier and one US Marshal in the hospital.
Butler doesn’t own the home, but has rented it since 2006. Her landlord fell behind on her mortgage payments while sick with cancer, and the property was foreclosed on—but D.C. law says tenants have the first right of purchase on a home where the landlord loses the title. Butler claims she has repeatedly tried to buy the home but has been repeatedly ignored or thwarted by JP Morgan Chase and a local foreclosure firm.
An eviction notice came last night, and this morning the protesters showed up to help. They constructed a barrier of plastic milk crates at the front door of the property, barred the front gates and sat down in protest along the front steps.
Heavily armed US Marshals, however, made quick work of the protester’s blockade. They forcibly removed both men and women, often picking them up by the head or neck. One Occupier suffered what appeared to be a serious concussion and was unconscious on the ground for several minutes and later taken to Howard University Hospital in an ambulance.
Once the steps were cleared, the Marshals ripped down the milk crates and the front door of the house along with it, while simultaneously battling the protesters. Here’s some brief video I shot from the sidewalk and adjoining front lawn:
One Marshal, shown briefly in the video, had a bloodied face from the falling crates and door debris. One protester was briefly handcuffed and then released.
After the fracas, movers, guarded by Marshals, emptied the contents of the house onto the curb, where it was later picked up by a moving truck and held for Butler. There’s no word yet as to Butler’s legal situation—she was in court this morning as the protest was going on, while her mother stood watch over the confrontation.
Today’s awful jobs report reveals that only 69,000 jobs were added in May—and revised the March and April jobs reports downwards by 49,000 jobs, meaning there was a net increase of only 20,000 jobs.
While it’s not always wise to make a big deal out of a single jobs report, there’s a clear downward trend (spiral?) happening here. December, January and February saw the addition of over 200,000 jobs. Then March dipped to 120,000 and April saw 115,000 (pre-revision), and now we’ve sunk down even further—69,000 new jobs doesn’t even keep pace with population growth. Whatever sluggish recovery may have been underway seems to have stalled out.
Like every other recent jobs report, we saw the public sector shedding jobs—13,000 last month. The only real growth was in service-sector jobs; everywhere else was flat or fell. Construction lost 28,000 jobs, accounting services lost 13,000, and the leisure and hospitality sector lost 9,000. There were 95,000 new jobs for women and 26,000 fewer jobs for men.
As you’ll inevitably hear all day, this is terrible news for Barack Obama and good news for Mitt Romney. But the real political story here is how terribly Washington is responding to this jobs crisis, to the extent it is at all.
Firstly, the Federal Reserve Board of Governors is charged with macroeconomic stabilization, with a specific mandate to fix unemployment. It has done next to nothing in recent months, though the addition of two governors after a Senate stalemate was broken might, maybe make things move faster.
Next, the government could and should take advantage of ridiculously low lending rates to borrow money and goose the economy through infrastructure spending, direct hiring of workers, aid to state governments, and so on. But austerity-driven Republicans and timid Democrats make this unforeseeable, as Felix Salmon describes:
The 2012 election should be a referendum between two visions of America. On the left, Obama should say that we’re in a jobs crisis, and that he’s going to do everything in his power to get people back to work—by employing them directly, if need be. On the right, Romney can say that job creation should be left to US companies, despite the fact that those companies are signally failing to increase their payrolls despite their record-high profits. And then the public can choose which side they want to vote for.
Sadly, the lines won’t be drawn nearly that cleanly: Obama is bizarrely reluctant to talk about anything which rhymes with “stimulus”. As a result, the current dysfunction—and horribly weak jobs market—is likely to persist for far too long.
Finally, if the government isn’t going to help the unemployed, it should at least resist screwing them even harder. But alas, because of a deal Congress reached in February, by the end of June, unemployed workers in twenty-four states will no longer be eligible for benefits under the Emergency Unemployment Compensation program. By the end of August, the federal-state Extended Benefits program will expire in thirty-five states, which will effectively end benefits for over 500,000 workers.
In short, it’s as clear as ever that not only does the United States have a jobs crisis on its hands but a dismal political crisis as well.
For another take on the jobs report, read Bryce Covert's Jobs Report Shows How Romneynomics Would Hurt the Recovery.
Last week, New York attorney general Eric Schneiderman took his plea for more resources for the Residential Mortgage-Backed Securities working group to the Wall Street Journal. “Do I want more resources, and want things to go faster? Yes, Am I asking for more? Yes. Do I believe we’ll get that? Yes.”
This is a request Schneiderman has made frequently in recent weeks—he said the same thing to the Congressional Progressive Caucus in late April. Over at the New York Times, Peter Henning sees this as an ominous sign. “His statement is hardly a ringing endorsement of the working group’s effort because it is a common refrain to blame a lack of resources for the absence of any real progress on cases,” Henning writes.
I’m not really convinced that Schneiderman is already priming the pump for defeat—it seems just as plausible he’s trying to spark some action, publically and inside Washington, to give the task force the juice it needs. (Though Henning does make some valid points elsewhere that what the RMBS working group has done points away from any criminal prosecutions and towards civil settlements).
But what resources, exactly, might Schneiderman be able to count on? What should progressives invested in the outcome push for?
The Department of Justice asked for a $55 million funding increase for “investigating and prosecuting financial and mortgage fraud” in its Fiscal Year 2013 budget request. We noted last month that the House did not include this money in the appropriations bill it passed.
Prospects are brighter in the Senate, however. In April, the Senate Appropriations Committee passed out a bill funding Commerce, Justice and Science that did include the $55 million increase. It passed by a 27–2 vote. The committee’s report details what this would be used for:
The Committee strongly supports the Department’s efforts to go after the schemers and scammers who prey on hardworking American families, and destabilize our neighborhoods and financial markets. The recommendation provides the requested increase of $70,680,000, for a total of $747,352,000, to combat economic fraud and white collar crime. Within this amount, the Committee provides the requested increase of $55,000,000 and 328 new positions, including 40 new Federal Bureau of Investigation [FBI] agents, 184 new attorneys, 49 new in-house investigators, 31 new forensic accountants, 16 new paralegals and 8 new support staff. These funds and positions will be disbursed among the FBI, the U.S. Attorneys [USAs], and the Department’s legal divisions to investigate and prosecute the most complex financial fraud, such as securities and commodities fraud and investment scams, and mortgage foreclosure schemes.
The bill now goes to the full Senate for a vote, and it seems unlikely to me that money is stripped out—someone would have to propose and pass an amendment. But since the House version doesn’t include the money, the conference committee would have final say, and it’s anyone’s guess whether the funding survives. It’s also possible the whole process blows up (again) and Congress does nothing but pass continuing resolutions that just carry over the 2012 funding into 2013—meaning no $55 million increase.
However, even if it passes, there are a couple caveats. For one, the money isn’t specifically earmarked to the RMBS working group. But the timeline is the real catch here. Schneiderman has repeatedly said he wants to have some major action over the next several months, before the end of the summer. This is important because statutes of limitations are expiring every day.
And the political moment has an expiration date too—the midst of an election is a good time to push for more aggressive Wall Street accountability. We’ve noted that polling shows significant risk for President Obama if people think he’s soft on Wall Street; even independents in purple states think that’s already the case and don’t like it. During the campaign season the White House can effectively be pressured to help the investigation along and give it what it needs. That calculus may change after the election—and if Romney wins, forget about it.
The Congressional appropriations process is simply too slow to deliver resources now, when it counts. I wouldn’t expect any bills to be passed and signed before mid-to-late summer anyhow, if it even happens, and then you have the grindingly slow process for hiring in the federal bureaucracy. It’s hard to see the $55 million making a real impact on the working group before the end of the calendar year.
It’s not that the funding doesn’t matter—it does, and if the working group brings some cases this year, it will definitely need the extra resources for trials down the road.
But with Schneiderman repeatedly saying he needs more resources, and with any cavalry from Congress sure to ride in late, the administration must dedicate or redirect existing resources to fully support the working group. That’s the only way to support the RMBS during the crucially important weeks and months to come.