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The economy added a paltry 115,000 jobs last month—a notable downturn from this year’s earlier, more promising jobs reports and a possible sign of a stalling recovery. The unemployment rate fell to 8.1 percent, though only because people are dropping out of the work force.
The year got off to a promising start, when the first jobs report of the official election year revealed 212,000 jobs were added in December. January saw 243,000 jobs added, followed by 227,000 jobs in February. But March dipped to 120,000 jobs, and now we see 115,000 in April. (Some of these numbers have since been revised slightly).
Last year there was a similar early bump, followed by a slow decline in hiring. Could it be happening again? “April’s employment growth of only 115,000 jobs, along with a decline in labor force participation, is sobering news for workers and the economy,” said Christine Owens, executive director of the National Employment Law Project in a statement. “The economy needs a boost, with more investment to create jobs and higher wages for workers to stimulate greater demand.”
Here are some highlights of the jobs data:
There were 15,000 public sector job losses, which is up from last month and helped offset some growth in the public sector. The education field absorbed 10,700 of these public sector jobs losses. While private sector jobs growth has been positive for many months, 601,000 public sector jobs have been lost since June 2009.
Long-term unemployment continues to be a problem. The April jobs report revealed the average unemployed American has been without work for 39.1 weeks, or about nine months. Over 40 percent of the unemployed have been out of work for more than six months.
There are 7.9 million people working part-time involuntarily, and 2.4 million have stopped searching. This means that in total, there are 22.8 million people either unemployed or underemployed, creating a “real” unemployment rate of 14.5 percent.
Retail, restaurants and bars, healthcare and manufacturing sectors all enjoyed modest gains, while the transportation and warehousing saw job losses.
A small glimmer of hope—temporary help services saw an increase in hiring last month, which is usually a positive indicator of future, permanent hiring.
There are only six months until the federal elections, so naturally the jobs report takes on huge import.
Democrats have a few things to hang their hats on: the private sector is still adding jobs, now for the twenty-sixth straight month—something the White House pointed out in its statement this morning and that its allies are working to highlight.
“This is our twenty-sixth month of private-sector jobs gains, which shows that despite Republicans’ politically motivated efforts to block economic progress during an election year, they will have a hard time convincing Americans in November that we’re not on the path to recovery thanks to the Obama administration,” said Heather Boushey, senior economist at the Center for American Progress Action Fund. “April’s jobs numbers represent a graduation gift from the GOP to millions of college seniors who are this month entering a labor market that would have been a lot more welcoming if the Republicans hadn’t blocked the president’s job-creation bill.”
A popular Republican claim is that Obama promised in early 2009 that unemployment would be under 8 percent thanks to the stimulus—they bashed him repeatedly for this prediction when unemployment was well over 9 percent. The administration didn’t really promise this (it was one projection in a CEA report), but in any case an unemployment number close to 8 percent takes the steam out of this talking point. Granted, this is partially—but not entirely—because people are no longer looking for work, but since when have Republicans been honest about the unemployment situation anyhow? Most of the job losses under Obama came in the first three months of his presidency, before any policies had a chance to take effect. Ultimately, the lower the unemployment rate, the better for the White House.
Republicans on the Hill are highlighting (fairly) the still-dire employment situation and (unfairly) say it’s because Democrats won’t pass bills like the Keystone XL pipeline legislation. “The House has passed a series of bills to address high energy prices through projects like Keystone XL, remove government barriers to job growth, and stop Washington from spending money we don’t have,” said House Speaker John Boehner in a statement. “President Obama has shown what doesn’t work; now it’s time to try something we know will: getting the government out of the way of families and small businesses.” (Keystone would create at most 4,650 short-term construction jobs, according to one estimate).
Mitt Romney took an interesting approach to neutralizing the political gain from twenty-six straight months of growth, saying on Fox & Friends this morning, “We should be seeing numbers in the 500,000 jobs created per month. This is way, way off from what should happen in a normal recovery.” That would be lovely, of course, but as ThinkProgress points out, it has only happened four times in the past fifty years.
It’s been one month since National Labor Relations Board member Terence Flynn, a Republican, came under fire for leaking sensitive NLRB information to a Romney campaign labor adviser, and an NLRB Inspector General report released yesterday is only intensifying the criticism.
Flynn was initially accused of providing sensitive information such as pre-decisional votes, the identities of counsel assigned to cases and analysis of some NLRB cases to Peter Schaumber, Mitt Romney’s labor policy co-chair at the time, to be used in political attacks against the board. (Mike Elk has a good rundown of those allegations at In These Times).
The IG report released yesterday contained even more damning information—searches of Flynn’s e-mail accounts revealed he leaked quite a bit of information about cases that were still being considered by the board, including “a draft of a board majority decision and four dissents that had not yet been issued, as well as other deliberative non-public information involving the processing of cases and issues by the Board.”
Leaking deliberative information to political opponents of the NLRB before any decisions are made is serious business—and the report also stated that Flynn repeatedly misled the IG’s office about what he did and defended some leaks as proper.
This led to immediate condemnations and calls for resignation from Democratic leaders. Senator Tom Harkin, chair of the Senate Health, Education, Labor and Pensions Committee said in a statement:
I am deeply disturbed by the findings of today's Inspector General Report and believe that Mr. Flynn should resign immediately. For Mr. Flynn to continue to maintain that he has done nothing wrong in the face of the overwhelming evidence of serious misconduct suggests that he lacks both the professional judgment and ethical integrity to continue serving on the Board.
Representative George Miller put out a statement directed at Flynn, also calling on him to step down:
Disclosing judges’ deliberations in pending cases to outside parties, for example, is repugnant to the American justice system. Such behavior cannot be allowed to continue. The Board is the only agency where workers and employers may go to have their rights under the National Labor Relations Act vindicated. The public’s faith in this agency and its fair administration of the law matters. Your continued presence at the Board rattles that faith and potentially infringes upon the due process rights of those with business before the Board. For the sake of the Board as an institution, you should resign.
Schaumber resigned from the Romney campaign late last year, at around the same time Flynn learned he was being investigated for the leaks. If Flynn doesn’t resign, it does seem that NLRB bylaws would allow President Obama to remove him. They state: “Any member of the Board may be removed by the President, upon notice and hearing, for neglect of duty or malfeasance in office, but for no other cause.”
Three weeks ago, acting director of the Federal Housing Finance Agency Edward DeMarco appeared to show some willingness to have Fannie Mae and Freddie Mac, the government-sponsored lending institutions he oversees, issue some principal reductions. In a speech at the Brookings Institute, DeMarco engaged in a lengthy analysis of principal reductions, and while the scope of his analysis was narrow—affecting under a million homeowners—he said FHFA “might” consider reductions and that he’d have an answer by the end of April.
Yesterday, the answer came: there will be no decision. At least not anytime soon. “FHFA continues to work on its principal forgiveness analysis and is in discussions with the Department of the Treasury,” an FHFA spokeswoman said. “A final determination…is being deferred until we conclude these activities.”
DeMarco’s delay prompted an immediate, angry response from House Democrats who have long criticized him refusing to issue write-downs. Representatives Elijah Cummings and John Tierney, both members of the House Committee on Oversight and Government Reform, sent DeMarco a letter in which they openly questioned whether DeMarco was blocking write-downs for ideological reasons.
The two Democrats disclosed that they obtained internal FHFA documents showing that agency analysts performed studies showing a principal reduction program would save hundreds of millions of taxpayer dollars, contrary to DeMarco’s claims—and most damningly, that DeMarco failed to release these documents to the committee earlier this year when it requested information on principal reduction considerations inside the agency:
Despite the clear conclusion reached by Fannie Mae officials that principal reduction would reduce losses to the taxpayer, this pilot program was prevented from ever getting off the ground. It remains unclear why you failed to mention this in your testimony and why you failed to disclose this principal reduction program to the Committee. […]
This was not merely a missed opportunity, but a conscious choice that appears to have been based on ideology rather than Fannie Mae’s own data and analyses. The documents make clear that Fannie Mae officials concluded as far back as 2009 that principal reduction programs had enormous potential to save the U.S. taxpayers significant sums of money, even when compared to other types of modifications, such as forbearance.
If DeMarco is indeed hiding information about beneficial aspects of principal reductions from Congress, it’s yet another argument for firing him—something that many Democrats have already been advocating.
DeMarco’s response to those charges, which came late yesterday, isn’t likely to help his case much. “I strongly disagree with any characterization of FHFA’s work or motives as anything but in keeping with the professionalism expected of this agency,” he said. He pointed to one letter in which he did reference the principal reduction analysis—but not, as the Huffington Post notes, anything about the key determination made that the program would save large amounts of money for taxpayers.
You may have missed it, but the conservative media got all worked up last week over comments made by an Environmental Protection Agency administrator about “crucifying” oil companies. Senator James Inhofe—who claims to believe that only God, not oil companies run by mere mortals, can change the earth’s climate—released a years-old tape of EPA Region VI Administrator Al Armendariz talking about his regulatory philosophy. Here’s Armendariz’s quote as reported by most conservative, and alas, most mainstream news outlets:
It was kind of like how the Romans used to, you know, conquer those villages in the Mediterranean. They’d go into a little Turkish town somewhere and they’d find the first five guys they say and they’d crucify them. And then, you know, that town was really easy to manage for the next few years.
So the Obama EPA is on a medieval campaign against business! (“The Obama Administration: Against water boarding terrorists but for crucifying American businesses,” tweeted RedState editor Erick Erickson with typical subtlety). “An EPA official appointed by President Obama,” announced Fox News host Bret Baier, “said that his philosophy, talking to other EPA folks, was like the Romans conquering villages, saying that oil companies should be crucified.”
Industry allies got in on the act, too. Phil Kerpen, who until very recently was the principal policy and legislative strategist for the Koch-funded Americans for Prosperity, has a new gig running an outfit called “American Commitment,” which promptly launched a website called FireCrucifyAl.com. Users can submit letters to Congress and the administration calling for Armendariz’s job, because regulators should “[allow] businesses to succeed and expand. They shouldn’t crucify.”
But as Dave Weigel and others noted last week, the quote as presented in many outlets required some O’Keiffian editing. Here’s the full quote:
The Romans used to conquer little villages in the Mediterranean. They’d go into a little Turkish town somewhere, they’d find the first five guys they saw and they would crucify them. And then you know that town was really easy to manage for the next few years.
And so you make examples out of people who are in this case not compliant with the law. Find people who are not compliant with the law, and you hit them as hard as you can and you make examples out of them, and there is a deterrent effect there. And, companies that are smart see that, they don’t want to play that game, and they decide at that point that it’s time to clean up.
And, that won’t happen unless you have somebody out there making examples of people. So you go out, you look at an industry, you find people violating the law, you go aggressively after them. And we do have some pretty effective enforcement tools. Compliance can get very high, very, very quickly.
That’s what these companies respond to is both their public image but also financial pressure. So you put some financial pressure on a company, you get other people in that industry to clean up very quickly.
All Armendariz was saying was that when companies broke the law, the EPA should make an example of them. That’s pretty much the definition of how regulatory action works.
Almost immediately, however, the administration threw Armendariz under the bus. Press secretary Jay Carney said at a briefing last week that the comments are an “inaccurate as a representation of, or characterization of the way that the EPA has operated under President Obama.” And today, Armendariz submitted his resignation letter. It was “immediately accepted” by EPA Administrator Lisa Jackson.
It’s impossible to know for sure if Armendariz was forced to resign, though it seems likely—and at the very least, he wasn’t left much of a choice after essentially being reprimanded from the podium at the White House last week.
The administration may not have wanted this sort of distraction headed into the election, but in failing to defend Armendariz it failed to defend the basic principles of regulation—if there are no consequences for breaking the law, there is no regulation, and that’s all Armendariz was really saying.
It’s the sort of mistake Democrats love to make: prematurely bowing in the face of a manufactured, mini-firestorm simply in order to take the talking point off the table. (And it was mini—FireCrucifyAl.com records only seventy-three letters submitted to the administration).
But in the end, Armendiaz’s resignation endorsed the underlying narrative pushed by conservatives . (“EPA Official Who Sought To ‘Crucify’ Oil Companies Has Resigned,” reads a headline now up at Forbes.)
The EPA under Obama has been more substantively skittish, too: last fall the administration canceled planned smog rules after an intense industry lobbying campaign that demonized the regulations as expensive and harmful to hiring—a perception that was inevitably enforced by killing them. (The rules, it should be noted, were drafted under George W. Bush and, if anything, were too mellow.)
Naturally, none of these cave-ins have slowed the right-wing narrative. “Regulators just multiplying like proverbial rabbits and making it harder and harder for enterprises to grow,” Mitt Romney said this morning in New Hampshire. The rabbit comparison is probably apt—frightened bunnies, perhaps.
Facing a tough audience of Congressional progressives Thursday, New York Attorney General Eric Schneiderman attempted to address concerns about the staffing and intentions of the Residential Mortgage-Backed Securities working group—the federal inquiry into Wall Street malfeasance leading up to the financial crisis.
Before the public hearing, Representative Maxine Waters handed Schneiderman a letter signed by forty members of Congress expressing concern that his investigation had “stalled.” It also asked him to hire Representative Brad Miller as an executive director. (I reported earlier this week that Miller was told he would not get the job and that Miller believes the task force is afraid of Republican and industry blowback to his hiring).
High-profile signees included Waters and Representatives Jim McDermott, Earl Blumenauer, Lynne Woolsey, Keith Ellison, John Lewis, Jerrold Nadler and Jim McGovern. The letter read, in part:
We understand that the task force is leveraging pre-existing enforcement efforts and staff at participating agencies, but we remain concerned that the Working Group has not independently established a robust infrastructure commensurate with the charge of investigating this component of the 2008 financial crisis.
With three months having passed since the initial announcement of the creation of the RMBS Working group, we fear this group’s efforts may be stalled. The best way to reignite this important undertaking is to hire a qualified, aggressive and committed staff director, and give them the power and budget to hire the necessary support staff. Without quick action in this regard, public confidence in the Working Group may be at risk.
During the public hearing, Schneiderman acknowledged that the working group was not yet adequately staffed, but expressed hope that it would be. “We don’t have the resources yet. The operation just got set up really in the last sixty days or so,” he said. “They’ve posted for jobs, they’re hiring people, they’re detailing people, they’re entering into contracts with contractors for auditing and financial analysis.”
He clarified that the previously reported fifty staffers are new to the investigation, and are being dispatched from the Department of Justice to offices across the country. “I’m not counting folks like the fifteen people in my office who were already working on this,” he said.
Representative Waters asked Schneiderman if the staffing might double to 100, and Schneiderman said he expected even more than that. “We have massive institutions with hundreds of lawyers and millions of documents that you can bury key facts in. I want this done right,” he said. (Progressive groups are calling for 1,000 staffers however, which is likely what’s needed to combat the “hundreds of lawyers” on the other side, as Schneiderman accurately described).
Schneiderman said staffing announcements would come in a week or two, and urged the members to pressure President Obama directly with a message that “we need to staff up as quickly and as fully as possible to give the people of the United States the full investigation into the misconduct that caused the crash of the economy that they are demanding and that they deserved.”
Representative Jan Schakowsky of Illinois asked Schneiderman point-blank if the working group would pursue criminal charges. “What people want to know—there are people in jail for stealing a loaf of bread,” she said. “In your view, are there going to be people [on Wall Street] who will actually go to jail for perpetrating these acts?”
Schneiderman said he couldn’t prejudge an investigation, but “any notion that there won’t be criminal prosecutions is simply wrong.”
He also added an interesting tidbit, that the working group is pursuing extensions of the statutes of limitations, known as “tolling.” (This is used in some cases where the negative effects of a crime are ongoing and may not be immediately apparent, like in medical malpractice cases).
“One of the most important steps we’ve been taking in collaboration with our federal colleagues is to try and get agreements to toll the statute of limitations on as many of these institutions as we can, so that we do have the time to do this, and we’ve been pretty successful thus far,” he said. I contacted his office for more details on these agreements and have not yet received a response.
While Schneiderman has so far been unable to please members of the Progressive Caucus with the substance of his investigation, he at least talked a good game during the hearing with fiery rhetoric about deregulation and the need for strong investigations.
In his opening statement, Schneiderman thanked the members for “refusing to give up to the narrative of the conservative policies that, to me, were proven to be unsound by the bubble and the crash of the housing markets, and yet still have their advocates in these halls.”
Adding to the pushback against these narratives, Schneiderman said: “I cannot go into detail about anything in a law enforcement investigation, but I assure you we’ve encountered no evidence that teachers or cops or firefighters contributed to the blowing up of the American economy in 2007. That was a different set of professionals.”
“This didn’t just happen. This wasn’t caused by sunspots or global warming or a tidal wave,” Schneiderman continued. “This is a man-made catastrophe caused by reckless deregulation and just plain greed.”
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.
Brad Miller and Eric Schneiderman. AP Images
A central focus for progressives that want to see the Residential Mortgage Backed Securities working group get tough on the financial industry has been the role of executive director. Currently, the group has five co-chairs from four different federal and state agencies, and the staffers are spread through ten different US Attorney offices and several more state attorney general offices—that is, there are a lot of chefs in the kitchen.\
A strong executive director could focus the work of the task force and help smooth over any potential disagreements between the varying departments and chairmen. Several progressive activists pushed early on for Representative Brad Miller, a Democrat from North Carolina, to get the job. He has a strong record of getting tough on Wall Street from his seat on the House Financial Services Committee, and is also a Columbia Law School graduate with twenty years of private litigation experience before coming to Congress.
But David Dayen reported earlier this month that Miller would not get the job. In a phone interview last night, Miller told me about his experience with the working group and the reasons he believed he was not selected—reasons that will likely give advocates for getting tough on Wall Street some serious heartburn.
Miller said he received a phone call from the office of New York Attorney General Eric Schneiderman only two days after this year’s State of the Union address, in which President Obama announced the formation of the working group and named Schneiderman a co-chair. “It was out of the blue for me. I was not expecting a call like that,” Miller said.
The conversations with Schneiderman’s office continued almost daily for about a month, Miller said, and he got the strong impression he was a top candidate for the job. “It would be an exaggeration to say I was offered the job, but it certainly did appear that I was Schneiderman’s candidate for the job,” Miller said. “They were looking for someone who knew the issue, who would be credible to those who worked on the issue, the housing advocates, and knew the politics of the issue so that when others were trying to hobble the work of the task force, they would have an executive director who would know the politics of Washington and the politics of this issue to protect the work of the task force.”
Suddenly, however, the conversations ended, and Miller said he hasn’t spoken with anyone on the task force in two months. But he did get an answer as to why he wasn’t selected—because the working group was afraid of Wall Street.
“[One reason] was that Republicans were watching the work of the task force very closely and very critically, and that they would oppose my playing that role. And presumably they would be speaking for the industry,” Miller said.
“I knew, from the moment I got that call, that the industry would not be happy about that choice,” Miller added. “But if [the working group] was serious about criminal prosecutions or even civil enforcements—not many people in society get to pick the prosecutor if they are potential defendants.”
Miller also said he was told the working group wanted an executive director with prosecutorial experience, which Miller does not have. But he found this justification confusing for several reasons. The first is that he said he was told early on that the executive director would have two deputies, one for civil litigation and one for criminal litigation, to “fill in the gaps of legal experience.”
The second reason that Miller finds it odd the task force suddenly wanted a director with prosecutorial experience is that he was initially told by Schneiderman’s office that the task force did not expect to do any criminal prosecutions.
“People being indicted and looking at the possibility of prison sentences—they were saying they did not expect any of that,” Miller said. “They expect civil litigation or civil enforcement but not criminal prosecution.”
Miller’s understanding is not that the working group is philosophically opposed to criminal prosecutions, but given the rapidly expiring statutes of limitations on fraud claims (they last for five years, and the mortgage-backed securities market unraveled in 2007), action would likely have to come under FIRREA [the Financial Institutions Reform, Recovery and Enforcement Act]. That would make criminal prosecutions almost impossible.
Schneiderman’s office strongly contested Miller’s assertion the working group was not planning on criminal prosecutions. “We are fully committed to following the facts wherever they lead, including criminal prosecutions if the facts warrant them,” said spokesman Danny Kanner. “Any suggestion to the contrary is simply misinformed.”
He also praised Miller, but declined to comment on the earlier communications with him about an executive director role. “Congressman Miller has been a leading advocate on these issues, and our hope is that he will continue to play a major role in all efforts in support of bringing real accountability for the conduct that led to the foreclosure crisis and more significant relief for homeowners,” Kanner said.
The Department of Justice, reached for comment, also said criminal prosecutions are still on the table. “Members of the Residential Mortgage-Backed Securities Working Group are wasting no time in aggressively pursuing any and all leads and working is being done right now by state and federal partners on active investigations,” said Adora Andy, a Justice spokeswoman. “This effort is about justice for the American people: rooting out fraud and holding accountable any institutions or individuals that violated the law. Working Group members are aggressively pursuing any and all leads—civil or criminal.”
A source close to the working group told me that Miller wasn’t selected because he not only didn’t have criminal prosecutorial experience, but didn’t have white-collar civil litigation experience—and that to avoid the appearance of political motivation, the working group wants a real prosecutor to fill the executive director role. The source added that a staffing announcement is forthcoming.
Overall, Miller stressed that while he has had no contact with the task force in two months and is not familiar with what’s going on the inside, he’s not particularly heartened by what he’s read in the press—particularly reports about the task force having only about fifty staffers so far.
“I think it is a massive undertaking. If the United States government is going to bring criminal charges—and it doesn’t apper that the government is going to, but if it did—based upon pervasive fraud in the creation of mortgage-backed securities, that will be a massive undertaking that will require many, many investigators, and many, many lawyers,” Miller said.
“If there is civil litigation that has as its aim recovering not $5 billion up front, and $20 billion in principal reduction that in most cases would have happened anyway, but in fact brings in hundreds of billion of dollars, almost equal to the market capitalization of the biggest banks, that’s also a massive undertaking that will require an enormous commitment of lawyers, of resources, of investigators, and it does not appear at this point that that is happening,” he said.
Miller added, however, that he remained hopeful the task force could get real results, even just through FIRREA prosecutions, which do allow for disgorgement of profits resulting from fraud and restitution to victims—in this case, homeowners. “Although there’s not a long history of FIRREA actions, there may still be opportunities for significant litigation that would do justice,” Miller said, adding that the vicious cycle of foreclosures, declining property values, and underwater homeowners must be addressed.
“The relief that would be available through the work of this task force could break that cycle,” Miller said. “It would satisfy Americans’ sense of justice, which has been offended. My sense of justice has been offended by the lack of serious investigation of what appears to be fraudulent conduct, and probably criminally fraudulent conduct.”
The Consumer Financial Protection Bureau announced Tuesday morning a “public inquiry” into how the financial services industry uses arbitration clauses to protect itself from consumer lawsuits. These clauses are often hidden from consumers, deep in contractual fine print, and strip away basic rights to judicial review.
Banks, credit cards, cell phone companies or even employers routinely offer contracts that, in the event of a dispute, mandate an arbitration procedure in which there is not a judge or jury—but rather, a private arbitrator often chosen by the corporation being sued.
Naturally, this creates a pseudo-judicial system heavily weighted towards corporations—in California, for example, a study found that corporations won 94 percent of the arbitration proceedings. In one of the more infamous cases of an arbitrator simply rubber-stamping a corporation’s case, a Minnesota arbitrator ruled in 2006 that woman owed a credit card collection agency $7,800 for a defaulted account—except the card was taken out by an entirely different woman who happened to have the same name.
Forced arbitration has a particularly pernicious effect in allowing companies to avoid class action lawsuits. Big companies hate class action lawsuits because without them, they are free to nickel-and-dime consumers without much fear of legal action—few people would take the time to individually sue their credit card company or cell-phone provider over a couple hundred dollars in bogus fees. Twenty states do not allow companies to ban class-action suits in contracts, but in AT&T Mobility v. Concepcion, the Supreme Court said companies can ban class actions through forced arbitration clauses. (Similarly, the Supreme Court upheld forced arbitration specifically by credit card companies in a case earlier this year).
The CFPB is now inviting the public to comment on any unfairness experienced under forced arbitration and will publish a study on the findings. This was all required under the Dodd-Frank bill, which singled out forced arbitration as one area the CFPB must examine. Once the study is complete, the CFPB will “assess whether imposing conditions or prohibitions on arbitration clauses would better protect consumers and serve the public interest.”
Ideally, the CFPB will ban all forced arbitration clauses in favor of allowing the consumer to choose arbitration proceedings once they experience a violation and not before.
“Once you have a dispute with a company, if you mutually agree to take its arbitration, that’s fine,” said David Arkush of Public Citizen, which has done extensive advocacy against forced arbitration. “You then have a say in who the arbitration provider is—you won’t do it if it doesn’t look fair. It basically creates a better market where you and the company both have a say and the arbitrator has to serve both of you. If the co can force you in advance and choose the arbitrator, then the arbitrators are basically shopping for the company’s business.”
Arkush added that Public Citizen will be heavily engaged in trying to influence the CFPB to ban forced arbitration. “We think it’s one of the highest priorities for consumers of financial services,” he said.
It’s been almost three months since President Obama announced the formation of the Residential Mortgage Backed Securities working group, a federal investigation into Wall Street malfeasance leading up to the financial crisis. After an early flurry of subpoenas, the group has been quiet—and progressives have begun to question whether it’s doing anything at all. But top officials from the office of New York Attorney General Eric Schneiderman, a co-chair of the group, and the Department of Justice are now pushing back against claims that the task force lacks staffing and resources.
Yesterday, the New York Daily News ran an op-ed from the co-directors of the Metro Industrial Areas Foundation, a coalition of citizens groups pushing for fair housing policies. The authors called on New York Attorney General Eric Schneiderman, a co-chair of the group, to submit a noble resignation because they believe the task force is essentially inactive.
Citing two recent informal conversations with Schneiderman in which they say he told them there was no staff for the investigation and also an inability to locate an actual office for the RMBS working group, the authors write the task force is “a public relations coup for the White House and the banks” that has shown “little or no concrete action.” This echoes a recent alert from CREDO Action, which said the task force never received promised staffing from the Department of Justice.
I reached out to Schneiderman’s office in New York for a response, and it strongly disputed the notion the task force wasn’t active. “Given most investigatory matters are privileged and confidential, it is simply premature to draw conclusions about the Working Group’s scope and scale of inquiry,” said Danny Kanner, Schneiderman’s spokesman. “Op-eds and e-mail appeals from activists, while important contributions to the dialogue, do not constitute fact.”
Kanner said fifty attorneys, investigators and analysts across the country are already working on the task force and that hiring would continue as investigations progressed. He added that the offices of several state attorneys general are also coordinating with the working group.
A Department of Justice official confirmed those staffing numbers, and said that ten US Attorney offices were part of the effort and that more were expected to join as the investigations progress. The Department of Justice has also asked Congress for $55 million to expand staffing.
Finally, both Kanner and the Department of Justice said that the five co-chairs of the task force meet formally on a weekly basis and talk daily. This squares with what Richard Cordray, head of the Consumer Financial Protection Bureau told me last month—he said he “talks frequently” with Schneiderman about the investigation. Cordray is not a co-chair, though the CFPB is expected to play a potentially large role in the investigation.
The authors of the Daily News piece concluded there was no headquarters for the working group because the Department of Justice switchboard couldn’t connect them. Since the investigation is spread out across US Attorney offices and state attorney general offices across the country—and since the five co-chairs are located in Washington, New York and Colorado—it’s a bit misleading to talk of a central office space, but I was also not able to locate a distinct headquarters for the working group.
I was also not able to confirm with any of the several officials I spoke with that the RMBS working group has an executive director, though I was told by a Justice official that the task force would make “specific staffing announcements in the near future.”
Progressive activists have voiced concern that, without a coordinator, the task force may lack direction. “I’ve become convinced over time that…someone needs to crack the whip. Someone needs to drive this and take responsibly for making things happen,” said Mike Lux, a progressive strategist and former Clinton White House staffer. “If you don’t have somebody like that in a multi-head task force, things can too easily drift. Different people can throw up hurdles that can’t easily be removed.”
Lux, who has played a key role in the push for a more aggressive investigation, said he was heartened that the task force is active, but that more is needed. “You still have too few staff people chasing a very, very huge problem and dealing with thousands of lawyers on the other side,” he said.
He added that ultimately, the proof will be in the results—which cannot be spun. “You can’t have an exact timeline on a task force like this. But if we don’t see some really serious action happening in the weeks to come, if we haven’t seen more subpoenas and depositions and possibly even indictments by the summer, I think we know the answer—that this thing isn’t moving,” Lux said. “If that’s what’s going on, I hope Eric [Schneiderman] would call the bluff and resign. But I’m still hopeful.”
In the Rose Garden this morning, President Obama spoke strongly about the need to crack down on the Wall Street speculation that leads to higher consumer gas prices. “We can't afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage, and driving prices higher—only to flip the oil for a quick profit,” he said. “We can’t afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick. That’s not the way the market should work. And for anyone who thinks this cannot happen, just think back to how Enron traders manipulated the price of electricity to reap huge profits at everybody else’s expense.”
The White House outlined five steps oday to address the problem:
A six-fold increase in the surveillance and staff budget of the Commodity Futures Trading Commission.
Information technology upgrades at CFTC.
Substantially increasing penalties for energy market manipulation.
Empowering the CFTC to raise margin requirements in oil futures markets, which should reduce volatility and price disruptions
Executive orders to improve intergovernmental data sharing with the CFTC
These are all noble ideas, and ones that should be enacted. There’s just one small problem: all but one rely on Congressional action. And there is absolutely no chance Republicans will help Obama lower gas prices before a presidential election.
It is completely fair, and wise, for Obama to explain the policies he favors for combating oil price speculation, regardless of their viability. When Republicans block them, he can use it as a defense against their attacks about Keystone XL, or whatever other talking point the GOP uses to unfairly blame the president for high gas prices.
But if Obama is actually interested in addressing the problem, there are more things he coulddo —namely, he could get the Justice Department, which also has the ability to oversee malfeasance in energy markets, to crack down on speculators. “The administration should subpoena major traders and conduct a real investigation into the role that speculators have in increasing gas prices for working Americans,” said Tyson Slocum of Public Citizen.
If that’s sounds like a familiar idea—it is. One year ago, with much fanfare, the administration announced the formation of the Oil and Gas Price Fraud Working Group, with representatives from Justice, the CFTC, Treasury Department, state attorneys general, the Securities and Exchange Commission and other agencies working together to root out fraud in energy markets.
At the time, Attorney General Eric Holder had stern words for shady speculators. “We will be vigilant in monitoring the oil and gas markets for any wrongdoing so that consumers can be confident they are not paying higher prices as a result of illegal activity,” he said. “If illegal conduct is responsible for increasing gas prices, state and federal authorities should take swift action.”
Unfortunately, that working group has done exactly nothing in the year since it was created. There have been no subpoenas, no indictments and, according to a McClatchy story last month, “the group has met only a handful of times and has never reported to the public.” (This is a cautionary tale for those who want to see serious action from the recently announced federal inquiry into Wall Street malfeasance leading up to the financial crisis.)
Again, all of the steps Obama outlined today are crucial to cracking down on oil market speculation. They should be enacted. But they won’t be this year, and the White House knows it—and should take real action to fight speculators in the meantime. Even one indictment might serve to settle other speculators down.