Action and dysfunction in the Beltway swamp. E-mail tips to email@example.com.
In Republican folklore, President Obama is a sworn enemy of American capitalism. He wants to “put free enterprise on trial” (Mitt Romney); he erroneously thinks that the country’s problems “must be the fault of those people on Wall Street” (Mitch McConnell); he has “bastardized” Wall Street CEOs (Fox News’s Neil Cavuto, and no, I have no idea what he means).
For much of the past three years, these charges have been simply crazy—bonuses and profits returned to Wall Street, Obama’s campaign hauled in massive donations from the financial sector and high-ranking executives avoided any punishment for the financial crash.
In his State of the Union last week, Obama announced a massive interagency investigation into malfeasance on Wall Street that led to the global financial crisis. He appointed a strong progressive, New York Attorney General Eric Schneiderman, to head it—and Schneiderman boldly proclaimed this weekend that his effort aims to end the special protections currently enjoyed by Wall Street as a whole. “You can’t have equal justice under law and ‘too big to fail,’ ” he said.
Obama isn’t putting free enterprise on trial, but he is putting a particular brand of invincible Wall Street free enterprise on trial—perhaps literally.
So what’s the Republican response been? In short, nothing.
Granted, it’s only been one week, but I haven’t found a single mention of the new task force by any Republican presidential candidate on the trail—and they found plenty to hammer at elsewhere in his State of the Union speech. The Republican leadership in Congress hasn’t said a thing, either. I contacted the office of Senate minority leader Mitch McConnell, but his press staff said they had nothing on the task force at this time. House Speaker John Boehner’s office has not yet returned my request for comment, but Boehner also hasn’t said anything to date.
Even Fox News, which sees an evil Obama conspiracy at almost every turn, has been silent on the issue, according to LexisNexis. The only thing I could find were two items on GOP.com—both of which could have been lifted directly from MoveOn.org. One item points out that previous efforts by the White House have been ineffective, and the other criticizes Lanny Breuer, the head of the Department of Justice criminal division and member of the task force, as being potentially too close to the mortgage industry.
This isn’t to say that Republicans will remain quiet—given their massive donations from the financial sector, I’m sure they won’t. But their initial silence highlights how uncomfortable Republicans are in directly voicing support for Wall Street. Even in their aggressive efforts to disable the Consumer Financial Protection Bureau, they’ve always been careful not to attack the idea of regulating Wall Street per se. Every reporter who has covered the battle knows the Republican boilerplate on the CFPB: “I’m not against consumer protection, but…,” followed by something about unaccountable czars or big bureaucracy or suffering small banks and credit unions.
Again, I’m sure the Republicans will find their angle. But they haven’t yet. And Schneiderman—who views the success of his task force as a direct function of public opinion and grassroots organizing on the issue—is promising imminent subpoenas and serious action “within six to eight months.” The investigations currently have wide political space in which to maneuver, and Republicans don't have much time to change that.
New York Attorney General Eric Schneiderman, co-chair of the new financial fraud task force that plans to investigate the malfeasance that led to the financial meltdown, appeared on Up w/ Chris Hayes yesterday to talk about the new effort. While many important details are yet to be known—Schneiderman hedged, for example, on the number of people who would be assigned to the task force—he expressed in very strong terms that Wall Street will be held accountable.
The looming mortgage settlement may end the prosecution of banks for robo-signing and foreclosure fraud abuses—things that happened after the crash. (And for which the banks will pay about $25 billion). But Scheiderman’s group plans to go after what happened before the crash—the securitization of bad mortgages, the insurance of those financial packages, and the various and sundry other ways Wall Street poisoned the financial system with toxic products.
Schneiderman said the settlement won’t impede that effort at all, and that it will focus state and federal authorities in an unprecedented manner.
“The president has been absolutely clear: we’re going after the stuff that blew up the economy in our working group,” Schneiderman said. “We’re going after the possibilities of tax fraud, insurance fraud, securities fraud. We’re going to look at this stuff very closely. We have the jurisdiction, we have the resources, and we have the will.”
While there’s been no federal prosecutions of high-ranking Wall Street executives for their role in the financial crisis, Schneiderman said boldly that his group plans to end that. “The clarity the president provided this past week really was that we are going to step up on the principle of one set of rules for everyone, equal justice under the law,” Schneiderman said. “You can’t have some institutions that are protected by the law, not allowed to fail, and not held to account, and all the other companies in America are allowed to fail. You can’t have equal justice under law and too big to fail.”
Towards the end of the interview, he said he expects some serious movement and action within six to eight months—or else he’d be “very disappointed.”
The federal government is closer than ever to a deal with five major banks over mortgage fraud practices—and, with some exceptions, the emerging details may hearten progressives who feared banks would get off the hook.
The White House provided an outline to the Huffington Post, and it appears that immunity has largely been removed from the deal—except in the area of state prosecutions against robo-signing. (Robo-signing is when banks use fake signatures, or stipulate to documents they hadn’t read or that didn’t exist, in order to foreclose on a home).
According to the Huffington Post story, banks would not receive immunity in the following areas:
1. Criminal liability.
2. Tax liability
3. Fair lending, fair housing, or any other civil rights claim.
4. Federal Housing Finance Agency or the GSEs [Fannie Mae and Freddie Mac]
5. CFPB claims for the period after they came into existence in July 2011
6. SEC claims
7. National Credit Union Association Claims
8. FDIC claims
9. Federal Reserve Board claims
10. MERS claims
State-level robo-signing prosecutions are the simplest form of fraud to prove, however, and the banks wouldn’t face any more investigations. But they would have to fork over $25 billion to help homeowners who were either wrongfully foreclosed on, or have homes that are underwater as part of the settlement.
With almost everything federal still on the table (though the White House says only that a “vast majority” of securitization and origination claims will be exempted), this is not a terrific deal for the banks—especially given that the administration is ramping up federal investigations with a new task force headed by New York Attorney General Eric Schneiderman. “I think it is fair to give [New York Attorney General] Eric Schneiderman and the other progressive attorneys general a lot of credit for holding the line,” a source intimate with the negotiations told the Huffington Post. “This is a big victory for them.”
That assumes the new taskforce will be aggressive and effective, which nobody is yet fully confident about. (Delaware AG Beau Biden voiced concerns about that this week).
Then two serious hurdles must still be cleared: one, will state attorneys general—particularly those who already have robo-signing investigations underway or in planning stages—agree to this deal?
And now, with the limited immunity, will the banks agree? Mike Lux, of Progressive Strategies, has reported that JPMorgan Chase CEO Jamie Dimon is not happy with the deal and may walk away.
A lot of details remain to be worked out or disclosed, but if JPMorgan Chase is threatening to walk, it means the administration is indeed playing hardball.
Section 121 of the Dodd-Frank financial reform bill provides a pretty clear mandate: if the federal government determines that a financial institution poses a “grave” risk to the financial system, the government is entitled to take action to mitigate that risk.
Specifically, if the Board of Governors of the Federal Reserve System makes that assessment, it can take action with the approval of the Financial Stability Oversight Council, which is part of the Treasury Department. The potential actions can range from limiting mergers and acquisitions, imposing conditions on how the institution does business or ordering it to liquidate.
When progressives criticized Dodd-Frank, they note that too-big-to-fail banks weren’t broken down, and that’s true—in fact, many of these banks are bigger now than they were before the financial crisis. But that doesn’t man Dodd-Frank didn’t offer some tools in that regard, and Section 121 is one of them.
To that end, Public Citizen filed a petition this week to the Federal Reserve and FSOC to break up Bank of America—a bank that’s clearly too big to fail, since it holds assets equal to one-seventh of the United States’ gross domestic product. It’s got the second-biggest holdings of any US bank and is interconnected with so many other institutions that few people—if any, even inside the bank—truly understand the complexity of those arrangements and dependencies.
But most importantly, Bank of America isn’t on terribly sound financial footing. Many consider it to be the least stable US bank, though there’s a wide variety of opinions on how bad the problem is. But if the market lost confidence in Bank of America, and there was a run on the bank’s stock, the consequences for the economy would be devastating in the truest sense of the word.
So Public Citizen’s petition urges the Federal Reserve and FSOC to take action now and break up the bank:
This petition does not urge a particular course. The petitioners are not privy to the full range of information available to financial regulators, which is likely necessary to form specific recommendations. But publicly available information is sufficient to show that financial regulators must take dramatic, assertive action to foreclose the possibility of catastrophic damage from Bank of America and fulfill the purposes of the Dodd-Frank Act. The regulators should be able to break up Bank of America into smaller institutions that would be less likely to fail and less dangerous in the event of failure—and for which orderly liquidation would be more likely to succeed should it become necessary. The time to use section 121 is well in advance of a crisis. In the case of Bank of America, that means now.
In the short term, the prospects for success here seem virtually nil. The Federal Reserve and FSOC have well-known affinities with the banking industry, to put it gently.
But in this age of financial meltdown, government bankruptcies and sudden financial chaos, a lot of things are impossible—until they suddenly aren’t. If, say, further revelations suggested Bank of America was truly in danger, this option would quickly become much more viable, and it’s crucial to have this route introduced into the discussion. And in a perfect world, the Federal Reserve would act now.
As a potential federal settlement with five major banks nears, progressives on and off Capitol Hill have been sounding alarms about the apparent lack of punitive action and aid for homeowners, along with the civil immunity the deal may grant banks.
President Obama made things really interesting during his State of the Union speech on Tuesday, declining to mention the settlement but announcing a program designed to help homeowners refinance troubled mortgages and, most notably, a new task force to investigate mortgage fraud, headed by New York Attorney General Eric Schneiderman.
The new programs have enormous potential to both help homeowners and hold banks accountable, but there are many important questions that need to be answered about the task force in particular. Who will staff it? How seriously will it pursue fraud charges, given that some of the already appointed members have so far failed to do so? If the settlement is approved, how would any immunity granted in that deal impact the task force’s work?
Delaware Attorney General Beau Biden, who has said he will not support the deal as drafted because it would limit the mortgage fraud investigations he is pursuing in his state, appeared on Dylan Ratigan yesterday in a fascinating interview on these very issues.
Biden suggested he was asked to join the task force, but spoke to several concerns he had about the structure. “I applaud the president’s comments last night, and the resolve to continue investigations,” he said. “[B]ut the questions I have [are]: how many FBI agents are you going to put on it? How many investigators are you going to put on it? How many prosecutors are you going to put on it? Those are the hard-scrabble questions I have. I told those folks that I’m willing to work with them on this, and I’m happy to do it, and I hope we’ll get somewhere on this.”
Earlier in the interview, Biden reiterated his strong opposition to any immunity for the banks, and said, “We need to act and investigate, file cases, file complaints, seek indictments, if the facts take us there. We need to act.”
In perhaps his most striking comments, Biden also said he believes the banks aren’t even worried about any of these investigations. “The too-big-to-fail banks believe that many of us on the enforcement side are as scared, or more scared, than they are of peeling back this onion,” he said. “The too-big-to-fail banks simply don’t believe we have the guts to get to the bottom of this.”
You can watch the full interview here, which I would recommend:
Since October, the federal Park Police—who oversee the space where DC’s two Occupy encampments at McPherson Square and Freedom Plaza—have admirably refused to evict the protesters.
There have been occasional confrontations, like when the protesters at McPherson Square tried to literally build a house, but for the most part, the Occupy encampments have been allowed to exist peacefully.
Federal regulations prohibit camping at the two locations, but Occupiers have been sleeping in tents for months. The Park Service has said they consider this more of a twenty-four-hour vigil—similar to the 1979 farmworkers demonstration—than a true campground, and that the Occupiers must receive some First Amendment considerations and be spared a forcible eviction.
This is laudable, but admittedly a fine line to walk, and one that Congressional Republicans are more than happy to explore. At a hearing yesterday of the House Committee on Oversight and Government Reform, chaired by Representative Darrell Issa, Republicans blistered Park Service representatives over this claim, and gamely tried to get the Park Service to admit that President Obama was behind it all.
The Park Service, for the most part, held the line. “Each of our First Amendment demonstrations [is] a little bit unique. And this one is, let’s say, unprecedented. The core of their First Amendment activity is that they occupy the site,” National Park Service director Jonathan Jarvis said. “We felt that going in right away and enforcing the regulations against camping could potentially incite a reaction on their part that would result in possible injury or property damage.”
But after the hearing, a federal official told the Washington Post that the Park Service will start issuing citations to Occupiers who are sleeping in the parks. It will apparently try to enforce the camping ban by “encouraging” people to sleep elsewhere, and issuing tickets if they don’t, but will not attempt to forcibly evict the entire encampment.
That’s the only real news to come out of yesterday’s hearing—the rest was just the predictable grandstanding by Republican members of the committee. There was one moment of (unintentional) levity, however, when freshman Tea Party Representative Trey Gowdy cited Martin Luther King Jr.’s “Letter from Birmingham Jail” as a reason the Occupiers should immediately be locked up:
President Barack Obama delivers his State of the Union address on Capitol Hill in Washington, Tuesday, January 24, 2012. (AP Photo/J. Scott Applewhite)
In his State of the Union address last night, President Obama announced an important initiative to address the housing crisis: one that will help affected homeowners while investigating and punishing those who helped create the problem.
A new mortgage crisis unit, made of up state and federal officials, which will look into wrongdoing by banks in the area of real estate lending. The unit will be headed by Eric Schneiderman, the attorney general of New York and a solid advocate for being tough on the banks for their role in the mortgage crisis.
“This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans,” Obama said in his address.
The unit will not supersede efforts by the Justice Department in this area (to the extent there are any) but will operate as part of the Financial Fraud Enforcement Task Force. Justice officials will still be involved, however, according to the Huffington Post, which first obtained details of the effort from the White House. In addition to Schneiderman, the unit will be co-chaired by Lanny Breuer of the Department of Justice; Robert Khuzami, director of enforcement at the SEC; John Walsh, a US attorney in Colorado; and Tony West, also of the Justice Department.
In a statement last night, Schneiderman promised tough investigations.
“The American people deserve a robust and comprehensive investigation into the global financial meltdown to ensure nothing like it ever happens again, and today’s announcement is a major step in the right direction,” he said. “In coordination with our federal partners, our office will continue its steadfast commitment to holding those responsible for the economic crisis accountable, providing meaningful relief for homeowners commensurate with the scale of the misconduct, and getting our economy moving again.”
As far as relief for homeowners, Obama made additional news last night, announcing additional federal efforts to help homeowners—though they must be current on their mortgage. A new federal program will allow those homeowners to refinance their mortgage at lower rates, and a federal fee on banks will help pay for the assistance.
“I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks,” Obama said.
“Let’s never forget: Millions of Americans who work hard and play by the rules every day deserve a Government and a financial system that do the same,” he continued. “It’s time to apply the same rules from top to bottom: No bailouts, no handouts, and no copouts. An America built to last insists on responsibility from everybody.”
Some may bristle at only helping homeowners that are current on their mortgages—and avoiding those in the most trouble. The administration, however, is clearly trying to thread a needle with its “no bailout, no handout” framing. Recall that the Tea Party movement was ostensibly kicked off by a Rick Santelli rant about helping people with their mortgages.
We’ve been reporting this week on a pending settlement with banks over mortgage fraud, and on a progressive push to ensure the settlement provides real assistance to homeowners and actually holds banks accountable.
The same group leading that push praised the creation of the mortgage crisis unit last night. “We applaud the President for siding with American homeowners and taxpayers and sending a message that Wall Street banks are not above the law and will be held accountable for their actions that crashed the economy,” said a statement from The Campaign for a Fair Settlement. “The President faced significant pressure from Wall Street CEOs to let the banks off the hook. By creating the mortgage crisis unit, President Obama showed real leadership—and proved that his top priority is fixing the economy for working Americans.”
How the new initiatives announced last night will impact the settlement, if at all, are impossible to tell for now. But the campaign is not letting the new efforts be an excuse not to have a strong settlement with the banks. “While the creation of this unit is a clear victory, we still have concerns about the servicing deal on the table with States.”
There is now no doubt that a federal settlement with five major banks over mortgage foreclosure fraud is in the end stages. A meeting took place yesterday in Chicago between the administration and representatives of every Democratic attorney general in the country, and Republican attorneys general held a conference call to discuss their strategy toward the deal as well.
The headline out of yesterday’s meeting was a statement by Iowa’s attorney general, Tom Miller, saying, “We have not yet reached an agreement with the nation’s five largest servicers, and we won’t reach a settlement any time this week.”
If opponents to the deal were heartened, they shouldn’t be. Miller also added that issues were still be resolved, and that “this is one step along the way, and it was a very productive day.” At some point relatively soon, a proposed deal will be announced. The question now is how many attorneys general go along with it, and if public pressure will convince the administration to revisit their strategy.
Delaware Attorney General Beau Biden is the only one so far to comment on the specific deal being discussed now—and, without citing a specific reason, says his state will reject it as drafted.
The other attorneys general who are investigating mortgage fraud, or have said they plan to—something that would be forbidden by this rumored deal—haven’t commented yet, but some have suggested they’re not on board. A spokesperson for California Attorney General Kamala Harris said yesterday that “Attorney General Harris has consistently and repeatedly expressed concern about protecting her ability to investigate wrongdoing in the mortgage arena, and that remains a key lens through which she will evaluate any proposals.”
Meanwhile, the public pressure continues. Outside yesterday’s meeting in Chicago, protesters called “No sweetheart deals” and “Protect our homes.” The progressive outcry and corresponding petition drive we covered yesterday continues, and has received good press coverage in the mainstream media.
Also yesterday, the group Judicial Watch announced yesterday that it has filed a Freedom of Information Lawsuit against the Department of Justice and the Department of Housing and Urban Development for documents pertaining to fraud by these large banks. If truly damaging is ultimately made public, it could deeply energize the public opposition to civil immunity.
And here’s one thing to watch for tonight in the State of the Union address: I’ve heard that Obama might devote a couple lines to the settlement. I personally don’t think he will, given that the negotiations are still under way, but if he does, we’ll know the administration is very serious about pushing this deal through.
For months, a massive federal settlement with big Wall Street banks over their role in the mortgage crisis has been in the offing. The rumored details have always given progressives heartburn: civil immunity, no investigations, inadequate help for homeowners and a small penalty for the banks. Now, on the eve President Obama’s State of the Union address—in which he plans to further advance a populist message against big money and income inequality—the deal may be here, and it’s every bit as ugly as progressives feared.
The Associated Press reports that a proposed deal could be announced within weeks. Five banks—Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial (formerly GMAC)—would pay the federal government $25 billion. About $17 billion would be used to reduce the principal that some struggling homeowners owe, $5 billion more would be used for future federal and state programs and $3 billion would be used to help homeowners refinance at 5.25 percent. Civil immunity would be granted to the banks for any role in foreclosure fraud, and there would be no investigations.
There are several reasons why this is could be a terrible deal. For one, the dollar amount is inadequate in relation to both the tremendous loss of wealth via mortgage fraud and the hefty balance sheets of these massive companies. Furthermore, the banks might be allowed to use investor money instead of their own funds—this makes the penalty even lower. Beyond all that: it’s extremely hard to justify the absence of investigations and punishment for mortgage fraud that was so widespread and so damaging to people’s lives.
There are also many other, more serious problems besides a lack of punitive action. The small amount of money—and the federal government’s recent inability to truly help underwater mortgage holders, of which there are currently 11 million—means that the victims of mortgage fraud might not see enough relief. And perhaps most importantly, with no real punishment for widespread damaging fraud, what are the incentives on Wall Street not to engage in similarly destructive practices once again?
On a major conference call this morning, many leading progressive voices inside Washington and out blasted the deal.
Senator Sherrod Brown of Ohio characterized the rumored deal as “not much more than a slap on the wrist,” and added that while banks were always know to be too big to fail, they were now apparently “too big to jail.”
“When laws are broken there need to be full investigations,” Brown said. “Wall Street should not get another bailout.”
Brown urged Obama to reject the deal and order investigations into the banks’ practices immediately. Simon Johnson, an economist at MIT and well-known progressive voice, also called for no deal and immediate investigations.
“This is not just the right thing do, and not just good politics, it’s good economics,” Johnson said. “What’s at stake here is the rule of law.”
Robert Borosage, co-director of the Campaign for America’s Future, blasted the rumored deal as well and urged the administration to consider the political optics.
“No one who robbed a bank would be offered immunity, a modest fine, and no admission of guilt before there was an investigation,” Borosage said. “Americans are increasingly cynical with the ability of democracy to deal with special interests.
“The president’s campaign will sensibly highlight his commitment to fairer rules,” he continued. “Needless to say, a sweetheart deal with the banks will contrast with that.”
As we noted last week, many progressive groups have begun a massive petition drive to push back against the settlement and demand fair investigations. Moreover, attorneys general in California, New York, Delaware, Nevada and Massachusetts have previously said they won’t be a part of any deal that offers civil immunity.
So the deal is far from done—but it’s certainly moving towards an undesirable conclusion. We’ll have plenty more in this space all week.
It’s been two years since the Supreme Court handed down its decision in Citizens United vs. Federal Election Commission, allowing a torrent of secret money to flow into the political process.
To be clear, the corrupting influence of big money was distorting the democratic process for years before that decision. But it unquestionably made the problem worse, exacerbating both the volume and secrecy of campaign donations.
Here’s eleven disturbing facts about the extent to which money is playing an increasing role in our politics:
The amount of independent expenditure and electioneering communication spending by outside groups has quadrupled since 2006. [Center for Responsive Politics]
The percentage of spending coming from groups that do not disclose their donors has risen from 1 percent to 47 percent since the 2006 mid-term elections. [Center for Responsive Politics]
Campaign receipts for members of the House of Representatives totaled $1.9 billion in 2010—up from $781 million in 1998. [Committee for Economic Development]
Outside groups spent more on political advertising in 2010 than party committees—for the first time in at least two decades. [Center for Responsive Politics]
A shocking 72 percent of political advertising by outside groups in 2010 came from sources that were prohibited from spending money in 2006. [Committee for Economic Development]
In 2004, 97.9 percent of outside groups disclosed their donors. In 2010, 34.0 percent did. [Committee for Economic Development]
In 2010, the US Chamber of Commerce spent $31,207,114 in electioneering communications. The contributions for which it disclosed the donors: $0. [Committee for Economic Development]
Only 26,783 Americans donated more than $10,000 to federal campaigns in 2010—or, about one in 10,000 Americans. Their donations accounted for 24.3 percent of total campaign donations. [Sunlight Foundation]
Average donation from that elite group was $28,913. (The median individual income in America is $26,364) [Sunlight Foundation]
Amount the Karl Rove–led Crossroads GPS says it will spend on the 2012 elections: $240 million. [On the Media]
Amount that President Obama has raised from the financial sector already for his 2012 re-election: $15.6 million [Washington Post]