MAKING THE MEGA-BANKS PAY: New York Attorney General Eric Schneiderman has opened an important new front in his battle to force accountability on the banks that fostered the financial collapse. On August 4, he filed a challenge to the $8.5 billion settlement worked out between Bank of New York Mellon and its injured investors—an absurdly low figure, he suggested, compared with the $174 billion in toxic securities at stake.
Schneiderman has accused BNY Mellon of fraud and giving false assurances to investors. The bank was supposed to act as a neutral trustee to verify hundreds of billions in mortgage securities and housing loans generated by the biggest names in banking. If the big boys cheated on lending rules or ignored safeguards required by law, BNY Mellon was supposed to warn off investors. Looking the other way meant the banks would be liable for catastrophic claims that might wreck still fragile balance sheets like that of Bank of America.
If Schneiderman can make his case, the political and economic implications could be explosive. The White House, eager to claim that the system is cleaned up and healthy again, has mostly turned a blind eye when it comes to financial fraud. But private investors and a few gutsy public officials like Schneiderman know better. They are digging deeper and demanding a just reckoning for unpunished crimes. Now AIG, the insurance giant bailed out by taxpayers, plans to sue Bank of America, Goldman Sachs, JPMorgan Chase and Deutsche Bank on similar grounds. Coming clean on financial fraud may prove very expensive for the biggest banks—but also costly to the Obama administration’s reputation for justice. WILLIAM GREIDER
FAA FIASCO: The two-week impasse that partially shut down the Federal Aviation Administration may be over, but questions about the agency’s future are far from resolved. On August 5 President Obama signed a short-term extension of the FAA’s funding authority, allowing roughly 4,000 furloughed agency employees to return to their jobs and putting tens of thousands of others back to work on stalled airport construction projects. The bill, passed soon after lawmakers left for the August recess, also reinstated taxes on airline tickets, which the FAA had been unable to collect since July 23. The loss was more than $350 million in ticket and fuel taxes. Airlines, in an effort to exploit the fiasco, had raised their fares to mirror pre-shutdown ticket prices and pocketed the would-be tax revenue.
The compromise left in place the cuts that led to the standoff in the first place: $16.5 million in annual subsidies to rural air services. The deal extends the FAA’s operating authority only through mid-September. With such limited legislation in effect, the economic and labor issues that underlay this political theater remain largely unaddressed. Congress has just over a month to agree on a long-term legislative blueprint for the agency’s funding—or it must once again seek a temporary bill or risk disaster. MARC KILSTEIN