Moral Hazard

Matt Taibbi:

Most of us 99-percenters couldn’t even let our dogs leave a dump on the sidewalk without feeling ashamed before our neighbors. It’s called having a conscience: even though there are plenty of things most of us could get away with doing, we just don’t do them, because, well, we live here. Most of us wouldn’t take a million dollars to swindle the local school system, or put our next door neighbors out on the street with a robosigned foreclosure, or steal the life’s savings of some old pensioner down the block by selling him a bunch of worthless securities.

But our Too-Big-To-Fail banks unhesitatingly take billions in bailout money and then turn right around and finance the export of jobs to new locations in China and India. They defraud the pension funds of state workers into buying billions of their crap mortgage assets. They take zero-interest loans from the state and then lend that same money back to us at interest. Or, like Chase, they bribe the politicians serving countries and states and cities and even school boards to take on crippling debt deals.

Nobody with real skin in the game, who had any kind of stake in our collective future, would do any of those things. Or, if a person did do those things, you’d at least expect him to have enough shame not to whine to a Bloomberg reporter when the rest of us complained about it.

Stoller on Obama, Wall Street, and Fraud

Matt Stoller has another great piece in Politico on the criminal behavior of the mortgage industry and the failures of the Obama administration to prosecute these crimes.

President Barack Obama has argued, as recently as last Sunday on “60 Minutes,” that what happened on Wall Street wasn’t criminal. “Some of the most damaging behavior on Wall Street,” the president told Steve Kroft, “in some cases, some of the least ethical behavior on Wall Street, wasn’t illegal. That’s exactly why we had to change the laws.”

Obama is wrong. Fraud was illegal before the crisis; it’s illegal now. The Servicemember Civil Relief Act was signed in 2003. So it was already on the books. During the savings and loan crisis, the George H.W. Bush administration sent about 3,000 white-collar criminals to jail. This administration has yet to send one.

And it is for lack of trying. Attorney General Eric Holder and his network of U.S. attorneys haven’t brought one criminal suit on illegal military foreclosures or foreclosure fraud. There have been enough books and investigations revealing rampant criminality in the housing bubble and now in foreclosure crisis. Yet Holder’s DOJ is still settling with banks to let them off the hook for illegal foreclosures on active duty troops.

Stoller goes on:

The housing bubble, in other words, was not just due to tragic herding behavior. It also involved the financial sector’s aggressive responses to democratic attempts to rein in creditor abuses. Now Ally, a bank 74 percent owned by taxpayers and controlled by the administration, is continuing this abusive trend.

Turning our markets into playpens for predatory behavior didn’t happen overnight, and it will not be fixed overnight. But until we have public servants strongly focused on justice for all, we can expect the crime spree to go on. After all, what we’re all learning is that, at least for large banks, crime pays.

It’s really hard to properly capture how great the failure of the Obama administration to hold banks responsible for breaking the law is to changing bank behavior and helping homeowners today.

Sen. Cantwell demands DOJ investigate foreclosure fraud before a settlement

Senator Maria Cantwell (D-WA) issued a blistering letter calling on the Department of Justice to investigate big banks for fraudulent foreclosure practices before agreeing to any settlement deal which would grant them immunity for these practices. In her letter to Attorney General Eric Holder, Cantwell writes:

I am concerned that recently reported settlement proposals will effectively absolve these financial institutions of substantial civil and criminal liability in one of the largest alleged fraud schemes during the financial crisis. Specifically, I am concerned that the proposed settlement includes a release from liability that may be far too sweeping, does not adequately compensate victims, does not require enough of banks to reform the system that led to the crisis in the first place, and is being made before all the facts are known and without the backing of a full inquiry into the size and scope of the alleged fraud.

Without a thorough investigation, it is impossible to truly estimate just how pervasive the defects in the foreclosure and securitization process are. Continued reports of wrongful foreclosures, forged documents, and an inability of servicers and banks to prove chain of title and the legal right to foreclosure, raises the very alarming possibility that these defects were endemic to the mortgage servicing industry across the country. The sheer magnitude of the potential fallout from these defects demands that we undertake a full investigation to uncover the true scope of wrongdoing before providing blanket immunity to the perpetrators.

I am also concerned that reports of a settlement in the range of $20 billion, as recently reported, may not adequately compensate the victims of the foreclosure crisis. As a result of the pump-and-dump scheme perpetrated by the nation’s largest banks that inflated – and burst – the housing bubble, an estimated 14 million Americans are underwater, owing $700 billion more on their homes than those homes are worth. A $20 billion settlement is woefully inadequate to compensate the wrongfully evicted or homeowners struggling to stay in their homes. Much more should be required of banks to provide meaningful help underwater homeowners and compensate foreclosure fraud victims.

Boom goes the dynamite.

Washington is an important state in the context of the foreclosure crisis and the ongoing settlement talks between AGs and banks. Washington’s Republican Attorney General Rob McKenna is running for governor and has long been viewed as being a potential get for people trying to stop a bad deal. McKenna’s Democratic opponent in the gubernatorial race is Congressman Jay Inslee. Inslee has made stopping a bad settlement a major campaign issue and is collecting signatures on a petition against the rumored deal. Inslee is trying to wedge McKenna – either by making him look like a tool of the banksters or forcing him to do the right thing and help his constituents who were defrauded of their homes by the banks. It looks like Cantwell is aiding Inslee in that squeeze play, but the politics are really secondary to the potential outcome. Simultaneously, we are seeing another major politician standing up to the banks and demanding a halt to the consideration of a bad settlement deal. This is a very good thing.

The decline of the Iowa caucus

Originally posted at AMERICAblog Elections: The Right’s Field

Ari Melber has a very thoughtful piece at The Atlantic on the chances that the 2012 Republican presidential election could signal the end of the Iowa caucus as a major component of the primary process. Traditionally campaigns skipped Iowa at their own peril. But this cycle both Romney and Gingrich have functionally ignored the state until the end, relying on earned media coverage over traditional field organizing. Melber reports:

With the exception of Rick Santorum, whose underdog campaign arranged 227 events in all 99 counties, the contenders have simply declined to flood the state with staff or appearances. Rick Perry has spent just 17 days on the ground. Mitt Romney, who is playing down expectations, limited himself to eight days.

The newest “front-runner,” Newt Gingrich, has racked up 50 days in the state, but unlike years past, Gingrich’s appearances are far more ceremonial than organizational. After mass resignations this summer, he had literally no Iowa office or staff until last week. The campaign just opened one office in Urbandale, an affordable suburb of Des Moines, and hired about five local staff.

Gingrich’s phantom front-runner model is evident in the latest polls, which show him leading among potential Republican voters — even though only about 10 percent of them have actually heard from his campaign. That is under half the contact rate for the Bachmann and Paul Campaigns. It also trails the pace last cycle, when top campaigns had dozens of field offices and hundreds of staff in the state.

The notion that Iowa caucus goers will make the decision to support candidates that they haven’t had a chance to meet and talk with is anathema to the mythology of the first in the nation caucus. Melber floats an idea which I think could have traction, namely that Iowa caucus-goers could still reward an underdog who spent significant time in the state, like Ron Paul.

I’d hazard that any Iowa Republicans who want to keep their state’s campaign mythology in tact should be very hesitant to reward campaigns which have functionally ignored the state. Only Iowa and New Hampshire voters get real attention from candidates during the presidential primary process. While there are obvious problems with having two lily white states play this role, this is also a role that is culturally embedded in the states’ self-identity. Having lived in New Hampshire during the 2000 primary and worked on a presidential campaign, traveling extensively through both states in 2007-2008, I’ve seen first hand how rigorous these citizens can be in their scrutiny of candidates. The idea that campaigns have finally evolved to the point where media coverage and TV ads can replace actual conversations between voters and candidates is troubling and sad. If they were getting replaced by dedicated voters in California or South Carolina, that’d be one thing. But they’re getting replaced by Wolf Blitzer and Chris Matthews. No matter how little you think of Iowa and New Hampshire’s historic lock on attention from presidential campaigns, you can’t think that Blitzer and Matthews is an improvement.