Nevada’s Attorney General is a bad ass

There has been a lot of attention paid – deservedly so – to the work of New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden. They were two of the first AGs to voice objections to the federal government’s push with the state AGs fore a weak settlement deal around robosigning. So obviously they deserve a lot of credit for creating the conditions in which other AGs could step out – notably Nevada’s Cathernine Cortez Masto, Minnesota’s Lori Swanson, Kentucky’s Jack Conway, Massachusetts’ Martha Coakley, and California’s Kamala Harris.

But at this point in time, anyone speaking about the role of Justice Democrats would be remiss to fail to recognize how much Nevada’s Masto is kicking ass. Just check out her thirty-eight question letter to Iowa’s Tom Miller. Miller’s office has asked all state AGs to inform them by Friday as to whether or not they will be joining the federal settlement. Based on the list of questions Masto has turned in, and for the request for specificity and timeliness in the response, it seems pretty clear that Miller and the Feds are asking AGs to sign on to something without seeing a very specific term sheet for the settlement.

Abigail C. Field has a detailed run-through of Masto’s thirty-eight questions and they are very serious. Clearly Masto and her office is taking this entire process very seriously and is not interested in getting burned on a robosigning settlement. It’s heartening to see this level of effort and hopefully the net result is real accountability for the banks and real help to hurting homeowners.

Kuttner on Schneiderman and bank accountability

Robert Kuttner, in the course of a long post about the federal mortgage fraud task force and what it means to have New York AG Eric Schneiderman on it as a co-chair, includes a number of details about the fecundity of various avenues of investigation. Kuttner looks at the wide assortment of frauds associated with the inflation of the housing bubble and the ongoing foreclosure crisis and notes that real accountability would require a scale far greater than what we’ve seen so far from any law enforcement or regulatory body anywhere in the country. The scale of true accountability, Kuttner notes, could necessitate a total restructuring of the banking industry:

Bankers have escaped prosecution, and housing has stayed in a deep hole, in large part because of a disastrous decision that Geithner made in early 2009 — the policy of extend and pretend. Rather than cleaning out and breaking up big banks, Geithner claimed that “market confidence” required the Treasury to collude in the fiction that all was well. It was just a temporary problem of liquidity.

Propping up the banks and their balance sheets, in turn, precluded serious relief of the mortgage crisis, since a write-down of mortgage debt would require banks to acknowledge real losses.

In some ways, a successful prosecutorial initiative returns us to the debates of early 2009: if cleaning up the mortgage mess requires banks to take a big hit to their balance sheets, how then do we proceed with a restructuring of the banks?

Since markets have already acknowledged reality by driving down the value of the banks’ share prices, a settlement with much larger penalties, principal write downs, and even some prison sentences would actually be good for the banking industry because it would provide a fresh start with honest books. We could get beyond the “Japan” phase of this crisis, where the Fed has to keep pumping in trillions of dollars to disguise the real weakness of the economy and the banking industry.

It’s helpful that the Fed recognizes the perilous effect of the mortgage collapse on the recovery, since Fed intervention will be central to restructuring and recapitalizing the banking industry after the task force brings bankers to justice.

It’s good to see some honest assessment of what the full accountability pathway would mean for the larger banking system. There isn’t really a way to put bank executives in jail for criminal behavior, while also pursuing appropriately large civil damages, restitution for defrauded homeowners, and principle reduction to help borrowers now and not see the writing on the wall. Namely, that the big banks can’t afford to truly face up to the consequences of their action without being brought to bankruptcy and going through a restructuring process. This is a little discussed fact that undoubtedly has had some impact in the minds of political and financial elites in their thinking of what sort of accountability banks would be allowed to face.

If Kuttner is right and there can be accountability on the scale requisite by the extend of criminal behavior by banks, then the side effect of this will be that we can finally do what should have been done in late 2008 and early 2009 – rebuilding the banking system with stability, not can-kicking – in mind.

There are two core principles at play in the discussion of accountability for illegal behavior during the inflation of the housing bubble and in the ongoing foreclosure crisis. The first is that we must uphold the rule of law and no one should get away with breaking the law (let alone the centuries-old property law on which the entire economy is based) simply because they are a banker. The second is that the foreclosure crisis is producing a massive human cost which needs to be mitigated immediately. These two thrusts do not, in fact, contradict with each other. What Kuttner is identifying is the reality that the largest possible vehicles for aid to suffering and wronged homeowners is robust law enforcement and accountability measures. This is part of the reason why so many of us have pushed for there not to be any settlement of any matter which hasn’t been fully investigated. Investigation produces knowledge which informs law enforcement as to what appropriate punishment looks like.

It remains to be seen if this new subgroup that includes Schneiderman will pursue criminal investigations on the scale that Kuttner speculates (and which is clearly necessary). Hopefully good things will come from it. But I’d hope that in the course of these investigations, the consequences of really holding banks accountable do not deter law enforcement from doing just that. Instead, as Kuttner says, seize this opportunity to do what should have been done years ago and leverage this moment to rebuild the banking system in a way that stabilizes the economy and directly helps the American public.

A more optimistic take on the Schneiderman task force

Yesterday I was somewhat sour on the chances of the mortgage fraud task force that Eric Schneiderman will co-chair of succeeding in producing positive results. I think the reasons for caution remain, but David Dayen reports on a number of new facts which could make positive outcomes much more likely. In short, Dayen and his sources suggest that, first, Schneiderman’s entry into the task force was in no way dependent on his assent to a national settlement deal – he still opposes it. Second, Schneiderman’s role in the task force has been constructed to allow maximum flexibility for him to pursue what he thinks is the most fecund avenue for bank prosecutions – the fraud connected to the creation of residential mortgage backed securities (recall that it is securitization fraud which created the need to cover up such frauds through ongoing robosigning criminal behavior). Third, Dayen’s sources say if he can’t get prosecutions out of this task force, Schneiderman “walk away in the most showy, public manner possible, letting everyone know who was responsible for the lack of prosecutions.”

Other positive things worth noting include that Delaware AG Beau Biden remains committed to conducting his own prosecutions and remaining outside the settlement, while California AG Kamala Harris’s office reiterated her opposition to the current settlement as “inadequate.” While there were many positive statements from liberal groups yesterday, Color of Change and Russ Feingold’s Progressives United put out much more skeptical statements. And the New York Times published an editorial where they demanded a meaningful investigation that finally, at long last, held banks accountable for their behavior.

In short, the conditions for success may be better than they first looked, but people are going to be watching this task force closely to see if it actually produces prosecutions of banks and bank executives at a high level. This should be clear relatively quickly, given the voluminous evidence of bank fraud and other criminal behaviors. Hopefully we don’t have to wait long for this new initiative to produce results – and if they are not forthcoming, then we will know that our initial fears were realized.

Schneiderman joins a federal investigatory task force

I’d really like to be enthusiastic about the announcement of a new federal investigatory task force looking at the foreclosure crisis. New York Attorney General Eric Schneiderman, much like Elizabeth Warren, has done enough to show his commitment to holding Wall Street accountable for their crimes to trust that his motives are good and his decisions should be trusted. Schneiderman was effectively the first statewide elected official to champion investigating foreclosure fraud, robosigning, and securities fraud in connection to the housing crisis. His leadership is largely responsible for forestalling any bad settlement. That credit means something in my eyes and so I am willing to trust that he and his staff truly believe that the resources and power that come from working on a federal task force will allow him to do even more to hold banksters accountable for breaking the law.

All that said, there are real questions about what bringing Schneiderman into the fold will actually do. Will there be quick indictments of senior level bankers? Or will the composition of the task force prevent Schneiderman from leveraging power in a constructive way? Abigail Field was the first to note how weak the composition is, identifying major problems with Schneiderman’s co-chair and beyond:

Schneiderman isn’t chairing anything. He’s Co-Chairing. That’s a huge difference. If he’s Chair he’s in charge. If he’s Co-Chair he needs consensus. And who is he Co-Chairing with? Four people, starting with Lanny Breuer. That’s unacceptable.

The reason we want Schneiderman in charge of prosecuting is because Breuer, who heads the Justice Department’s Criminal Division, hasn’t done his job. If he had pursued these prosecutions we’d have a lot more justice in this country right now than we do. Why has Breuer failed to go after the people who committed “misconduct and illegalities that contributed to both the financial collapse and the mortgage crisis”? Is it because he’s an ex- (and likely future) Covington & Burling partner? Doesn’t matter. His track record speaks for itself. There is only one reason to have him co-chair with Schneiderman, and that’s to rein Schneiderman in.

Schneiderman’s also got to contend with Robert Khuzami, the SEC’s top law enforcer. Khuzami’s SEC can be called aggressive only when measured against Breuer’s Criminal Division. Having Khuzami on the committee gives the weak-enforcement lawyers two people to Schneiderman’s one. And Khuzami is deeply conflicted because he was Deutsche Bank’s CDO lawyer in 2006 and 2007, peak shadiness times.

David Dayen points out another complication relating to another member of the task force, Tony West, assistant attorney general in the DOJ’s Civil Division: he’s the brother-in-law of California AG Kamala Harris. Harris is currently sitting on the outside of the bank settlement talks and is the subject to a full-court press by the Obama administration to get back on board. Given that West has no real experience with financial fraud, it’s hard to view his appointment to this task force as anything other than a cynical vehicle to put even greater pressure on Harris.

There’s a petition on to get Breuer, Khuzami and West removed from the task force. For what it’s worth, if the administration wanted to strengthen their commitment to this investigation even more, they would replace those three with people like Nevada AG Catherine Cortez Masto, former SIGTARP Neil Barofsky, or even a prosecutor like Patrick Fitzgerald. These are people who, like Schneiderman, have shown real commitments to investigation and accountability in their jobs.

The whole point of raising these concerns is to help set the table to enable Schneiderman to succeed. If this committee ends up being a paper tiger, its creation will have served to disempower one of the few advocates for real investigations and accountability out there.

David Dayen raises another important and problematic consequence of the President putting Schneiderman on this task force:

More important, this announcement has collapsed the unified wall of objection on the left to a settlement. And I mean COLLAPSED. Just a day ago, activists were getting in the face of their AGs, warning them of the dangers of a weak settlement that provides little in the way of relief to homeowners. Now I have dozens of press releases in my inbox from liberal groups offering huzzahs to the President for this wonderful investigatory panel.

Only this isn’t a victory at all, at least not yet. Schneiderman may be trying to work from within, but he’s saddled with a panel full of co-chairs tied to banks with a history of obstructing accountability. The united front of Justice Democrats has been nicked. Kamala Harris, facing enormous pressure to go along with the settlement (she remains opposed at this point), now must contend with being the main big-state holdout AND having a family member co-chairing the investigation panel!

This is a classic Obama move, putting a threat or a rival inside the tent. It happened with Elizabeth Warren and David Petraeus and Jon Huntsman, and it’s happening again. It divides the coalition against a weak settlement, which will at the least shut down state and federal prosecutions on foreclosure fraud and servicing issues. It puts hopes in yet another investigation, one with little chance for success.

There is a real chance that Dayen is right. Of course, the best way to be proven wrong will be if this task force has teeth and starts producing indictments quickly. A good place to start, as Field notes, would be the 18 violations of the Servicemembers’ Civil Relief Act which JP Morgan Chase admitted to in congressional testimony – each violation representing a wrongful foreclosure of a service member. These are criminal misdemeanors with up to a year in jail per offense which have never been prosecuted. It’s a softball, but speedy indictments for these crimes would be a sign that the task force is going to, at long last, serious about investigating bankster criminality.

No bank settlement deal on housing for now

Originally posted at AMERICAblog

Yesterday I posted on the news of a pending settlement between the federal government, some state Attorneys General and the nation’s five largest banks around robosigning and other foreclosure fraud issues. The deal looked really bad and there was strong opposition coming not only from large progressive organizations, but a core of Justice Democrat AGs. HUD Secretary Shaun Donovan and Iowa AG Tom Miller, who’s lead the settlement talks, met yesterday in Chicago with Democratic AGs and their staffs, ostensibly (based on reports citing Donovan and Miller’s offices) to finalize a deal. Surprisingly, no deal was reached and Miller’s office put out a statement 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.” This is a huge victory for the officials, citizens, and organizations who have been pushing to stop a bad deal from moving forward.

Not surprisingly, though, the New York Times is reporting today that a deal is “inching closer.” This despite the fact that yesterday’s meeting in Chicago was allegedly going to result in the approval of a finalized deal. The Times does look at some of the numbers in the deal and how much aide it would conceivably bring to underwater homeowners and to those people whose homes were fraudulently stolen from them by banks using false documentation. The second number, according to the Times, is $1,800 per stolen home, which isn’t much more than two months’ rent for most people as compensation for their entire house being stolen. David Dayen looks at the aid that underwater homeowners would get and notes:

I would add that underwater borrowers with a second lien, like a home equity line of credit, owe more like $84,000 on average. So this barely gets them back a quarter of their equity, and the second will probably remain untouched (because that’s on the bank’s books, usually, even though it’s worthless).

Given that the single largest predictor of foreclosure is if a home is underwater, aid which keeps a home substantially underwater is not aid at all. At best it’s kicking the can down the road. These realities are no doubt part of the reason that there hasn’t been a deal yet, no matter how badly the Obama administration and Tom Miller want their to be a deal. As a result, I doubt that the President will mention anything in connection to the bank settlement talks in tonight’s State of the Union address, though I find it hard to believe that there won’t be some mention of the foreclosure crisis and how the administration hopes to deal with it in 2012.

Failures of Justice

I know it’s gauche for progressives to care about silly things like the rule of law, transparency, and opposing torture or war crimes, but nonetheless it’s worth pointing out Glenn Greenwald’s look at three parallel cases which demonstrate the sad state of equal justice in America today. Greenwald puts side by side the case of the Obama Department of Justice’s prosecution of charges for an accused leak related to water boarding against CIA agent John Kiriakou, the dismissal of US citizen Jose Padilla’s lawsuit against Donald Rumsfeld for the torture he face while in US detention without habeas corpus rights, and the settlement of a punishment deal for a Marine sergeant who gave orders which lead to 24 Iraqi civilians to be killed in Haditha. Greenwald looks at these cases and notes:

The Rules of American Justice are quite clear:

(1) If you are a high-ranking government official who commits war crimes, you will receive full-scale immunity, both civil and criminal, and will have the American President demand that all citizens Look Forward, Not Backward.

(2) If you are a low-ranking member of the military, you will receive relatively trivial punishments in order to protect higher-ranking officials and cast the appearance of accountability.

(3) If you are a victim of American war crimes, you are a non-person with no legal rights or even any entitlement to see the inside of a courtroom.

(4) If you talk publicly about any of these war crimes, you have committed the Gravest Crime — you are guilty of espionage – and will have the full weight of the American criminal justice system come crashing down upon you.

It’s hard to disagree with Greenwald’s assessments of the state of play in American justice. It’s equally hard to not recognize that what Greenwald is describing is functionally identical under the Obama administration as it was under the Bush administration, excepting that Obama has been more aggressive in prosecuting whistleblowers than Bush ever was.

There is nothing that requires the Obama administration behave in this way. While his flip-flop from promising to filibuster FISA to voting in favor of its passage gave some indication that Obama was not trustworthy on civil liberties, Obama nonetheless campaigned on a platform which highlighted transparency and restoring the rule of law as landmarks of what his administration would look like. After all, we were often reminded, he was a constitutional law professor. The gap between what was promised and what we have received in these matters is sadly wide and does not look to be diminishing, but increasing.

Conservatives like conservatism

Andrew Sullivan had a piece in The Daily Beast last week which got a lot of coverage and sparked a great deal of debate about how to assess the Obama presidency. In short, Sullivan thinks Obama’s governance style is one which may not please either liberal or conservative partisans, but will wear well and includes a number of accomplishments which will appeal to less strongly partisan voters.

Sullivan has long been an Obama supporter and much of the piece reads similarly to past arguments in favor of Obama’s governance. Conor Friedersdorf at The Atlantic had what I think is the best take down of Sullivan, which focuses more on the weakness of Sullivan’s argument in that Sully looks only at what Obama’s “dumbest critics” have said about him, not the ones who are making valid and true points. Friedersdorf’s piece is worth reading in full, so I won’t spend time rehashing it here.

But what I do think is worth discussing is that Sullivan’s analysis is driven by the fact that Andrew Sullivan is a socially-liberal conservative. So when Sullivan writes:

To use the terms Obama first employed in his inaugural address: the president begins by extending a hand to his opponents; when they respond by raising a fist, he demonstrates that they are the source of the problem; then, finally, he moves to his preferred position of moderate liberalism and fights for it without being effectively tarred as an ideologue or a divider.

The “moderate liberalism” Sullivan describes is actually what most liberals would call conservativism. In the piece, Sullivan actually repeatedly makes the point that Obama was doing the right thing by pushing conservative policies on a number of key issues.

On taxes:

You’d think, listening to the Republican debates, that Obama has raised taxes. Again, this is not true. Not only did he agree not to sunset the Bush tax cuts for his entire first term, he has aggressively lowered taxes on most Americans. A third of the stimulus was tax cuts, affecting 95 percent of taxpayers; he has cut the payroll tax, and recently had to fight to keep it cut against Republican opposition.

On deficits:

[Obama’s] spending record is also far better than his predecessor’s. Under Bush, new policies on taxes and spending cost the taxpayer a total of $5.07 trillion. Under Obama’s budgets both past and projected, he will have added $1.4 trillion in two terms. Under Bush and the GOP, nondefense discretionary spending grew by twice as much as under Obama. Again: imagine Bush had been a Democrat and Obama a Republican. You could easily make the case that Obama has been far more fiscally conservative than his predecessor—except, of course, that Obama has had to govern under the worst recession since the 1930s, and Bush, after the 2001 downturn, governed in a period of moderate growth. It takes work to increase the debt in times of growth, as Bush did. It takes much more work to constrain the debt in the deep recession Bush bequeathed Obama.

On health care:

The great conservative bugaboo, Obamacare, is also far more moderate than its critics have claimed. The Congressional Budget Office has projected it will reduce the deficit, not increase it dramatically, as Bush’s unfunded Medicare Prescription Drug benefit did. It is based on the individual mandate, an idea pioneered by the archconservative Heritage Foundation, Newt Gingrich, and, of course, Mitt Romney, in the past. It does not have a public option; it gives a huge new client base to the drug and insurance companies; its health-insurance exchanges were also pioneered by the right. It’s to the right of the Clintons’ monstrosity in 1993, and remarkably similar to Nixon’s 1974 proposal. Its passage did not preempt recovery efforts; it followed them.

It is, dare I say it, conservative.

In passing, Sullivan also comments on Obama’s conservative education policy:

Like Obama’s Race to the Top education initiative, it sets standards, grants incentives, and then allows individual states to experiment.

On foreign policy:

Obama’s foreign policy, like Dwight Eisenhower’s or George H.W. Bush’s, eschews short-term political hits for long-term strategic advantage. It is forged by someone interested in advancing American interests—not asserting an ideology and enforcing it regardless of the consequences by force of arms. By hanging back a little, by “leading from behind” in Libya and elsewhere, Obama has made other countries actively seek America’s help and reappreciate our role. As an antidote to the bad feelings of the Iraq War, it has worked close to perfectly.

On all of these important issues, Sullivan describes Obama as taking conservative positions. So it’s no wonder why the conservative Sullivan is happy with the President. What Sullivan does not prove effectively (and this is really where Friedersdorf is worth reading) is why Obama’s conservativism should produce enthusiasm from liberals.