NY files lawsuit against JPMC (Bear Stearns)

Yesterday New York Attorney General Eric Schneiderman filed suit against JP Morgan Chase for the actions of Bear Stearns (which it acquired in 2008) surrounding the issuance of $87 billion in residential mortgage backed securities. Though Schneiderman is a co-chair of the RMBS task force working group, which includes the Department of Justice and the Securities Exchange Commission, the suit was filed under New York law and no federal lawsuits have accompanied it.

David Dayen and Yves Smith both have strong analyses of the lawsuit and what it means in the grand scheme of things.

Dayen has the most detailed look at the lawsuit’s substance and context:

This is a pretty straight securities fraud case. Bear Stearns (bought by JPMorgan Chase in 2008) stands accused of creating and selling mortgage backed securities to investors that contained multiple defects, mostly from faulty underwriting that did not follow the prescribed procedures, and deliberately so. Bear forced the underwriters to cut corners by speeding up the volume of loans churning through the system; one underwriter reported being asked to finish 1,594 loans in five days.

Bear made commitments to its investors that they studiously evaluated all the loans they packaged into the pools that made up the mortgage backed securities. However, they did not evaluate the loans sufficiently, and when they did subject them to limited reviews from third-party due diligence specialists, the reviewers turned up multiple problems. Bear did not inform investors of these defects, which were massive: in one study by the FHFA, 523 out of 535 loans studies did not meet the underwriting standards. This all violates the representations and warranties that they made to investors about their responsibility to deliver loans into the MBS that went through rigorous underwriting.

The kicker is that Bear instituted a post-purchase quality control process, which also turned up defects, including loans that very quickly went into early payment defaults (EPDs) within the first 30-90 days. Bear was responsible for taking these EPDs out of the securitization pools, but they didn’t. They actually entered into secret settlements with the originators of the loans, where the originators would pay to repurchase the loans, at a fraction of the price. And Bear kept the money, $1.9 billion in all, despite being contractually obligated to turn that money over to the investors.

David notes that this is a pretty familiar story for the fraud that was perpetrated by banks on investors during the inflation of the housing bubble and many lawsuits have been brought by investors against banks on these types of issues. In fact, Dayen writes, “One, from the mortgage bond insurer Ambac, covers the exact same territory as it relates to JPMorgan Chase, Bear Stearns and EMC.”

Gretchen Morgenson of the New York Times reports that the investigation in the lawsuit was done by Schneiderman’s office beginning in spring 2011, prior to his joining the federal RMBS working group. It looks like the extent of the federal contribution to the case was interviews of Bear’s outside due diligence firm, Clayton Holdings — though Dayen points out that even this is a stretch, given the information from Clayton Holdings was covered in both the Financial Crisis Inquiry Commission and an agreement between the Clayton and Schneiderman’s predecessor, Andrew Cuomo.

It’s also not clear how much Schneiderman’s office will seek in damages from JP Morgan Chase. The deals in question cost investors $22.5 billion, but we don’t know how much money the New York AG will try to get as punishment, let alone what sort of settlement would be accepted. It’s common for the initial figure to be orders of magnitude higher than what is accepted as a cash penalty to make the lawsuit go away.

Reports from the AG’s office and statements from Schneiderman allies suggest that this is hoped to be the first suit of this type to be brought against banks by the NY AG’s office. However Yves Smith notes that if this is what we’re going to get, it’s not necessarily a reason to celebrate:

More cookie cutter suits of this order are nuisance-level for the banks and will be settled after the election, when voters hopefully won’t notice if the results fall short of the grandstanding. In many ways, filing suits that generate settlements vastly lower than the actual harm they did are worse than not acting at all. They will serve to reinforce the false Obama narrative that it’s just too hard to go after the banks, while the timing and the half-heartedness of the effort will correctly stoke criticisms by bank allies that this is just a politically motivated shakedown operation.

I’m not worried about what bank allies have to say in response to any and all efforts to sanction banks, regardless of the issue. Their line never changes. But Smith is right to note that in an environment where only civil suits are brought and small settlements are sought or accepted, it reinforces President Obama’s story that the banks didn’t do anything illegal and it’s too hard to go after them. Add in the fact that no individual bankers are charged in this suit and it’s easy to come away with the same core assumption as I’ve held for the last four years: namely that if you’re a banker and you break the law, you have no reason to fear being held criminally accountable for your actions.

There may well exist a parallel universe where a series of large civil suits by state attorneys general, the federal government, and private investors were able to extract enough of a cash penalty from the banks which fraudulently inflated the housing bubble and subsequently stole millions of families homes to ensure that these banks would never, ever consider doing these things again. But that’s not the universe we exist in. The lawsuits we have seen are small and sporadic, the settlement figures amounting to little more than the cost of doing business, while robosigning and foreclosure fraud occur to this day. As someone who believes the Wall Street banks should face criminal and civil charges for every instance of illegality and fraud they committed, I’m glad that this lawsuit has been brought. But it’s no panacea and it speaks to the fundamental unlikelihood of these banks ever being held to account for the full scope of their lawlessness.

Krugman on Social Security & the election

Paul Krugman is right:

if a re-elected president were to endorse [Simpson-Bowles], he would be betraying the trust of the voters who returned him to office.

This election is, as I said, shaping up as a referendum on our social insurance system, and it looks as if Mr. Obama will emerge with a clear mandate for preserving and extending that system. It would be a terrible mistake, both politically and for the nation’s future, for him to let himself be talked into snatching defeat from the jaws of victory.

The big problem with Krugman’s analysis is that while it is certainly true that the public re-electing Obama would be a strong statement in support of our social safety net and against fiscal austerity, it is not clear that the President would view it that way. Instead, Obama would like view his re-election as support for him and his views, regardless of whether or not they were driving components of the discussion in the election. He may not be publicly campaigning on his support for a Simpson-Bowles framework, but if that’s what he believes is right, it’s what he will pursue. I’m not quite sure what there is to be done about that.

Conor Friedersdorf on why not to vote for Obama

Conor Friedersdorf, a conservative-leaning commentator who supported Obama in 2008 at The Atlantic, has a thoughtful argument on why he is refusing to vote for Obama again, even while recognizing that Obama is likely better than Mitt Romney. Friedersdorf specifically identifies three areas in which Obama’s actions are beyond his personal moral comfort zone, making it impossible to vote for him. The areas area the President’s bombing campaign in Pakistan, his authorization of extrajudicial killing of American citizens, and his decision to wage a war in Libya without Congressional approval.

What I am saying is that Obama has done things that, while not comparable to a historic evil like chattel slavery, go far beyond my moral comfort zone. Everyone must define their own deal-breakers. Doing so is no easy task in this broken world. But this year isn’t a close call for me.

Obama ran in the proud American tradition of reformers taking office when wartime excesses threatened to permanently change the nature of the country. But instead of ending those excesses, protecting civil liberties, rolling back executive power, and reasserting core American values, Obama acted contrary to his mandate. The particulars of his actions are disqualifying in themselves. But taken together, they put us on a course where policies Democrats once viewed as radical post-9/11 excesses are made permanent parts of American life.

He goes on to note that in the absence of public objections to these policies, they will continue. But if the public makes a big stink, then they will be stopped.

Sometimes a policy is so reckless or immoral that supporting its backer as “the lesser of two evils” is unacceptable. If enough people start refusing to support any candidate who needlessly terrorizes innocents, perpetrates radical assaults on civil liberties, goes to war without Congress, or persecutes whistleblowers, among other misdeeds, post-9/11 excesses will be reined in.

I think there’s a final key point that Friedersdorf makes which is worth highlighting:

The whole liberal conceit that Obama is a good, enlightened man, while his opponent is a malign, hard-hearted cretin, depends on constructing a reality where the lives of non-Americans — along with the lives of some American Muslims and whistleblowers — just aren’t valued. Alternatively, the less savory parts of Obama’s tenure can just be repeatedly disappeared from the narrative of his first term, as so many left-leaning journalists, uncomfortable confronting the depths of the man’s transgressions, have done over and over again.

It’s been incredibly frustrating to watch liberals, progressives, and Democrats come to either silently or vocally accept as Good and Fine things done by President Obama which, only a few years previous, they were properly decried as radical, evil and un-American when they were perpetrated by President Bush. We waged multi-year campaigns to stop President Bush from spying on Americans without warrant, yet there has been effectively no liberal outcry when President Obama asserted and then used his power as president to kill American citizens without trial. Had President Bush done this, there would have likely been riots in the streets.

Friedersdorf asks us where our lines in the sand are. This is an important question and one which we must think about when we consider who we will vote for. I believe it is entirely possible to say that Mitt Romney is not worthy of your vote and neither is Barack Obama. It’s a personal choice, but one which should not be made on the presumed limits of the election as a binary choice. It is not. There are alternate party candidates in most states. There is also the ability to write-in your pick. Voting is a civic action, but a personal choice. In some places it has more weight than others (my vote in DC will have zero bearing on the allocation of any electoral college votes). But as we begin to think deeply as a country about what values we want expressed in our vote, know that this is not as simple as the press nor the campaigns tend to make it.

Michael Lewis on Obama on Wall Street

From Politico’s Ben White:

Michael Lewis at a PEN@Bloomberg event: “It’s a very odd Presidency. It’s odd that the stock market has doubled and [Obama is] regarded as a socialist. It’s odd that given what [Obama] could have done to big Wall Street interests, and what he actually did, that he’s as reviled on Wall Street. … Obama has been in some ways their best friend – he could have really thrown the institutions to the wolves and he didn’t do it. And it cost him a lot of good will to the left.’

‘I was surprised how calm and moderate President Obama was [about the financial crisis]. And it was one of the first things we talked about … It didn’t end up in the piece, but [President Obama] basically said, as much as one would like some Old Testament vengeance, it’s not very useful in public policy. He wasn’t angry. He didn’t have an anger about the whole thing. He was just trying to figure out the best solution to how to handle this whole mess.’

I had assumed that after the Obama administration shepherded a 49 state robosigning settlement that cost the banks as close to nothing as realistically imaginable, the Wall Street cash would have gone rushing into his campaign coffers. The crimes and misdeeds connected to fraudulent mortgage origination, fraudulent securities sales, fraudulent foreclosure, forgery, perjury, and everything associated with robosigning could have, in a just world, put every one of these banks out of business. But Obama saved them from facing real consequences for their action, just as he pivoted Congressionally funded homeowner aid programs to function to “foam the runway” for banks to prevent them from going bust.

Given that Wall Street’s gambling and excesses and illegality could have (and likely should have) derailed his presidency before it even started, it’s shocking that President Obama was incapable of being angry about it. Anger may not be the best vehicle for crafting and maintaining public policy, but anger is what should compel public policy responses in situations like these. No, I can’t help but conclude that the President wasn’t angry because (as he’s said in the past) he doesn’t believe Wall Street did anything wrong. Thus he has been their friend and protector at a time when we needed a President to rail against their gambling and hold them to account for the damage they inflicted on our country.

NYT on Obama’s housing vulnerability

Binyamin Applebaum of the New York Times has a long piece looking at how the failure of the Obama administration to adequately confront and stop the foreclosure crisis could be a drag on him politically.

Reaction to the piece from people who have been following the foreclosure crisis since its inception has been fairly negative. Yves Smith sees it as a defense of Obama’s failures to take action to help homeowners. David Dayen sees some value in it, while noting that it misses some things pretty dramatically. I tend to agree with David – while this isn’t a strong piece and it offers far more cover than Obama deserves, putting the idea that the administration left hundreds of billions of dollars on the table that could have helped home owners is really important. It’s not something that has shown up in the mainstream media much at all.

Smith and Dayen both note – and again I agree – that it’s odd for Applebaum to totally ignore recent reports from Neil Barofsky’s book that Tim Geithner made clear that the whole plan for the administration was to “foam the runway” to make it possible for banks to survive the massive wave of foreclosures we are now experiencing. The goal was not to help homeowners, but to make sure the banks could make it through the mess without another round of massive bailouts.

Dayen writes:

All of these [excuses for Obama] fall short, and by the end of the article – and this has been confirmed to me – the President is telling his economic team that they screwed up housing. But the excuses really are an insult, and they are ripped from the context, the real context, that the Administration trod slowly on housing to avoid putting the banks in any jeopardy. The fact that they had all this leverage from the fraudulent use of false and forged documents in state courts, and managed to sew it up in a slap-on-the-wrist settlement, tells you all you need to know. The White House didn’t want to go there because they were afraid they would find something that would force them to act against the banks. So they didn’t, and here we are.

Millions of people are losing their homes because the Obama administration – notably Tim Geithner and the President – did not think it was important to help them stay in their homes. I don’t think stopping this crisis is suddenly going to be a major issue in the presidential election, but it would be nice to know how both candidates plan on stopping the five to seven million foreclosures we’re likely to get in the next few years from happening.

Doing Nothing

Via John Aravosis, Roger Simon has a good column on the coming inaction in response to the Aurora shooting by President Obama. Simon writes:

Barack Obama looked haggard, spent, drained. He had just met with survivors and the families who lost loved ones in the Aurora, Colo., shootings.

Now, in front of the cameras and a small crowd Sunday, he stood in a blue suit, with no tie, his shirt collar open. It was about 8:45 p.m. East Coast time, and there was the beginning of stubble on his chin.

It was not his words that got to me, though they were simple and powerful: “Scripture says that ‘He will wipe away every tear from their eyes, and death shall be no more.’”

No, it was a few minutes later, when Obama described a teenager who had been shot in the neck by a bullet, and Obama put his hand to his throat to mark the spot and, as he kept talking, let his fingers linger there.

It was wrenching, touching, dramatic, sincere.

And baloney.

Not baloney because he was not moved by the terrible violence, not baloney because he did not feel for all the dead, their loved ones and the survivors. No, all those things were real to him.

What was baloney is that he intends to do nothing about preventing it in the future.

Of course Mitt Romney is just as bad as Obama here. But let’s take a look at what Obama’s Press Secretary Jay Carney said earlier this week, as documented in Playbook.

NO NEW OBAMA PUSH ON GUN CONTROL – From Jay Carney’s gaggle on Air Force One, en route Aurora yesterday afternoon: “[T]he President … believes we need to take steps that protect Second Amendment rights of the American people but that ensure that we are not allowing weapons into the hands of individuals who should not, by existing law, obtain those weapons. … [T]he President’s view is that we can take steps to keep guns out of the hands of people who should not have them under existing law. And that’s his focus right now.

Q: “In terms of like assault weapons or something like that, there’s no renewed push for a renewed assault weapons ban?”

CARNEY: “[A]s you know, there has been opposition to that since it expired within Congress … I wouldn’t argue with your assessment about that. So the President is focused on doing the things that we can do that protect Second Amendment rights, which he thinks is important, but also to make it harder for individuals who should not, under existing law, have weapons to obtain them.”

It’s hard to think of a more craven political response to this moment. In short, James Holmes’ killing of twelve people in Aurora and shooting of almost sixty more is not preventable. There is nothing the President supports doing to make such an event less likely in the future, as Holmes had done nothing illegal prior to opening fire on a theater full of Batman fans.

I have plenty of friends who are gun owners and I often see memes or off-hand comments on Facebook about Obama coming after their guns. It’s hard to think of a narrative less based in reality in American politics than this one. Obama has zero desire to increase regulation of guns, let alone try to take them away from gun owners. It’s a joke. Keep in mind, even before Obama had refused to pursue gun control following the shooting of Arizona Congresswoman Gabriel Giffords, the Brady Campaign had given Obama an “F” on every issue it scored.

I don’t have a perfect conception of what sane gun control policies would be and where the line between protecting our Second Amendment rights balanced with not having a massacre in our country every few months is. I would guess something along the lines of not allowing weapons whose sole purpose to kill many people at once – things like 100 round drum clips and assault weapons. The answer is likely going to be somewhat arbitrary, but that doesn’t mean we shouldn’t strive for a system of laws which seeks to prevent these shootings, not take them as an unavoidable given in America.

Romney & Obama on outsourcing

Adam Serwer has a very good piece at Mother Jones on the dynamic of Obama and Romney largely agreeing on the question of outsourcing, but pretending otherwise in the political debate.

“I think their basic view is pretty much the same,” says Dean Baker, the cofounder of the left-leaning Economic Policy Institute. Dan Ikenson, a trade expert with the libertarian Cato Institute, agrees. “Both the president and Mr. Romney understand that outsourcing is an unobjectionable fact of life, that the process generates large net benefits for Americans, and that attempts to restrict outsourcing would have deleterious effects on the US economy,” Ikenson says. “However, both campaigns have decided, thus far, that it is easier to demagogue the issue and label the opponent as the bigger outsourcer than it is to explain how outsourcing works.” That’s because Romney doesn’t want to look like a callous moneybags to American workers, and Obama doesn’t want to undermine the image of the populist he plays on TV. So the détente serves both sides.

The Obama administration’s secret negotiation of the Trans Pacific Partnership, a “free trade” deal that could end up being much larger than NAFTA, is a good indicator of their willingness to pursue policies which facilitate outsourcing and offshoring of American jobs.

As Matt Taibbi has noted, this election has the potential to be very boring, but the campaigns are finding ways to create contrast and distinctions between the two candidates. I don’t think Obama and Romney are the same, but there are many key issues, particularly economic issues, where the differences amount to Obama thinks rich people should be slightly more taxes than they currently pay and Romney disagrees. On outsourcing, it’s hard to see much of a difference outside the demagoguery.

The rich man’s burden

The volume of throb-wankery coming out of Mitt Romney’s fabulous weekend of fundraising from multi-millionaires in the Hamptons is excessively loud. Take these examples:

LA Times:

A New York City donor a few cars back, who also would not give her name, said Romney needed to do a better job connecting. “I don’t think the common person is getting it,” she said from the passenger seat of a Range Rover stamped with East Hampton beach permits. “Nobody understands why Obama is hurting them.

“We’ve got the message,” she added. “But my college kid, the baby sitters, the nails ladies — everybody who’s got the right to vote — they don’t understand what’s going on. I just think if you’re lower income — one, you’re not as educated, two, they don’t understand how it works, they don’t understand how the systems work, they don’t understand the impact.”

Yes it truly is the millionaires’ burden to make sure the poor, under-educated, non-millionaires who have somehow through a bizarre quirk of history been given the right to vote understand how the system works. Can you imagine the horrors if baby sitters and college kids voted for Obama, not understanding the impact it might have on millionaires in the Hamptons? It’d be like Soviet Russia or something.

The New York Times provides some insight into the world these Romney donors come from and their transparently bizarre assessments of who they are and how the other 99% view them:

A few cars back, Ted Conklin, the owner of the American Hotel in Sag Harbor, long a favorite of the Hamptons’ well-off and well-known, could barely contain his displeasure with Mr. Obama. “He is a socialist. His idea is find a problem that doesn’t exist and get government to intervene,” Mr. Conklin said from inside a gold Mercedes, as his wife, Carol Simmons, nodded in agreement.

Ms. Simmons paused to highlight what she said was her husband’s generous spirit. “Tell them who’s on your yacht this weekend! Tell him!”

Over Mr. Conklin’s objections, Ms. Simmons disclosed that a major executive from Miramax was on Mr. Conklin’s 75-foot yacht, because, she said, there were no rooms left at the hotel.

Ignore the fact that this particular millionaire sounds as educated as your average Tea Party activist holding a sign that says, “Keep your government’s hands off my Medicare.” This couple’s sense of charity thinks letting a millionaire stay on their yacht is an act of charity. So everything else is okay.

These people are very different from you and me. They are the financial elites who control political elites. They are transparently arrogant, stupid and self-centered people, with no care for anything but the preservation of their own wealth.

Of course, as some of those interviewed in the LA Times article note, significant portions of these people were Obama supporters in 2008 and many of their peers remain top Obama donors today. This isn’t just about Romney and his donors, Obama’s are bad too. But at least the financial elites who are supporting Obama have the good sense to recognize that what is in the national interest may come with minor tax increases and inconveniences that will do nothing to hurt their standing in the world.

An accurate use of the word “cynicism” in politics

Matt Taibbi, in a highly enjoyable Q&A with the Village Voice about Hunter S. Thompson’s Fear and Loathing on the Campaign Trail ’72, makes the rare move of accurately using the word “cynicism” to describe its appearance in American politics:

I think a lot of what Occupy is is disappointed idealism. A lot of the people who thought, in Hunter terms, that Obama was the “Great Shark” who was going to come and right all the wrongs. And then they realized that he was very much, for all his good qualities, a conventional Democratic party politician, and all the negatives that that comes with. I think people were extremely disappointed, and that’s why they’re all out on the streets right now. There’s a tremendous cynicism embedded in mainstream American politics right now, where people who are in Washington and live on Capitol Hill really don’t think they have any obligation to be truly honest. They think that everything is a compromise. They’ve lost touch with what people actually want. And they really do want somebody who is idealistic.

This is an accurate description of why it is Barack Obama, not his left critics, who are cynical.


Can anyone blame American citizens who have been deported along with their immigrant parents for harboring anger towards our government in general and President Obama in particular?

Jeffrey’s situation is increasingly common. His father, Tomás Isidoro, 39, a carpenter, was one of the 46,486 immigrants deported in the first half of 2011 who said they had American children, according to a report by Immigration and Customs Enforcement to Congress. That is eight times the half-year average for such removals from 1998 to 2007.

Mr. Isidoro, wearing a Dallas Cowboys hat in his parents’ kitchen, said he was still angry that his 25 years of work in the United States meant nothing; that being caught with a broken taillight on his vehicle and without immigration papers meant more than having two American sons — Jeffrey, 10, and his brother, Tommy Jefferson, 2, who was named after the family’s favorite president.

As for President Obama, Mr. Isidoro uttered an expletive. “There are all these drug addicts, drug dealers, people who do nothing in the United States, and you’re going to kick people like me out,” he said. “Why?”

President Obama’s executive order stopping deportations of DREAM-eligible Americans was a great and needed step. But it’s one small improvement on what has been a massively stupid and inhumane immigration policy that has deported even more people than President Bush. I can’t begin to imagine the amount of anger young Americans who’ve been deported under this President’s stupid policies will feel towards him and our country for years to come.