Last year liberals found a small handful of state Attorneys General to elevate as heroes for their efforts to investigate robosigning and hold banks accountable for committing foreclosure fraud. That cohort, which eventually acquiesced to the Obama administration and got on board a very weak settlement deal with the nation’s five largest banks, included New York AG Eric Schneiderman, NV AG Catherine Cortez Masto, and DE AG Beau Biden, among others. Schneiderman’s status as a liberal hero is now seriously being called to question by people who had previously put a lot of faith in him, myself included. Part of my takeaway from the last year is that while elected officials and candidates should be leading on these issues, words aren’t enough. Actions are what will determine whether or not these people are worthy of inspiring hope.

With that as a preface, Elizabeth Warren is on something of a tear going after the failures of recent regulatory reform and ostensible accountability efforts to adequately rein in Wall Street recklessness and criminality. She told Politico that Jamie Dimon should be removed from the New York Federal Reserve’s Board and sees the JP Morgan Fail Whale trade as a complete failure of regulatory reform:

“The argument for Glass-Steagall is that banking should be boring. Risk-taking should be separated from ordinary consumer banking. Banks are different from every other kind of company. They hold our money in trust and they get government guarantees. That fundamentally changes the game. The trade-off is they agree to engage in only low-risk activities. JPMorgan just showed that is not what they are doing.”
…
“I find it very interesting that at first the defenders [of JPM] said ‘Well, even if the Volcker Rule were in place this would not have violated it.’ First of all, I think people would be surprised [Volcker is] not in place. And it’s not in place because of this guerilla war banks have fought against it. … But the correct response is not that [the JPM trader is] OK because it wouldn’t violate the Volcker rule. The correct response is that the Volcker Rule isn’t strong enough and we need Glass-Steagall.”

While these are good sentiments and in line with what Warren has been saying for a while, they’re not that far outside what has become standard discourse by liberal Democrats since the announcement of JP Morgan’s $3 billion and growing trading loss.

However in an interview with David Dayen of FDL News Warren makes incredibly strong statements on the failure of the Obama administration and the mortgage fraud task force to hold Wall Street bankers accountable for the financial crisis.

FDL News: Can all of these issues with regulation and oversight of Wall Street ever be successful without them involving handcuffs in some manner? The efforts to hold the banks and their executives accountable have all resulted in slap-on-the-wrist fines and settlements. We’re four years on from a financial crisis that wrecked the US economy, one rooted in multiple levels of fraud, and no top executive has gone to jail for it.

Warren: And that is disgraceful. No one has been held accountable. Americans know that all the way down to their gut. The financial crisis has been treated as if it were a tsunami or a snowstorm, or a natural act for which no human being had any direct participation. The people who broke the economy should be held accountable. It’s as simple as that. And that means criminal investigations, civil investigations. Without that, it’s not possible to clean the system and rebuild it.

FDL News: Are you confident that the current set of investigations, including this task force co-chaired by Eric Schneiderman looking into mortgage abuses – there’s been a lot of controversy about it, about staffing and resources – are you confident that the investigations in place today will actually lead to the necessary accountability for Wall Street for their role in the crisis?

Warren: I am not confident. No. And that’s the answer to your question. The American people are pushing for more accountability. They need to keep on pushing until it happens.

It is significant for a top targeted Democratic Senate candidate to be saying she has no confidence in what was hyped as a major investigation by the President in the State of the Union and by AG Schneiderman when he assumed a role within it. Dayen notes that it “is extremely damaging to the attempt to pass off the RMBS working group as something legitimate” for Warren to say this.

As I wrote yesterday, President Obama is unlikely to convince independent swing voters in key swing states who think he hasn’t done enough to hold Wall Street accountable unless and until the handcuffs come out. Warren is saying that this is unlikely as things currently stand.

Hopefully the pressure from the polls and key Democratic candidates like Warren serves to light a fire under the administration and the mortgage task force. There is clearly no ingrained desire within the Obama administration to uphold the rule of law when it comes to bank criminality; one can only hope public political embarrassment will be a motivating factor. Handcuffs for banksters as part of a cynical election year ploy is far preferable to continued inaction.

Mike Konczal has a very good post on the announcement of JP Morgan Chase’s multi-billion trading loses and what it means for our legal ability to deal with Too Big To Fail banks. Konczal writes:

There are two ways to look at the relationship between the Dodd-Frank financial reform framework and JP Morgan’s loss disclosure. One is that it shows the need for a strong implementation of Dodd-Frank broadly and the Volcker Rule specifically, which is designed to separate prop trading from large, risky financial firms. Marcus Stanley of Americans for Financial Reform has a great post up discussing what happened, how the principle of the Volcker Rule should work in this situation, and the threats it faces. Dodd-Frank is designed to make the financial markets more transparent and robust to shocks through such mechanisms as expanding clearing requirements for derivatives and reducing interconnectedness between large financial firms. It is also designed to make it less likely that any individual firm will collapse by having stronger capital requirements for larger financial firms and eliminating certain business lines they can participate in through the Volcker Rule. This is crucial for a Too Big To Fail firm like JP Morgan.

But the second is to acknowledge that businesses run profits and they run losses. There is something to a conservative like Kevin Williamson’s remark that “The odd thing about this is that it is now considered somehow scandalous when a business loses money. It’s a scandal when banks make profits, and it’s a scandal when they make losses.” On a long enough timeline, the survival rate for everyone drops to zero. Though it was clear quickly at 5 p.m. Thursday that JP Morgan wasn’t in danger of collapsing, if things had been different it could have failed.

This illustrates the need for a mechanism to allow firms to fail in a way that fairly allocates losses to the right parties. The way corporations fail in this country is a series of legal choices we’ve made, and we found in the fall of 2008 that the mechanism we have for a shadow-bank financial firm failing — Chapter 11 bankruptcy — dragged down the entire system with it. Hence the move to bring in the FDIC to make sure a financial firm fails in a way compatible with fairness. The FDIC has special powers — advance planning and living wills, debtor-in-possession financing and liquidity, making payments to creditors based on expected recoveries, keeping operations running, the ability to transfer qualified financial contracts without termination, and the ability to turn up or down regulations going into a potential resolution based on prompt corrective action — appropriate to what our 21st century financial system needs.

I think it’s worth noting, though, that these aren’t “legal choices.” They are political choices and they are choices in morality. Fundamentally these laws speak to the question of who government serves at a time when large corporations fail. What we saw in 2008 and 2009 (and, really, since then too) is that political elites have by and large chosen to serve financial elites first and foremost. Not only are the interests of banks protected, but they are protected through the public treasury. What we have now with Title II of Dodd-Frank, which governs the winding down of TBTF banks and who pays for it, is the perfect example. Matt Taibbi recently covered how Wall Street helped achieve weak financial regulatory reform, particularly around who pays for future bailouts for failed banks.

In a nod to FDR, Title II would have forced major financial companies to pay $19 billion into an FDIC-style fund that would cover the cost of any future bailouts. But then the balance of power in the Senate was upset by the election of Republican Scott Brown to Ted Kennedy’s seat in Massachusetts. As the clock wound down toward the bill’s passage, Brown insisted on a change: Instead of making ginormous companies pay $19 billion in advance, the FDIC would first use taxpayer money to pay for any bailouts, and then spend years trying to recover that money from Wall Street by means of an assessment process so convoluted that you could grow a four-foot beard in the time it would take to understand it. Republicans managed to wrangle support, in conference, for the “bailout now, pay later” idea, and it made its way into the final bill.

Fast-forward to 2012. Rep. Paul Ryan, the self-styled Edward Scissorhands of Republican budget slashing, gathers the GOP leadership together and tells the chairman of each committee that he wants them, collectively, to come up with $261 billion in cuts. Ryan demands $35 billion of the cuts come from the Financial Services Committee, which oversees much of the regulatory apparatus that would enforce Dodd-Frank. The committee is now chaired not by the reform bill’s namesake, Rep. Barney Frank, but by median-intellected Spencer Bachus of Alabama, who last year voted to delay Dodd-Frank reforms designed to prevent swaps disasters like the one that drove his home turf of Jefferson County into bankruptcy.

Bachus’ solution to coming up with massive budget cuts? Eliminate the entire Title II section of Dodd-Frank. If another­ bank failed, Bachus argued, it would take way too long to recoup the bailout money from Wall Street through that crazy assessment process that Republicans themselves had insisted on only two years earlier. In the end, the logic went, taxpayers would wind up footing the bill anyway, so better just to scrap the entire plan to have the FDIC pay for the bailouts upfront – thus “saving” taxpayers some $22 billion.

The logic, of course, is complete nonsense. Without Title II, we’d be right back where we started – rushing to implement an expensive bailout in the midst of a crisis, without any way to make Wall Street repay the money. But because Democrats had preemptively surrendered on the original idea of forcing Wall Street to pay into an FDIC-style kitty ahead of time, Republicans were now in a position to push the whole bailout plan off the pier via a simple budget resolution.

Title II of Dodd-Frank is also something, as Konczal notes, that Republicans in the House of Representatives voted to repeal last week. A weak and ineffective provision that had meager measures to actually make the banks pay for a bailout and would likely cost taxpayers (at minimum) billions was supported by Democrats. And even that is too much for Republicans.

It’s great that the JP Morgan Chase Fail Whale trade is re-surfacing discussion of financial regulatory reform. But to this point we’ve only seen political elites at the service of financial elites, deploying regulations in a way that shows their preference for wealth to be preserved in the hands of a few bankers (regardless of how often those bankers fail in their business operations). I don’t expect that to change any time soon, at least without the actual crisis of another Too Big To Fail bank failing and being bailed out with hundreds of billions of dollars from the public’s coffers.