Category: Economy

Taxpayers to pay significant portion of mortgage settlement

It continues to be hard to provide a full and thorough accounting for a national mortgage settlement where the terms are neither final nor public. This secret deal was agreed to, it seems, without state attorneys general having a full view of what they were signing onto. The fallout from that is likely on just beginning.

But in what surely will go down as one of the nastiest bits of the deal pushed through by the Obama administration, it is being reported by the Financial Times that modifications made under the taxpayer-funded HAMP program will count towards the banks’ principle reduction requirements.

US taxpayers are expected to subsidise the $40bn settlement owed by five leading banks over allegations that they systematically abused borrowers in pursuit of improper home seizures, the Financial Times has learnt.
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However, a clause in the provisional agreement – which has not been made public – allows the banks to count future loan modifications made under a 2009 foreclosure-prevention initiative towards their restructuring obligations for the new settlement, according to people familiar with the matter. The existing $30bn initiative, the Home Affordable Modification Programme (Hamp), provides taxpayer funds as an incentive to banks, third party investors and troubled borrowers to arrange loan modifications.

Neil Barofsky, a Democrat and the former special inspector-general of the troubled asset relief programme, described this clause as “scandalous”.

“It turns the notion that this is about justice and accountability on its head,” Mr Barofsky said.

Both Shahien Nasiripour of Financial Times and Yves Smith note that since the whole point of providing HAMP payments to banks as an incentive to get them to make principle writedowns, HAMP should have remained outside of the scope of mortgage settlement. But as it’s structured, not only is it a part of it, we have taxpayers paying the banks to make modifications they’re supposed to be making to help homeowners.

This settlement looked pretty bad on the day it was announced. Sadly, it has only gotten uglier with age. That there is no final term sheet and the public is relying on sporadic leaks to understand what is actually in the tentative deal is a guarantee that these unwelcome surprises will continue, especially since it is the Obama administration which has pushed to weaken the deal:

But people familiar with the matter told the FT that state officials involved in the talks had had misgivings about allowing the banks to use taxpayer-financed loan restructurings as part of the settlement. State negotiators wanted the banks to modify mortgages using Hamp standards, which are seen as borrower-friendly, but did not want the banks to receive settlement credit when modifying Hamp loans. Federal officials pushed for it anyway, these people said.

What a sad joke.

More on the need for robosigning investigation

Gretchen Morgenson has a report on San Francisco City Assessor Phil Ting’s analysis of 400 recent foreclosure filings. The investigation revealed that fraud was near-universal:

An audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation, according to a report released Wednesday….

The improprieties range from the basic — a failure to warn borrowers that they were in default on their loans as required by law — to the arcane. For example, transfers of many loans in the foreclosure files were made by entities that had no right to assign them and institutions took back properties in auctions even though they had not proved ownership.

Yves Smith rightly notes that these improprieties aren’t arcane, but “are actually pretty basic to lawyers – you can’t assign rights you don’t possess or sell what you don’t own.”

Ting’s investigation can be added to a short list of actual investigations by public offices that includes Jeff Thigpen in Guilford County, NC and John O’Brien of Southern Essex County, MA. Beyond these officials, reporter Abigail Field also investigated foreclosure documentation in New York for Fortune. But beyond this, there haven’t been substantive investigations of robosigning and foreclosure fraud, particularly by the parties who aim to settle with the nation’s five largest banks (as a gentle reminder, there is no mortgage settlement yet that we know of – the terms have not been released).

More to the point, Ting’s investigation in San Francisco speaks to the need of real investigation of obvious crime. Professor Adam Levitin hits this point hard in a must-read post:

The San Francisco City Assessor’s audit also serves as a benchmark for evaluating the Federal-State servicing settlement. The San Francisco City Assessor managed to accomplish in a few months what the Federal government and state Attorneys General weren’t able to do in nearly a year and a half with far greater resources at their disposal: perform a credible investigation of foreclosure documentation with serious implications about the securitization process in general. That’s a lot of egg on the face of Shaun Donovan, Eric Holder, Tom Miller, et al. The SF City Assessor report shows that it really wasn’t so hard for a motivated party to undertake a serious investigation. And that raises the question of why the largest consumer fraud settlement in history proceeded with virtually no investigation.

The lack of investigation was the compelling criticism that led the NY and DE AGs to stay out of the settlement for quite a while. I’ve never heard an answer as to why no serious investigation. As the SF City Assessor’s audit shows, the documentation is all a matter of public record. It’s not that hard to do, especially if you have the resources of the federal government. So the resources were there. The capability was there. So why no investigation? The answer has to lie with lack of motivation. Were the Feds and AGs scared of what they would find if they delved too deeply into the issue?

Levitin points out that Ting’s investigation goes far beyond transparent robosigning problems and into the depths of the inadequacies and failures of the MERS database of property records. The result is not just confused foreclosure records and fraudulent document filings, but massive amounts of unpaid taxes and filing fees.

Levitin goes on to point out the problem of Too Big To Fail existing as a functional get out of jail free card. But his observations on the lack of investigation and accountability for these giant banks is particularly relevant:

Part of the problem, I think is a social one, as our political leadership is part of the same social milieu as our financial leadership and unwilling to call out criminal acts by their peers.

This is part of the fundamental critique of the Occupy Wall Street movement, namely that financial elites are so close with political elites – often overlapping – that they are able to escape any and all accountability for their actions. Look at the Obama White House and see a chain of Wall Street executives in roles not just connected to the economy, but administration leadership. It’s no surprise that these people in the halls of government don’t prosecute their peers in the private sector.

Pensions will pay more than banks for settlement

No one could have predicted:

The government’s deal with banks over their foreclosure practices after 16 months of investigations is cheap for the loan servicers while costly for bond investors including pension funds, according to Pacific Investment Management Co.’s Scott Simon.
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“This was a relatively cheap resolution for the banks,” said Simon, the mortgage head at Pimco, which runs the world’s largest bond fund. “A lot of the principal reductions would have happened on their loans anyway, and they’re using other people’s money to pay for a ton of this. Pension funds, 401(k)s and mutual funds are going to pick up a lot of the load.”

Asset managers are frustrated with the deal because, in addition to the debt the banks own, it gives credit to the lenders for changes to loans they hold no interest in and oversee for investors. That “treats people’s 401(k)s and pensions,” which hold mortgage securities, “like perpetrators as opposed to victims,” Simon said. The deal comes after all 50 states announced a probe into foreclosures in 2010 following disclosures of faulty documents used to seize homes, costing bondholders as liquidations of bad debt were delayed.

“Think about this, you tell your kid, ‘You did something bad, I’m going to fine you $10, but if you can steal $22 from your mom, you can pay me with that,’ ” Simon said yesterday in a telephone interview from Newport Beach, California.

On the upside, there actually is no term sheet yet, so the deal is not done. But I wouldn’t assume major changes on these lines.

More on the settlement deal

This thing hasn’t improved with age, but there is some more detailed and thoughtful commentary that I think is worth highlighting. The first is by Professor Adam Levitin, who scores it as a victory for the banks. He cites the small size as a major part of the settlement’s weakness:

The formal price tag for the settlement is $25 billion, although it is projected to accomplish up to $40 billion in relief. Only $5 billion of that is hard cash contributed by the banks. Let me repeat that. The five banks involved in the settlement, which have a combined market capitalization of over $500 billion, are putting in only $5 billion. That’s less than 1% of their net worth. And they are admitting no wrongdoing. To call that accountability is laughable.
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But let’s get to the bigger problem. Whether this is a $25 billion or $40 billion settlement is really beside the point. It’s a drop in the bucket relative to the scale of the problem. There is approximately $700 billion in negative equity nationwide weighing down the housing market and the economy. Add to that legions of homeowners dealing with unemployment or underemployment and we’ve got a problem that absolutely dwarfs the settlement numbers. It’s Pollyannism to think that this settlement will have any impact on the national housing market. At best it makes some incremental improvements and helps a small number of homeowners. But at worst, it lets the banks off the hook for the largest financial crime in history.

Levitin then looks at the average payouts for principle reduction, which are so small as to ensure no real impact in the housing market.

What’s interesting, though, is Levitin’s contextualization of the settlement in the political context.

The settlement doesn’t fix the housing market. It doesn’t create accountability for the financial crisis. It doesn’t even create incentives against future wrong-doing. But it provides the Obama Administration (and those attorney generals who just jumped in for the settlement at the last minute) with a fig leaf of political cover. It galls me is that the Obama Administration is going to trumpet this settlement as evidence that it is serious about prosecuting the crimes behind the financial crisis and helping homeowners. It was heartening to hear Obama talk about protecting the middle class in his State of the Union address. It was the right message, but the President is simply not a credible messenger. If Obama wants to run as the champion of Main Street against Romney, the Captain of Wall Street, he’s going to need to do something a lot more credible than this settlement.

If you doubt that the President (and, to a lesser extent, the AGs) are going to use this as a political victory, notice the headline on the national mortgage settlement: “Landmark Settlement, Landmark Relief.” That is a political statement, as it is clearly not grounded in the terms of the deal.

Turning to Matt Stoller’s excellent piece in Salon, he makes an important point about the way in which this settlement represents a very important policy choice about our national priorities.

Rather than settling anything, this agreement is simply a continuation of the policy framework of both the Bush and the Obama administrations. So what, exactly, is that framework? It is, as Damon Silvers of the Congressional Oversight Panel, which monitored the bailouts, once put it, to preserve the capital structures of the largest banks. “We can either have a rational resolution to the foreclosure crisis or we can preserve the capital structure of the banks,” said Silvers in October, 2010. “We can’t do both.” Writing down debt that cannot be paid back — the approach Franklin Roosevelt took — is off the table, as it would jeopardize the equity keeping those banks afloat.

Note that this is similar to the point both Robert Kuttner and I made in terms of having a rebooted banking system when all is said and done. Stoller makes clear that the choice to not aid homeowners at the expense of the banks and instead aid banks at the expense of homeowners is a deliberate and conscious policy held by the Obama administration.

Stoller concludes with a sobering look at the housing landscape and the need for a response which actually helps solve the problems we’re facing:

Settlement or no, the housing crisis isn’t going away. The entire mortgage market at this point is backstopped by the government, and even so, housing prices are sliding. The roughly $1 trillion of underwater mortgages and the destruction of the rule of law in the private mortgage market need to be dealt with, one way or another. And they will be, whether through a restoration of a healthy housing market, or through the end of broad homeownership as part of the American experience.

Banks to pay $5b in federal and state settlement on foreclosure fraud

At this writing, the federal government and forty-nine state attorneys general (all minus Oklahoma) have agreed to a settlement with the nation’s five largest banks for their fraudulent robosigning practices. The banks will pay $5 billion penalty as part of this deal and also provide a vary range of credits which could account for another $20 billion. David Dayen at FireDogLake has the best rundown of what is in the deal, based on his own reporting and mainstream outlets. Dayen gives the breakdown:

$3 billion will go toward refinancing for current borrowers who are underwater on their loans, as well as short sales. $5 billion will go as a hard cash penalty to the states, which can use them for legal aid services, foreclosure mitigation programs, and ongoing fraud investigations in other areas (one official close to the talks feared that much of that hard cash payout will go in some Republican states toward filling their budget holes). The federal government will get a cash penalty as well. Out of that $5 billion, up to 750,000 borrowers wrongfully foreclosed upon will get a $1,800-$2,000 check if they sign up for it, the equivalent of saying to them “sorry we stole your home, here’s two months rent.”

The bulk of the money, around $17 billion, will go to principal reduction credits for troubled borrowers. The banks will not get dollar-for-dollar credit for every write-down; reductions on loans bundled in private-label mortgage-backed securities, for example, will be under 50 cents on the dollar, and write-downs for second liens (mostly home equity lines of credit) will be more like 10 cents. Housing and Urban Development Secretary Shaun Donovan believes that they will be able to get between $35-$40 billion in principal reduction in real dollars out of the settlement. Donovan became the point person on the federal level, along with DoJ, as the Administration pretty much took over the investigation and settlement process from the states, who were led by Iowa AG Tom Miller.

But even this $35-$40 billion number, which is at best a guess since the direction of the principal reduction is mostly at the discretion of the banks, pales in comparison to the negative equity in the country, which sits at $700 billion. And the banks have three years to implement the principal reductions, drawing out the loss on their books. [Emphasis added]

Look at the section in bold. What this settlement says is that if the bank stole your home – and according to the deal, banks did this to 750,000 American families (though in reality the number is much higher) – the banks will get off scot-free for $2,000. Can you imagine the Department of Justice arresting a bank robber who stole $180,000 and letting him go as long as he returned $2,000? Wouldn’t we all be bank robbers if such was the state of justice? This is quite possible the most insulting, if not the most problematic, aspect of the deal.

Dayen goes on to note that at its best, this deal will provide an almost certainly insufficient amount of principle reduction to a small fraction of underwater homeowners: “you’re talking about $20,000 (when homes are on average underwater $50,000) for 1 million borrowers (when there are 11 million underwater).” Given that being underwater is the single largest predictor of foreclosure, making someone 40% less underwater is no panacea.

If you want a much deeper analysis of the reasons why this is a bad deal, Yves Smith is a good starting place. She identifies twelve reasons to hate the settlement and frankly it’s just the tip of the iceberg as we have yet to see the text of the deal. One that is surely worth noting, though, is:

That $20 billion actually makes bank second liens sounder, so this deal is a stealth bailout that strengthens bank balance sheets at the expense of the broader public.

Gee, and here I was just thinking the other day, “Wouldn’t it be great for America if we had another bank bailout?”

The actual settlement has not been released and likely will not be released until it is filed in federal court. This lack of transparency is actually a fundamental problem, in part because the majority of the money that is in this deal will not be coming from the banks who agreed to it, but from their investors (including 401ks, public and private pension funds). The less time this agreement is fully in public before being filed in court, the less time investors will have to object to its terms.

Smith concludes her post with an important observation:

As we’ve said before, this settlement is yet another raw demonstration of who wields power in America, and it isn’t you and me. It’s bad enough to see these negotiations come to their predictable, sorry outcome. It adds insult to injury to see some try to depict it as a win for long suffering, still abused homeowners.

The fix has been in for a long time, though it was delayed because a number of Attorneys General wouldn’t agree to the direction things were heading. We are told that they are now on board because the settlement is sufficiently narrow in scope (though, again, both Dayen and Smith highlight some ways in which that is not believable). Until we see the actual settlement, it’s impossible to know whether this is truly narrow in scope. But even if it is, the idea that there be any immunity as part of any settlement of any area of criminal behavior which has not been fully investigated is a heartbreaking testament of the failures of system of justice.

As the sign at Occupy Wall Street said, shit is fucked up and bullshit.

More settlement happenings

Yves Smith:

If the Administration had really changed its stance on bank misdeeds, you’d see it putting the settlement on hold until the investigations led by Schneiderman had been concluded. The fact that they mortgage settlement is proceeding on schedule says this the Administration is, as before, trying to cover up its bank-favoring actions with better propaganda.

It’s really hard to disagree with this assessment of the state of play.

To make matters worse, Smith has another post looking at the scope of the settlement and the implications of a number of the specific questions Nevada AG Catherine Cortez Masto raised in relation to how broad or narrow the liability release that goes along with the settlement will be. Smith also points out that while the press is on to get California to join the deal (latest reports show CA was offered $15 billion out of the $25 billion package), other AGs don’t know how much money their state will get or how allocation of that money will be decided. In short, the push seems to be to get people to sign on to a deal that prevents states from prosecuting banks for robosigning, for forging mortgage assignments, for committing perjury and fraud, and doing so with zero guarantee that their state’s citizens will get financial relief from the settlement. Smith writes, “It is hard to fathom how any responsible attorney general can agree to this deal not knowing what they are getting for their constituents.” Agreed.

I’m by no means convinced that a deal will come in the immediate future. There appear to be too many outstanding questions for the outside AGs to get back in the fold. But then again, the promise of the Schneiderman task force may be enough to move people.

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 Whitehouse.gov 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.

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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.