Neil Barofsky for SEC Chair

Matt Stoller interviews Neil Barofsky, who says he’d be happy to serve as chairman of the SEC, if the President nominates him. He and Stoller talk about what he would do as SEC Chair and the important role the SEC has to play to regulate the banking system and make sure we don’t ever go through another collapse like 2008.

Barofsky would make a stellar pick for the SEC. Not that my opinion goes far, but still, he’d be a great choice.


Conor Friedersdorf of The Atlantic on Robert Gibbs’ defense of the unjustifiable killing of a teenage American citizen by a drone strike.

note that this kid wasn’t killed in the same drone strike as his father. He was hit by a drone strike elsewhere, and by the time he was killed, his father had already been dead for two weeks. Gibbs nevertheless defends the strike, not by arguing that the kid was a threat, or that killing him was an accident, but by saying that his late father irresponsibly joined al Qaeda terrorists. Killing an American citizen without due process on that logic ought to be grounds for impeachment. Is that the real answer? Or would the Obama Administration like to clarify its reasoning? Any Congress that respected its oversight responsibilities would get to the bottom of this.

There are a lot of arguments to be made about how both the Bush and Obama administrations have waged a war against radical Islamic terrorists. But the idea that there is any justification, legal or moral, for the murder of Abdulrahman al-Awlaki, a sixteen year-old American citizen without any due process is simply outrageous. This was unjustifiable and it is one of the darkest stains on the Obama presidency.

Supreme Court locks in telecom retroactive immunity

Glenn Greenwald reports that the US Supreme Court has declined to hear a lawsuit by the EFF and ACLU that sought to overturn the FISA Re-authorization wherein Congress (including Senator Obama) granted US telecoms companies retroactive immunity for assisting the Bush administration wiretap US citizens without warrant. Greenwald has been writing on this issue since December 2005 when it first broke (as have I, though with less skill) and he has some strong reactions to the decision which are absolutely worth reading. Glenn concludes with tongue firmly in cheeck:

So congratulations are once again in order for AT&T, Verizon, Sprint and the other national telecom giants. In a country that imprisons more of its ordinary citizens than any other on the planet by far, and that imposes more unforgiving punishments than any other western nation, our most powerful corporate actors once again find total impunity even for the most serious of lawbreaking.

I can’t say that I’m surprised that the Supreme Court – a consistently radical conservative body – stood on the side of the telecom companies. It was less surprising given that this is an area where bipartisan consensus was effectively that the telecoms should not be punished for helping the Bush administration illegally spy on Americans. The FISA Re-authorization Act was passed after 10 months of liberal opposition, lead by my former boss Senator Chris Dodd. One of the votes for the legislation was Senator Barack Obama, who had the nomination secured at the time of the vote, but during the Democratic primary had promised to filibuster any legislation that contained retroactive immunity. Thus President Obama entered the Oval Office as a firm, documented supporter of retroactive immunity for the telecoms, joined by essentially all of the Republican Party and nearly half of the Democrats in the House and Senate. There are few issues where real bipartisan consensus can be document in both rhetoric and action as the move to protect these telecoms from criminal sanction. The Court’s position, while radical in a true sense, is sadly squarely in line with what the other two branches of government believe. There is no abuse they deem fit to check, there is no extreme they must act to balance.

Seven years after the New York Times revealed a regime of flagrant, systemic violations of a duly-passed law whose efficacy of being implemented in ways that allowed law enforcement to protect our country, the book is essentially closed on any chance for accountability. As we have seen over the last four years regarding Wall Street accountability, there is no desire by either party’s leadership to enforce the law when major corporations are caught breaking it.

Having spent a significant amount of time working to stop and writing in opposition to retroactive immunity for telecoms (just as I’ve now spent a significant amount of time pushing to hold Wall Street banks accountable for their criminal behaviors), it’s incredibly sad for me to see this issue comes to what will almost certainly be its final resolution.

The pursuit of retroactive immunity for flagrant, documented lawlessness by the telecoms makes clear that not only are the most powerful corporations subject to a genuinely different regime than the rest of us, but that when such a regime of protection does not immediately exist, political elites will work tirelessly to create a haven for their financial elite friends and backers. For all the talk of the greatness of our country, our Constitution, and our foundational belief in equality in the eyes of the law, it’s clear that these are nothing more than warm aphorisms with the operational force of a slight breeze so long as the well-being of the powerful is at stake.

As frustrating as this is to see, it’s equally informative. Seeing the alignment between Republicans and Democrats, especially leaders like President Obama, on this issue is telling. While I may not be happy that this is where President Obama stands on this issue, he has been clear and consistent in his position since 2008. For all of those Democrats who fought tooth and nail from 2005 until the passage of retroactive immunity in 2008, I hope that you will remember this issue and this fight. What has happened this week is no less outrageous than the passage of retroactive immunity in July of 2008 and no less outrageous than the implementation of the Bush administration’s warrantless wiretapping programs in the first place. It is a black mark on our country’s reputation for upholding the rule of law and one which we won’t likely remove for a long time.

OFA’s Big Bird Ad & Wall Street Accountability

This is a funny, hard hitting ad by the Obama campaign on what may have been the biggest mistake Mitt Romney made in last week’s debate.

Except David Dayen notes that the OFA ad has a bit of a problem with who it puts up as Wall Street criminals:

Let’s look at that litany of Wall Street “criminals” and “gluttons of greed,” which later get juxtaposed with Big Bird. You have Bernie Madoff, Ken Lay and Dennis Kozlowski. So two CEOs prosecuted and convicted by George W. Bush’s Justice Department, and Madoff, whose son turned him in before Obama took office, in December 2008, and who pleaded guilty.

So the Obama campaign could not fill a list of three Wall Street criminals that the Obama Justice Department actually sent to jail. Heck, they couldn’t fill a list of one!

This is despite Eric Holder telling students at Columbia University in February of this year that his Justice Department’s record of success on fighting financial fraud crimes “has been nothing less than historic.” But not historic enough that his boss could point to, well, one Wall Street criminal behind bars as a result of DoJ’s actions.

That’s painfully telling. Nobody from Bank of America or Wells Fargo or Citigroup or JPMorgan Chase or Goldman Sachs or Bear Stearns or Morgan Stanley or Merrill Lynch or even Countrywide or Ameriquest was available to stand in as a “glutton of greed” in this advertisement. Literally no major figure responsible for the financial crisis has gone to jail. So the campaign has to use two CEOs from a decade-old accounting scandal, and a garden-variety Ponzi schemer. The financial crisis plays no role in this advertisement trying to juxtapose cuts to PBS with the financial crisis!

Yeah this is pretty revealing and it’s not flattering towards the President and his Department of Justice at all.

As is so often the case with President Obama, the rhetoric sounds a whole lot better on first blush than on close examination.

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.