p>When President Obama announced in the State of the Union speech that he would seek accountability in the foreclosure crisis, it denoted a sharp turnabout. The pressure to finalize his controversial 50-state robosigning immunity settlement had been mounting, as had protests and petitions against it, taken up by groups like MoveOn, voices in Congress and the indie press, including our article here. From the SOTU:
"We will also establish a Financial Crimes Unit of highly trained investigators to crack down on large-scale fraud and protect people's investments"[t]his new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans."
Obama's sudden interest in justice led him to appoint none other than NY Attorney General Eric Schneiderman as co-chair of a new Residential Mortgage-Backed Securities Working Group. Yes, Schneiderman who had been the most visible opponent of the 50-state settlement, seeking to catch fraudsters while Obama's DOJ and SEC were forging lenient settlements in backroom "deferred prosecution" deals.
Now, Schneiderman is saying they will "vigorously prosecute" those who caused the economic crash of 2008, using expanded resources in tandem with these same federal agencies, as well as the IRS, FBI and FHFA. But the indie press is wary of such talk from a President who manned his administration with banking industry insiders and continues to be the largest recipient of campaign donations from Wall Street.
Schneiderman has already served subpoenas on 11 major banks and expects charges brought within 6 months but said there would be "hundreds" working in the teams allocated to the fraud unit while Eric Holder had announced only fifty-five. Ponderously, Holder also claimed "a lot" had already been done to address the 2008 crash and crisis when he announced the shift.
Even the NY Times questions why the 50-state panel would still continue negotiating immunity. The reason is likely because they still plan to grant immunity, with Obama convinced homeowner relief must come by "speedily" cutting a deal with the five big banks rather than demanding reparations, fines and indictments. Obama also asks us to "turn the page" when serious prosecutors want to finish reading it first.
Sam Stein of Huffington Post believes Schneiderman's presence in the working group will give it badly needed legitimacy, but this HuffPo piece questioned Obama's track record of inaction and spurious appointments. Robert Kuttner's HuffPo article "Hero or Goat?" gave a more comprehensive view of the thin line Schneiderman now walks, explaining the various avenues for prosecution.
Schneiderman, other pundits say, is being used only to change perceptions and will be nullified in the end. FDL's David Dayen claims Schneiderman's co-chairs Lanny Breuer and Robert Khuzami of the SEC maintain sympathies for the banking industry and will dilute his efforts. Already Dayen seems proven right in his prediction Schneiderman's presence would only speed immunity settlements. Lo the same day came word from the WSJ that Schneiderman had capitulated by agreeing to immunity in civil lawsuits for banks in certain "narrowed" robosigning cases provided criminal cases can still be brought. But this depends on what WSJ means by "narrowed".
Worse still was the item posted by Yves Smith at Naked Capitalism which calls for the all-out resignation of Robert Khuzami from the SEC. According to Der Speigel, Khuzami was Deutsche Bank's counsel during the creation of a synthetic CDO package which his SEC is now investigating. Hedge fund manager John Paulson was allegedly given the inside track on which of these securities were crappiest so he could secretly bet against them.
Smith argues Khuzami compromises the whole agency -- the SEC already granted immunity to Goldman Sachs in a similar case for $550 million, but Khuzami's position investigating products created at his former firm during his tenure exceeds the call for recusal.
Another co-chair in the RMBS working group is Tony West, a DOJ official who is also the brother-in-law of California AG Kamala Harris, feeding sentiment that Obama is making an overture to Harris.
OpedNews contributor Danny Schecter reminds voters to watch what Obama does rather than what he says, for example letting Elizabeth Warren go while keeping Tim Geithner. But what if Obama doesn't even know what he's doing? A fascinating piece by Ellen Brown of Truthout describes the complex workarounds banks use to skirt laws and transparency regulations. Experts suspect the big banks used mortgage backed securities as currency in overnight trades that exceeded FDIC insurance limits. Because they were considered safe collateral, they were used in the 'shadow banking system' that keeps transactions behind the industry curtain.
Key to this would have been the MERS system, an electronic registry that records mortgages under one big catch-all account, leaving the actual ownership of mortgages open for later settlement. Massachussetts Attorney General Martha Coakley's lawsuit took aim at MERS in December, claiming the system circumvents official land record requirements in the state.
Schneiderman promises the working group has "the jurisdiction, the resources and the will" to nail crooks, but so far it's seemed like a media-based crusade. Friday he was interviewed by Rachel Maddow, who asked why Obama waited so long. Schneiderman said Obama "came to understand" the need to prosecute. Maddow also played a clip encouraging homeowners to "lawyer up" or squat to resist or reverse foreclosures where bank paperwork is so widely, royally screwed up. Credit Maddow for exploring this issue first when she hosted Schneiderman back in October.
On Saturday, Schneiderman visited Chris Hayes who asked him if he was being co-opted by Obama -- Schneiderman acknowledged the impact of activist groups, MoveOn, labor and progressive members of Congress, but mostly the "outcry" of the great "grassroots uprising" as Obama was spurred to finally declare equal justice for everybody.
Monday night Schneiderman continued the publicity sweep sitting with Errol Lewis of NY1, and today he spoke to Brian Lehrer on WNYC-AM who also asked why Obama and Eric Holder had done so little to date. Schneiderman tactfully replied that the politics, economics and circumstances have changed as the calls for accountability got louder.
On the spot, Schneiderman gingerly acknowledged criticisms of his new colleagues at the SEC in immunity deals leveled by the public, judges and the press.
Then Lehrer asked if Obama was directly reacting to Occupy Wall Street. Schneiderman agreed the protests were a huge indication of a dire problem, the $7.4 trillion lost in US home equity during the crisis, the chief reason economic disparity has grown. But Schneiderman also believes 'no man is an island' and these stark facts along with a stronger progressive movement have prompted Obama to "retool" and "throw in more aggressively".
To my mind, it would be a terrible waste to grant civil immunity to banks for robo-signing without full payback and leveraged testimony in origination and securitization fraud probes. The banks are caught red-handed on this and need to understand the plight of the consumer for once, so authorities should not let up one bit.
In a petty, bitter footnote, Rupert Murdoch's other daily, the NY Post, ran a short announcement with the sardonic, loaded headline "Eric the "house' dick".
Cross-posted at NYaltnews.com
Update: (F3) Schneiderman files NY state suit against three big banks and MERS alleging fraud in mortgage recording practices. Massachussetts AG Martha Coakley filed a similar suit in early December.
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