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Instead Of Solving a Problem – Form a Committee

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It’s become a stale joke about the Obama administration.  Every time a demand is made for the White House to take decisive action on an important issue  .  .  .  the President’s solution is always the same:  Form a committee to study the matter.

In my last posting, I discussed the January 20 article written by Scot Paltrow for Reuters, which revealed that Attorney General Eric Hold-harmless and Lanny Breuer, head of the Justice Department’s criminal division, had been partners in the Washington law firm, Covington & Burling.  As Scot Paltrow pointed out, during the years while Holder and Breuer were partners at Covington, the firm’s clients included the four largest U.S. banks – Bank of America, Citigroup, JP Morgan Chase and Wells Fargo & Co.

Less than a week after publication of Paltrow’s report, which raised “conflict of interest” questions concerning Holder’s reluctance to prosecute banks or mortgage servicers for fraudulent foreclosure practices, President Obama delivered his State of the Union address.  With Paltrow’s revelations still fresh in my mind, I was particularly surprised to hear President Obama make the following statement:

And tonight, I am asking my Attorney General to create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis.  This 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.

If it weren’t bad enough that critics had already been complaining about the Attorney General’s failure to prosecute mortgage fraud cases, Obama has most recently appointed Holder to supervise “investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis”.  It’s hard to avoid the assumption that those “investigations” will lead to nowhere.  By Wednesday, I found that I was not alone in my cynicism concerning what is now called the Office of Mortgage Origination and Securitization Abuses.

Wednesday morning brought an essay by Yves Smith of Naked Capitalism, in which she expressed dread about the possibility that New York Attorney General Eric Schneiderman may have been seduced by Team Obama to join the effort exerting pressure on each Attorney General from every state to consent to a settlement of any and all claims against the banksters arising from their fraudulent foreclosure practices.  Each state is being asked to release the banks from criminal and civil liability in return for a share of the $25 billion settlement package.  Ms. Smith compared that initiative with Obama’s most recent announcement about the Office of Mortgage Origination and Securitization Abuses:

So get this:  this is a committee that will “investigate.”    .   .   .  Neil Barofsky, former prosecutor and head of SIGTARP, doesn’t buy the logic of this committee either:

Neil Barofsky @neilbarofsky

If task force created either b/c DOJ hasn’t done an investigation, or b/c 3-yr investigation a failure, how does Holder keep his job?

A lot of soi-disant liberal groups have fallen in line with Obama messaging, which was the plan (I already have the predictable congratulatory Move On e-mail in my inbox). Let’s get real.  The wee problem is that this committee looks like yet another bit of theater for the Administration to pretend, yet again, that it is Doing Something, while scoring a twofer by getting Schneiderman, who has been a pretty effective opponent, hobbled.

If you wanted a real investigation, you get a real independent investigator, with a real budget and staffing, and turn him loose.  We had the FCIC which had a lot of hearings and produced a readable book that said everyone was responsible for the mortgage crisis, which was tantamount to saying no one was responsible.  We even had an eleven-regulator Foreclosure Task Force that looked at 2800 loan files (and a mere 100 foreclosures) and found nothing very much wrong.

Neil Barofsky’s question deserves repetition:  Why does Attorney General Eric Hold-harmless still have his job if – after three years – the Justice Department has taken no action against those responsible for originating and securitizing the risky mortgages which led to the housing crisis?

David Dayen of Firedoglake weighed-in with his own skeptical take on Obama’s purported crakdown on mortgage origination and securitization abuses:

First of all, this becomes part of a three year-old Financial Fraud Task Force which has done approximately nothing on Wall Street accountability outside of a few insider trading arrests.  So that’s the context of this investigative panel, part of the same entity that has spun its wheels.  Second, the panel would only look at origination, where there have been plenty of lawsuits and where the main offenders are all out of business, and securitization, which may aid investors (that includes pension funds, of course) but not necessarily homeowners.     .   .   .

Given the fact that this is an election year, President Obama knows that mere lip service toward a populist cause will not be enough to win back those disgruntled former supporters, who have now learned – the hard way – that talk is cheap.  Obama is now going the extra mile – he’s forming a committee!  Trouble is – those disgruntled former supporters have already learned that committee formation is simply the disingenuous “follow-through” on a false campaign promise.  Nice try, Mr. President!


 

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Goldman Sachs In The Crosshairs

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Last December, I expressed my disappointment and skepticism that the culprits responsible for having caused the financial crisis would ever be brought to justice.  I found it hard to understand why neither the Securities and Exchange Commission nor the Justice Department would be willing to investigate malefaction, which I described in the following terms:

We often hear the expression “crime of the century” to describe some sensational act of blood lust.  Nevertheless, keep in mind that the financial crisis resulted from a massive fraud scheme, involving the packaging and “securitization” of mortgages known to be “liars’ loans”, which were then sold to unsuspecting investors by the creators of those products – who happened to be betting against the value of those items.  In consideration of the fact that the credit crisis resulting from this scam caused fifteen million people to lose their jobs as well as an expected 8 – 12 million foreclosures by 2012, one may easily conclude that this fraud scheme should be considered the crime of both the last century as well as the current century.

Fortunately, the tide seems to have turned with the recent release of the Senate Investigations Subcommittee report on the financial crisis.  The two-year, bipartisan investigation, led by Senators Carl Levin (D-Michigan) and Tom Coburn (R-Oklahoma) has given rise to new hope that the banks responsible for causing the financial crisis – particularly Goldman Sachs – could face criminal prosecution.  Tom Braithwaite of the Financial Times put it this way:

The Senate report criticised rating agencies, regulators and other banks.  But Goldman has drawn particular focus.  Eric Holder, attorney-general, said this month the justice department was looking at the report “that deals with Goldman”.

Will Attorney General Eric Hold-harmless initiate criminal proceedings against President Obama’s leading private source of 2008 campaign contributions?  I doubt it.  Nevertheless, the widespread meme that no laws were violated by Goldman or any of the other Wall Street megabanks, is coming under increased attack.  Matt Taibbi recently wrote an excellent piece for Rolling Stone entitled, “The People vs. Goldman Sachs”, which took a humorous jab at those who deny that the financial crisis resulted from illegal activity:

Defenders of Goldman have been quick to insist that while the bank may have had a few ethical slips here and there, its only real offense was being too good at making money.  We now know, unequivocally, that this is bullshit.  Goldman isn’t a pudgy housewife who broke her diet with a few Nilla Wafers between meals – it’s an advanced-stage, 1,100-pound medical emergency who hasn’t left his apartment in six years, and is found by paramedics buried up to his eyes in cupcake wrappers and pizza boxes.  If the evidence in the Levin report is ignored, then Goldman will have achieved a kind of corrupt-enterprise nirvana.  Caught, but still free:  above the law.

Taibbi focused on the easiest case to prosecute:  a perjury charge against Goldman CEO Lloyd Blankfein for his testimony before the Levin-Coburn Senate Subcommittee.  Blankfein denied under oath that his firm had a “short” position, betting against the very Collateralized Debt Obligations (CDOs) that Goldman had been selling to its customers.  As Taibbi pointed out, this conflict of interest was the subject of a book by Michael Lewis entitled, The Big Short.  At issue is the response Blankfein gave to the question about whether Goldman Sachs had such a short position:

“Much has been said about the supposedly massive short Goldman Sachs had on the U.S. housing market.  The fact is, we were not consistently or significantly net-short the market in residential mortgage-related products in 2007 and 2008.  We didn’t have a massive short against the housing market, and we certainly did not bet against our clients.”

As Tom Braithwaite explained in the Financial Times, Senator Levin expressed concern that Blankfein could defend a perjury charge, based on his use of the words “consistently or significantly” in the above-quoted response.  Levin’s concern is that those words could be deemed significantly equivocal as to prevent the characterization of Blankfein’s response as a denial that Goldman had such a short position.  Nevertheless, the last sentence of the response is an unqualified, compound statement, which could support a perjury charge:

We didn’t have a massive short against the housing market, and we certainly did not bet against our clients.

I would be very amused to watch someone make the specious argument that Goldman’s $13 billion short position was not “massive”.

Meanwhile, New York Attorney General Eric Schneiderman is moving ahead to pursue an investigation concerning the role of the Wall Street banks in causing the financial crisis.  Gretchen Morgenson of The New York Times provided this explanation of Schneiderman’s current effort:

The New York attorney general has requested information and documents in recent weeks from three major Wall Street banks about their mortgage securities operations during the credit boom, indicating the existence of a new investigation into practices that contributed to billions in mortgage losses.

*   *   *

It is unclear which parts of the byzantine securitization process Mr. Schneiderman is focusing on. His spokesman said the attorney general would not comment on the investigation, which is in its early stages.

*   *   *

The requests for information by Mr. Schneiderman’s office also seem to confirm that the New York attorney general is operating independently of peers from other states who are negotiating a broad settlement with large banks over foreclosure practices.

By opening a new inquiry into bank practices, Mr. Schneiderman has indicated his unwillingness to accept one of the settlement’s terms proposed by financial institutions – that is, a broad agreement by regulators not to conduct additional investigations into the banks’ activities during the mortgage crisis.  Mr. Schneiderman has said in recent weeks that signing such a release was unacceptable.

*   *   *

It is unclear whether Mr. Schneiderman’s investigation will be pursued as a criminal or civil matter.

Are the banksters running scared yet?  John Carney of CNBC’s NetNet blog, noted some developments, which could signal that some potential “persons of interest” might be seeking cover:

A Warning Sign:  CFOs Resigning

The chief financial officers of both Wells Fargo and Bank of America recently resigned.  JPMorgan Chase replaced its CFO last year.  While each of these moves has been spun as benign news by the banks, it could be a warning sign that something is deeply amiss.

Hope springs eternal!


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