Thursday, January 26, 2012

Occupy or Prosecute Wall Street?

Matt Taibbi: Mortgage and Securitization Fraud Investigation Gathers Steam:

There is a lot to digest in a recent series of events on the Prosecuting Wall Street front – the two biggest being Barack Obama’s decision to make New York Attorney General Eric Schneiderman the co-chair of a committee to investigate mortgage and securitization fraud, and the numerous rumors and leaks about an impending close to the foreclosure settlement saga.

The impending, much-discussed foreclosure settlement is the Obama administration’s great bailout initiative. If it goes through with the kind of tiny numbers being discussed ($25 billion from the banks if California is in the deal, $19 billion if California AG Kamala Harris stays out), then what we’re talking about is a bailout on par with TARP.

A settlement would release those firms from that potential liability and likely bring massive surges in stock-market investment. It would therefore have a profound strengthening effect on the Too-Big-To-Fail banks. If the Obama administration wanted to be 100% real on the Wall Street crime front, it would suspend this deal pending the investigation by the new mortgage committee. But if the deal does indeed go through, we’ll know that the banks still have major influence with our populist president.
The settlement would also be a nice, timely, election-year boost to the economy that would obviously help a president struggling to get re-elected. Sure, the masses of angry, dispossessed homeowners who were illegally tossed from their homes by Big Mortgage would make a stink (kind of like all those anti-torture, anti-Guantanamo protesters did in 2008), but Obama is famous for "looking forward, not backward" and for not wanting to "re-litigate the past." Their anger would be drowned out by a newly roaring economy.
My first thought, when I heard about this deal, was that Schneiderman was deciding to compromise on robosigning and other post-securitization abuses, in exchange for a mandate to go after the much bigger crimes, which took place in the origination/securitization stages.

The securitization offenses were massive criminal conspiracies, identically undertaken by all of the big banks, to defraud investors in mortgage-backed securities. If you’re looking for an appropriate target for a massive federal investigation, one that would get right to the heart of the corruption of the crisis era... well, they picked the right target here.

If they were to do a real clean sweep on securitization, the federal prisons would end up literally teeming with senior executives from the biggest banks. A lot of very big names would end up playing ping-pong and cards in Otisville and Englewood.
In other words, the administration seems to be saying: we'll give you a pass and immunity (via the settlement) for the crimes you committed after the Great Crash, in exchange for a full-scale investigation into the bigger crimes that took place in the run up to 2008.

The latter sounds good, until you look at the committee membership being formed to conduct these investigations. Beyond the New York AG (who may or may not be a sellout), there are other Wall Street insiders finding their way into the investigation, all under the guise of "expertise."
I would feel better about a committee that not only didn’t have a White House flack and a failed/compromised SEC enforcement chief sitting on it, but had nobody with any ties to Wall Street at all. The argument for them would be that we need someone with expertise on the committee, but I’m not buying it.

Seriously: despite what people think, the crimes we’re dealing with are not terribly complicated, and any veteran investigator would grasp the basic concept – taking worthless crap and selling it as high-end merchandise – within ten minutes. The most important element contributing to the success of a committee like this is a locked room full of clean hands.
Precisely. As Taibbi and others have noted for three years now, the "complexity" of these crimes is vastly overblown. Read this for the succinct analogy between the white-collar crimes that brought down the economy and street crimes. The nomenclature, socioeconomic status and styles of grooming may differ, but fundamentally the Street Thug and the Suite Thug are the same guy.

As I said above, all of this election-year enlightenment strikes me as disingenuous. My first reaction to the "Unit on Mortgage Origination and Securitization Abuses" was to dub it the CSI: Wall Street Unit. Like the CSI franchise, it sounds sexy, exciting, and guarantees to get the bad guys at the end of the episode, but the appearance of criminal justice, is, of course, fake. What you are watching is drama, a show that is more a writer's fantasy than it is reality.

Also, like t.v., there are re-runs. Does any of this sound familiar? It should. Obama created a "Financial Fraud Enforcement Task Force" in 2009 that never did one thing. He championed Dodd-Frank as being the kind of financial reform to protect the people from these crimes happening again, but as Matt Stoller and I have pointed out, this law too is nothing more than political theater and fantasy.

It also bugs me, at the end of the day, that the more tangible victims of foreclosure and mortgage fraud (real people, as opposed to intangible "investors") might be thrown under the bus in the name of election-year gimmickry. All of the home invasions, burglaries, robberies, kidnappings and other violent crimes committed by Big Mortgage and Big Banking would just be wiped clean for the sake of economic stimulus (and re-election).

Perhaps us critics should wait and see, and give Obama the benefit of the doubt. But after three long years of inaction (the scope and magnitude of the crimes committed is as apparent today as it was in 2008), color me skeptical.

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