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Intro: "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."

Matt Taibbi at Skylight Studio in New York, 10/27/10. (photo: Neilson Barnard/Getty Images)
Matt Taibbi at Skylight Studio in New York, 10/27/10. (photo: Neilson Barnard/Getty Images)



Is Obama's 'Economic Populism' for Real?

By Matt Taibbi, Rolling Stone

27 January 12

 

here 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.

There is already a great debate afoot about the meaning of these two news stories, which surely are related in some form or another. Some observers worry that Schneiderman, who over the summer was building a rep as the Eliot Ness of the Wall Street fraud era, has sold out and is abandoning his hard-line stance on foreclosure in return for a splashy federal posting.

Others looked at his appointment in conjunction with other recent developments - like the news that Tim Geithner won't be kept on and Obama's comments about a millionaire's tax - and concluded that Barack Obama had finally gotten religion and decided to go after our corruption problem in earnest.

At the very least, Obama's recent acts were interpreted as a public move toward economic populism: if the president was looking to associate himself with that word, he did a good job, since there were literally hundreds of headlines about Obama's "populism" the day after his State of the Union speech.

I think it's impossible to know what any of this means yet. There is a lot to sort out and a lot that will bear watching in the near future. Just to recap, here's what's at stake right now:

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.

The potential liability each of the banks faces from foreclosure litigation is vastly greater than $25 billion, and uncertainty surrounding that litigation is holding the stock prices of all of the major companies (in particular struggling ones like Bank of America) down.

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.

Some people have been confused about Schneiderman's new role. The new Unit on Mortgage Origination and Securitization Abuses will not be investigating the same abuses covered in the foreclosure settlement. When the public thinks about corruption in the housing markets on the part of the big banks, what it mostly thinks of is robosigning and the other mass-perjury issues, which is the stuff targeted in the foreclosure settlement.

But in fact those problems were a tawdry little sideshow to the more serious crimes of the housing crisis. Schneiderman himself outlined the different after the announcement of the new unit's creation:

Schneiderman said Wednesday his dual roles — raising concerns about a multi-state settlement with the major banks and investigating the mortgage problem — wouldn't be at odds.

"These are abuses in the foreclosure process. Our working group is focusing on the conduct related to the pooling and the creation of mortgage-backed securities and issues relating to the conduct that created the crash, not the abuses that happened after the crash."

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.

The question is, how real of an investigation will we get? The fact that Schneiderman's co-chairs are Lanny Breuer and Robert Khuzami make me extremely skeptical. I'm actually not sure that both men, in an ideal world, wouldn't be targets of their own committee's investigation.

Before joining the SEC, Khuzami was senior counsel of the fixed-income desk at Deutsche Bank, which was creating exactly the sort of dicey CDOs that this investigation ought to be targeting.

Breuer, meanwhile, worked for the hotshot defense firm Covington and Burling, which among other things provided legal help that led to the creation of the electronic mortgage registry system MERS.

The MERS issues are probably more the province of the foreclosure settlement, but the banks' joint efforts to evade the paper registry system are certainly an element of the larger effort to defraud MBS investors that will be covered by this committee. In fact, I'm not sure that mortgage securitization and the proliferation of CDOs and CDS could have taken place on anywhere near the scale that it did without MERS.

So having those two guys attached to Schneiderman's hip makes me wonder what is going on here. Khuzami's presence is especially odd. The theoretical reason we need a committee like this in the first place is because the federal agency that is supposed to be doing this work - the SEC - has stubbornly refused to do so.

If as SEC enforcement chief Bob Khuzami has not investigated the vast corruption involved with the creation of mortgage backed securities (it's called "securitization" - it should be policed by the SECURITIES and exchange commission), then why would he start now? Even leaving out his potential culpability from his Deutsche days, Khuzami has been part of the problem, if anything.

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. I'd rather see Schneiderman hole up in an abandoned warehouse with ten vice detectives from someplace like Detroit or Miami. And Charles Martin Smith, if they can get him.

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. And Breuer and Khuzami are not a good start.

But it’s too early to say what is going on. Everything that I’ve heard about Schneiderman in the last year leads me to believe that he’s the genuine article. I haven’t heard a single thing suggesting otherwise. But there are certainly a lot of curious elements here. For one thing, as Yves Smith points out, Schneiderman really isn’t getting much extra authority by taking this post. As New York AG he could already have taken this investigation anywhere he wanted:

It’s clear what the Administration is getting from getting Schneiderman aligned with them. It is much less clear why Schneiderman is signing up. He can investigate and prosecute NOW. He has subpoena powers, staff, and the Martin Act. He doesn’t need to join a Federal committee to get permission to do his job. And this is true for ALL the others agencies represented on this committee. They have investigative and enforcement powers they have chosen not to use. So we are supposed to believe that a group, ex Schneiderman, that has been remarkably complacent, will suddenly get religion on the mortgage front because they are all in a room and Schneiderman is a co-chair?

One thing we do know: Obama’s decision to tap Schneiderman publicly, and dump Geithner, and whisper about a millionaire’s tax, signals a shift in its public attitude toward the Wall Street corruption issue. The administration is clearly listening to the Occupy movement. Whether it’s now acting on their complaints, or just trying to look like it’s doing something, is another question. It’s way too early to tell. But it’s certainly very interesting.

 

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+21 # MidwestTom 2012-01-27 08:21
Moving Schneiderman lessens the chance that any Wall Streeters will go to jail. Under current law most of what was done was at least quasi-legal. The so called banking reform act's main push is to add transparency to a portion of the hidden banking world. It contained no real reforms to actually correct the circumstances that got us into this mess. Unless we make fundamental changes to the world of banking we will repeat the whole experience again. When the worlds bankers play in a market with over $600 TRILLION at stake, even minor mistakes can cripple the economy that 99% of us depend on. Do not expect more than 2 or 3, if any, to go to jail or be fined for more than 6 months of their income. Expect Citibank to get away with their wrist slapping fine if Schneiderman moves.
 
 
+11 # nice2blucky 2012-01-27 09:09
Quasi-legal?

Is that like Scooter Libby's treason? If it's not prosecuted, it's quasi-legal?

Anyone committing crimes, yet stands beyond prosecution, is in quasi-legal territory?
 
 
+17 # AndreM5 2012-01-27 08:55
Scheiderman is not actually "moving" as I understand it. He is still NY AG and can proceed in that office.

Since we don't know what is going on we can speculate freely. Perhaps we should think of Schneiderman as Elliot Ness and the rest of the "dirty hands" in the room as the Untouchables. You know, the old canard that it take a crook to catch a crook.

Having a few insiders in the room who know the crooks first hand can be very effective, at the very least opening channels to whistle-blowers.

I hope we find out very soon.
 
 
+34 # nice2blucky 2012-01-27 09:00
For a journalist, it is too early to say definitively whether appointing Schneiderman as co-chair of a three-person investigative body is a political ploy until results, or the lack of, are known; and for that, only time will tell. So what this is is the game inflicted against voters during an election season, where political ploys and maneuvers are the solutions.

If it's not bad enough that, after the Primary Elections, if there is a Primary challenger at all, for most voters no choice remains at all... and if it's not bad enough that a majority of traditional corporate media news outlets -- where most people get news -- are completely biased, negligent, corrupt, or incompetent and lazy, and have proven themselves incapable of providing timely, relevant, and necessary information to readers and/or viewers, which then allows people to maintain educated opinions and make informed choices and decisions...

If these things are not bad enough, politicians play games with the political clock and they use psychological ploys, complicated dynamics, and trickery to give the impression that either something important is being done or will be done after the election, though if at all, it will be cosmetic.

What we know is that Obama becomes populist during each election season, after-which it's business as usual. We know that partisan Democratic voters only need symbolic gestures, which this obviously is, to perpetuate loyalty. Mission Accomplished.
 
 
+16 # John Locke 2012-01-27 10:45
nice2blucky: Very well said, but, as for your first point, I believe we can assume certain events will happen by the very nature of the people dealing with the issue, "The fact that Schneiderman's co-chairs are Lanny Breuer and Robert Khuzami make me extremely skeptical. I'm actually not sure that both men, in an ideal world, wouldn't be targets of their own committee's investigation". That comment by Tibbi, says a great deal about the character of these men, Lanny Breuer and Robert Khuzami would control the outcome of any investigation or action. If you are going to do a real investigation you need people who have integrity and can't be bought...the only problem is that in those circles they don't exist...
 
 
+23 # angryspittle 2012-01-27 09:04
Fool me once shame on you..........
 
 
+10 # nice2blucky 2012-01-27 09:04
Hope, eh? Good luck with that -- not that there's anything wrong with it.
 
 
+20 # Buddha 2012-01-27 09:36
Does anybody here think that there will be anything other than a total whitewash? Nobody of any power is going to go to jail. SEC gets people like Martha Stewart, not Wall St. CEO's who blew up the global economy and defrauded investors out of trillions of dollars.
 
 
+19 # spiritcallsus 2012-01-27 09:41
""What we know is that Obama becomes populist during each election season, after-which it's business as usual. We know that partisan Democratic voters only need symbolic gestures, which this obviously is, to perpetuate loyalty. Mission Accomplished.""

FOR SURE !!
 
 
0 # Okieangels 2012-01-27 20:54
Think Green...
 
 
+7 # daya11 2012-01-27 09:42
Matt... I really appreciate your reporting style..and reporting the TRUTH. I will be forwarding you some very powerful information - re Debt Truths that I have a feeling you will be delighted to read and choose to share with your readers. Blessings, Daya
 
 
+26 # fredboy 2012-01-27 09:50
Sorry, but Obama's new Wall Street focus is simply election year BS. Does anyone really believe he is sincere after spending the last 3+ years ignoring the problem and all the heartache it continues to bring to millions of Americans. I've long voted Democrat, but find this sudden, new interest in bringing justice to this matter a bit far-fetched and intellectually insulting.
 
 
+8 # dorianb@fuse.net 2012-01-27 11:31
fredboy: You said it!
 
 
+8 # dorianb@fuse.net 2012-01-27 11:37
fredboy: The first order of business for the POTUS is to do the right thing for the nation and the people. Obama is an "empty suit" and will continue to do anything to further his self-interest(s ).
 
 
+4 # bugbuster 2012-01-27 09:53
I wouldn't jump to any conclusions about Obama until his second term. The first order of business of a first term president is to get re-elected. That will happen or not happen based on the nation's economic performance. If he does anything too bold, it may satisfy the hearts of the righteous, and it may also tank the economy enough to leave us to the tender mercies of today's GOP.

Obama has navigated treacherous waters and accomplished difficult things for four years. He sees the GOP self-destructin g, but it's still early. I'm staying with him all the way.
 
 
+1 # Observer 47 2012-01-27 12:45
"I'm staying with him all the way."

---right off the cliff......
 
 
+7 # Rick Levy 2012-01-27 17:03
Quoting bugbuster:
The first order of business of a first term president is to get re-elected.


If that's the case then maybe the presidency should be changed to a one term limit of, say, six years.

That way (s)he could hit the ground running, push his/ her programs immediately and not worry about failure to get re-elected.
 
 
+19 # John Locke 2012-01-27 09:53
There were two AG's that held out from the settlement Obama was promoting. New York and California, since New Your atty gen now has sold out, The California AG will be next, and Obama will have protected his masters once again... the Fraud that these settlements represent would be something like 5 trillon dollasr for a 25 billion dollar settlement. what AG in their right mind would accept it...but more interesting what president who was interested in the people he represents would even require the states to accept it...If Obama is truely the lesser of two evils, we as a Democracy are finished...and so is the middle class...
 
 
+13 # jnestler 2012-01-27 10:27
The goal is to keep Schneiderman busy with a bunch of baloney so he doesn't keep his eye on the ball. Diffuse his focus with a couple of insiders and neutralize him as best you can. That's what they all do ... hire the "enemy" and neutralize him. Nothing new here ... more crony capitalism bs.
 
 
0 # RLF 2012-01-28 08:07
Also to put him on a committee where he is out voted...so it makes everything look hunky-dory!
 
 
+14 # cordleycoit 2012-01-27 10:39
The saddest thing about this story is that the crooks are busy setting up the next bubble and of course Obama will do nothing to stop them. Allowing his banker pals to go free puts the President in the same bag as his predecessor. Do the people have to show up with farm implements in hand to get justice?
 
 
+19 # 666 2012-01-27 10:44
I will believe Obama if he starts using RICO to go after these banks. Use RICO -- as it has been for drug dealers and other criminals -- to seize ALL their assets: the companies, their assets, and the profits the individual crooks made from this illegal activity. Then nationalize it all into one citizen-owned state bank. If it's too big to fail, then it's too big to trust to private enterprise.
 
 
+12 # Virginia 2012-01-27 10:55
One of the keys to the fraud is the Assignment of Mortgages that did not make it into the trusts. If this is in the AG package they all need to bolt. That's probably why they offered California's AG Harris $8 billion of the pittlely $25 billion in order to induce her to join tithe settlement. That's not even enough for robo-signing - let alone Assignment of Mortgage.

The assignment issues affects ALL homeowners - even if you are not in foreclosure because if there is not a timely recorded assignment to the trust (if your mortgage was securitized) - it's too late to do it now.

Massachusetts registrar, O'Brien, gave AG Holder 39,000+ fraudulent assignments to investigate and that led to nowhere...so far. So you can see the cover-up is quite massive and desperate.
 
 
+10 # MainStreetMentor 2012-01-27 11:02
"My first thought, when I heard about this deal, was that Schneiderman was deciding to compromise on robosigning and other post-securitiza tion abuses, in exchange for a mandate to go after the much bigger crimes, which took place in the origination/sec uritization stages."

Why should there be a compromise of ANY kind for ANY reason? Removing items of potential investigation ... before the investigation even takes place ... is insane! How does one reach the truth of misdeeds, if the potential misdeeds are never examined ...???
 
 
+5 # molesoul 2012-01-27 12:42
"How does one reach the truth of misdeeds, if the potential misdeeds are never examined ...???"

Getting to the truth of what caused the financial crisis, including those relating to foreclosures, not only needs to happen, but needs to take place in a very public way, like with live televised congressional hearings (a la Watergate hearings). If they are cutting deals right and left, it will only provide further proof that the government can never be trusted. There is a real opportunity here to demonstrate that American justice works the same way for the 1% as it does for the 99%. I hope someone in the Administration is thinking about this. Restoring public trust in government is absolutely critical to fixing our f***** up political system and to building the political capital and will needed to fix the economy.
 
 
+4 # LeeMG 2012-01-28 07:30
Subject: RANT: One Hand Reform
How does one deflect reform? They can be counted on the fingers of one hand.

First; appoint a committee. Second; give the committee five co-chairs. Third; appoint three of the five co-chairs who are associated with those who caused the crisis. Fourth; Give them the task of investigating practices as related to a 1989 year law before the techniques were invented. Fifth; Suggest that present investigation and prosecutions by states or other agencies be delayed until the committee reports its findings.
 
 
+2 # RLF 2012-01-28 08:09
Nailed it LeeMG! This is how you make a squeaking wheel go away!
 

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