The President has adopted the language of the 99 percent, and it's paying off for him. He's surged from a position slightly behind Mitt Romney in last month's CNN polling to a 52 percent-45 percent lead against the Republican this week. While other factors were involved, his new rhetoric about income inequality and forcing everybody to "play by the same rules" resonated especially well with voters who have seen their government enforce one rule of conduct for Wall Street and another for the rest of us.
Unfortunately, his Administration hasn’t backed up that rhetoric with action. It has steadfastly refused to investigate and prosecute the bank crimes who brought this economy to its knees. So have the chief law enforcement officials for most states. Instead they’re trying to cut sweetheart deals that would let crooked bankers go with a slap on the wrist.
People are getting fed up. Grassroots outrage against the lack of prosecutions is giving rise to organized citizen action who are protesting these injustices under a "fair settlement" banner. Will this public backlash become strong enough to finally force national and state governments to enforce the law and protect the economy?
The Excuse Makers
If excuses were investigations there'd be justice for everyone. But only a handful of state Attorneys General, led by New York's Eric Schneiderman, have been willing to stand up to big bankers and their friends in high places. The President himself has been serving as Excuse Maker-in-Chief, as when he told 60 Minutes that “Some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn’t illegal."
That's right, of course, in a literal "what the meaning of 'is' is" sense.. Some of the damaging behavior wasn't illegal. And some car accidents aren't caused by drunk drivers. But many, if not most of them, are. If a country road was littered with whiskey bottles and corpses, and the county sheriff hadn't booked anyone for a DUI in three years, people would be asking why he's not doing his job.
That's what many people are asking about this President and his Justice Department.
You can't set your foot down around this place without stepping in excuses. Another Administration official told a bank-friendly reporter at the Wall Street Journal that it’s too difficult to win convictions for crimes that are as as complicated as banking fraud. “Our job is too hard,” the Justice Department seems to be saying.
But it wasn’t too hard in the 1980s, when a fairly bank-friendly President named Ronald Reagan was running the Federal government. More than 1,000 bankers were convicted in the Savings & Loan scandal for crimes that were very similar to the ones that led to the 2008 financial crisis. A man named Bill Black led the investigations that resulted in those convictions, and the Obama Justice Department hasn’t even asked for his advice.
It isn’t hard for juries to understand lying, either, and stock fraud is usually a case of somebody lying to someone else. There seem to be some pretty clear-cut cases of it lying around waiting to be prosecuted. There is widely documented fraud involving false title documents submitted in foreclosure proceedings; several big banks have already admitted to illegally foreclosing on military families,and investigations show that nearly 5,000 military families may have been illegally evicted; and there's very compelling evidence regarding my former employer AIG.
And it isn’t hard to understand widespread and organized rings designed to forge court documents, commit perjury, and evade state taxes. And yet that’s exactly what big banks did in order to commit massive foreclosure fraud on US homeowners.
People who are familiar with Wall Street fraud have come to believe that the Obama Justice Department just doesn’t want to investigate and prosecute bankers.It's gone to great lengths to avoid prosecuting them. In fact, that’s become so clear to Steve Linnick, Inspector General of the Federal Housing Finance Agency, that he’s stopped referring potential criminal cases to the Justice Department at all. Instead he’s started sending them to Mr. Schneiderman, who has broad power to bring prosecute financial wrongdoing under a 1927 New York law called the Martin Act.
There is one Attorney General for each of the fifty states. Each of them has the ability to prosecute the crimes committed by banks in their own jurisdictions. They can also cooperate with Mr. Schneiderman, whose authority under the Martin Act extends across state lines. That power gives state AGs another tool for protecting their state’s residents from fraud and bringing criminal bankers to justice.
And yet, only a handful of brave Attorneys General are willing to enforce the law against bankers. In one way or another, Schneiderman’s battle is also being waged by Martha Coakley in Massachusetts, Kamala Harris of California, Beau Biden of Delaware, Jack Conway of Kentucky, and Catherine Cortez Masto of Nevada.
That leaves forty-two other states whose AGs are refusing to enforce the law. And the Obama Administration isn’t content to just let bad bankers go free to commit more crimes. It’s also pressuring the AGs to accept a cushy deal with the banks that would leave crimes unpunished, homeowners unsafe, and bank fraud victims uncompensated.
It’s been a long time coming, but the backlash is here. Occupy Wall Street lit the fire with its “one demand” – an end to the insanity and a realization that bankers and other oligarchs rule the economy like a medieval fiefdom. And now the demand for economic justice is reaching into state governments and the Department of Justice.
A loose coalition of groups is demanding that more Attorneys General prosecute of bank crimes aggressively, offering support for those who are already moving, and calling on the states to reject the cushy deal that the Federal government and some of the AGs are trying to cut with the banks.
Independent citizen groups and progressive organizations are forming alliances at the state level with unions like the AFL-CIO and SEIU, as well as groups such as Clergy and Laity for Economic Justice. Californians for a Fair Settlement, Pennsyvanians for a Fair Settlement, Nevadans for a Fair Settlement and other state teams have begun putting pressure on each state’s Attorney General to reject the Administration-backed deal and immediately begin aggressive investigations and prosecutions.
Like David Dayen, I’m hesitant to embrace the “fair settlement” framing completely until some of those investigations are further along. Based on the overwhelming evidence we’ve seen so far, a truly fair resolution will probably involve handcuffs, orange jumpsuits, and perp walks along with a financial deal. Financial restitution will need to include, at a minimum:
- substantial principal reductions for underwater homeowners, along with lower interest rates;
- a breakup or restructuring of the “MERS” shell game so that it no longer enables deceit, tax evasion, and the conversion of home mortgages from a two-party contract to a commodity bankers can trade and sell without regard to property rights;
- the right to rent a home that has become distressed; and,
- a loan modification facility that is not administered by the banks themselves.
“Fair Settlement” is a good enough umbrella under which to place these demands, as long as it’s clear that prosecutions and real restitution are vital elements of fairness. The question now is, How strong will this movement become? Will the public back these groups in demanding justice and rejecting any more cushy bank deals? If they don’t, the country will have serious problems in the years to come.
The President is enjoying the fruits of his rhetoric this week, and it's excellent rhetoric. But he'll need to match his words to his deeds if he wants the rewards to continue, and that means directing his Justice Department to drop the cushy bank agreement and start prosecuting Wall Street wrongdoers. And voters are likely to be unforgiving of state politicians who won the office of Attorney General by promising to uphold the law and then turn a blind eye to "wrong" acts by the "right" people.
It’s bad enough to watch powerful people break the law with impunity, shatter the economy, get rescued with taxpayer dollars, and then get to scoff at the law as they walk away unpunished. Here’s what’s even worse: If they’re not brought to justice, they’ll do it again.