Despite the efforts of our public officials and bankers to ignore it, downplay it, paper it over or make it disappear, the fraud surrounding the mortgages at the heart of the financial collapse is the scandal that won’t go away.
Two big stories breaking over the past week showed what strong legs the scandal has. First, Huffington Post reported on a series of confidential audits that showed five of the country’s largest mortgage companies defrauded taxpayers in their handling of foreclosures on homes purchased with government-backed loans.
Then the New York Times and others trumpeted an investigation of the mortgage securitization process by New York’s new state attorney general, Eric Schneiderman. This investigation won strong praise from two of the toughest watchdogs on the financial beat, Matt Taibbi at Rolling Stone and Robert Scheer at Truthdig, who portrayed Schneiderman as a hared-charging prosecutor who unlike the feds and other state attorney generals, is not intimidated by Wall Street.
But Reuters financial blogger Felix Salmon argued that confidential audits, which were turned over to the Justice Department were a much bigger story than Schneiderman’s investigation.
Until Schneiderman’s investigation bear some fruit, I think history suggests we should be skeptical of officials who claim they are going to get tough on the banks and protect consumers.
Salmon pinpoints the real significance of the Schneiderman investigation – the continuing cracks in the state attorney general’s 50-state coalition that was negotiating with the banks to settle claims of mortgage fraud. Some Republicans had already criticized the state attorney generals for being too tough on the banks, referring to a proposed settlement as a shakedown. Other critics have raised questions about whether the attorney generals are being too soft, having sat down to negotiate without having done robust investigations first to gather ammunition.
Whatever the outcome of these on-going investigations’s, the week’s news guarantees one thing – the mortgage fraud scandal, and its offspring the foreclosure scandal, are not going away any time soon.