No-fault settlement fuels never-ending bailout

Two striking details reveal the true nature of the highly touted national foreclosure settlement.

The first is that the banks admit no wrongdoing.

Here’s a sample of the illegality and the misconduct with which the federal authorities and the 49 state attorneys general charged the banks. It goes way beyond robo-signing, the banks’ widespread practice of using forged or unverified documents in the foreclosure process:

▪                Providing false or misleading information to borrowers,

▪                Overcharging borrowers and investors for services of dubious value,

▪                Denying relief to eligible borrowers,

▪                Foreclosing on borrowers who were pursuing loan modifications,

▪                Submitting forged or fraudulent documents and making false statements in foreclosure and bankruptcy proceedings

▪                Losing or destroying promissory notes and deeds of trust,

▪                Lying to borrowers about the reasons for denying their loan modifications,

▪                Signing affidavits without personal knowledge and under false identities,

▪                Improperly charging excessive fees related to foreclosures

▪                Foreclosing on service members on active duty

▪                Making false claims to the government for insurance coverage

But the feds and the state attorneys general want to let the banks off the hook without having to admit to any of it.

This is the kind of no-fault settlement for which the Securities and Exchange Commission has increasingly come under fire, [but which companies agree to as a cost of doing business. For example, the national foreclosure settlement only costs the banks about $5 billion in real money, a drop in the bucket compared to their profits. It’s not enough to actually deter the banks from future bad conduct.

The rest of its estimated $25 billion value is supposed to be determined by a complex series of credits that the bankers get for what they should be doing anyway – modifying mortgage loans and offering principal reductions to underwater homeowners.

The authorities still have to get a judge in Washington, D.C. to sign off on it.

Too bad the settlement wasn’t presented to U.S. District Judge Jed Rakoff in New York, who’s been adamant in questioning no-fault settlements and refusing to rubber stamp them.

His comments, though directed at the SEC, are relevant to the national foreclosure settlement.

Rejecting an SEC no-fault settlement with Citigroup last November, Judge Rakoff said that such settlements are “hallowed by history, but not by reason” and create the potential for abuse because they ask “the court to employ its power and assert its authority when it does not know the facts.”

Rakoff questioned what government officials would get from the settlement “other than a quick headline.”

Though he was talking about an SEC settlement with Citigroup, he could have been describing the national foreclosure settlement, which exacts too little a price from banks for their wrongdoing and offers too little to homeowners.

The settlement provides that banks will spend $17 billion on principal reductions and another $3 billion on refinancings. But according to an analysis by the Brooking Institute’s Ted Gayer, less than 5 percent of the nation’s 11.1 million homeowners will qualify for help under the settlement.

It also presents the general laundry list of wrongdoing without any specificity – it names no names or specific facts. One of the big criticisms of the foreclosure settlement is that the authorities didn’t do a real law-enforcement style investigation to assemble a case before sitting down to “negotiate” the settlement, weakening their hand with the banks.

The second aspect of the foreclosure settlement that reveals its weakness is how the authorities are suggesting they’re going to monitor whether the banks will comply. Just exactly how are we going to make sure that the big banks deliver even the relatively small number of loan modifications and principal reductions they’ve promised?

According to the settlement, the banks themselves are going to self-report on their progress.

Then an “independent” monitoring committee is going to check these reports, and then levy fines if the banks aren’t hitting certain targets. But the monitors consist of the same regulators who have already facilitated the banks’ earlier failed foreclosure mitigation efforts, and have touted this current settlement as a “landmark.” Having already proved their reluctance to get tough on the banks so far, how much incentive do they have to get tough with banks later on?

It sounds flaky to me.

The whole robo-signing scandal stems from banks use of forged, false or unverified documents, poor recordkeeping and the inability of anybody in the courts or government to get the banks to follow the law or hold them accountable.

On top of that, when it comes to keeping their previous commitments to deliver loan modifications in earlier attempts to address the foreclosure crisis, the banks have failed miserably.  The investigative journalism outfit Pro Publica has assembled reams of data about the shortcomings of previous government-sponsored loan modification efforts.

So now we think it’s a good idea for them to police themselves?

The entire settlement looks more like the government’s latest efforts to prop up the nation’s floundering too big to fail banks than a real attempt at either law enforcement or robust help for homeowners and the housing market.

Where is Judge Rakoff when we really need him?

 

Foreclosure / Martin Column / Outrage / Too Big To Fail - 03/14/2012

Financial Regulator Makes Itself the Target

You might think that after missing the Bernard Madoff scandal despite repeated warnings, going soft on the big banks and other questionable decisions, the Securities and Exchange Commission couldn’t get any more embarrassed.

You would be wrong.

By now you know just how lax federal authorities have been in holding any of the too big to fail bankers accountable for our economic meltdown.

The chief culprits in looking the other way on financial fraud are the Justice Department and the Securities and Exchange Commission.

But never fear, the Justice Department has leaped into action – to investigate the SEC itself for possible fraud!

Even if it doesn’t turn out to be actual criminal fraud, the mess the SEC got itself into is likely to undermine whatever remaining shred of confidence you’ve got in the troubled financial regulator and undermine its credibility.

The SEC’s latest debacle stems not from one of its investigations but from some internal agency business. It seems that agency officials signed a $557 million lease for office space it didn’t need and couldn’t afford in downtown Washington D.C. – without competitive bidding.

Among the gory details: the agency’s chief, Mary Schapiro, apparently approved the lease in a 10-minute meeting without asking any questions. Also, the agency’s inspector general found that a key document justifying the lease was dated a couple of days after the lease was made, but was actually created a month later.

When the SEC realized the Congress wasn’t going to fund it at the optimistic levels the agency had projected, SEC officials tried to back out of the lease and the owner of the office space demanded $94 million in damages.

Of course, congressional Republicans couldn’t be happier to find such ineptitude on the part of top Obama administration officials.

For Schapiro, the leasing fiasco is only the latest to raise serious questions about her leadership and judgment. Earlier, when the SEC finally did get on then Madoff case, she allowed the SEC general counsel to make crucial recommendations to increase how much Madoff’s victims would be compensated – even though the general counsel’s mother was among the victims. Schapiro told a congressional hearing that she knew of the general counsel’s personal Madoff link but allowed him to stay on the case.

When he appointed Schapiro in December 2008, President Obama praised her as “smart and tough.” She may well be. But in her performance at the SEC, she hasn't demonstrated it.

If President Obama wants to continue to signal that he’s in bed with the big banks, that he’s clueless when it comes to the notions of accountability and government ethics, and that government actually is just a cesspool of waste and incompetence, he should hang on tight to Schapiro.

But if he doesn’t, he should sack her immediately and find somebody who can do the job.

 

 

 

 

 

 

 

 

Martin Column / Securities and Exchange Commission (SEC) - 07/09/2011

Real Fraud, Faux Enforcement

The number one question people ask me when they find out I write about the financial crisis is: “How come nobody has gone to jail?”

I think I have found an explanation. His name is Robert Khuzami and he works as chief of the Securities and Exchange Commission’s enforcement division.

He is not the literal reason. SEC enforcement is civil, not criminal. So he’s not responsible for putting people in prison.

But focusing on Khuzami puts into sharp focus the conflicts at the heart of the government’s efforts to regulate and hold accountable the big banks.

Khuzami is a former federal prosecutor. But he came to the SEC from a high-profile position he took after his stint as a lawman: he served as general counsel to Deutsch Bank, one of the world’s largest investment banks, which had a massive business in the securitized mortgage loans, and was the recipient of nearly $12 billion in “backdoor bailout” federal funds funneled through AIG.

The Wall Street Journal reported that Khuzami was the first SEC enforcement chief to come directly from a big bank. He is one in a long line of Obama economic appointments with strong ties to the financial industry, who either worked for the banks directly or in their interests by favoring deregulation that was one of the major causes of the economic collapse.

Now Khuzami’s former employer, Deutsch Bank, is in hot water with the feds, who sued the bank earlier this month alleging that the “bank committed fraud and padded its pockets with undeserved income as it repeatedly lied so it could benefit from a government program that insured mortgages,” Business Week reported.

For the SEC, it’s all kosher because its stringent recusal policy assures that Khuzami won’t work on any Deutsche Bank cases.

Remember that Khuzami was not just a guy punching a clock. He was the bank’s general counsel, so he supervised legal issues for the firm.

So here was a former federal prosecutor who, in the midst of the go-go real estate boom, apparently thought it was OK for his bank to commit mortgage fraud. Zero Hedge dug up his financial disclosure statement, which reveals he was compensated nearly $4 million in salary and bonuses between 2006 and 2009, and may lose money if Deutsche Bank suffers as a result of the government’s lawsuit.

The president and the SEC, knowing what kind of mischief the too big to fail banks were engaged in during the boom, and how Khuzami had profited from it, thought it was a terrific idea to appoint somebody like him to go after his former cronies.

Khuzami’s tenure at SEC has been marred by accusations that he gave two Citibank executives preferential treatment in agreeing to drop charges against them after he met secretly with their lawyer. In January, the SEC’s inspector general said it was investigating the matter.

Is there no one but former bankers available to work in the financial sector? The president, with $1 billion to raise to fund his reelection effort, has been unwilling to dig into the fraud at the heart of the financial collapse. Until he does, the economic recovery will be built on quicksand.

 

AIG / Martin Column / President Barack Obama / Securities and Exchange Commission (SEC) / Too Big To Fail - 05/11/2011

Culture of Greed 1, Crackdown 0

When President Obama appointed his new chief of the Securities and Exchange Commission, he promised she would “crack down on the culture of greed and scheming.”

But that culture seems to be getting the better of Mary Schapiro after the resignation of her agency’s top counsel, amid allegations of questionable ethics.

That former top counsel, David Becker, is among those whose family actually made money from the massive frauds of Bernard Madoff.

As SEC general counsel, Becker recently argued for a change in policy that would have allowed his family to keep more of the fortune they made from Madoff, rather than turning it over to pay those who lost money.

Becker might have been considered a curious choice for a new tougher SEC, considering that during an earlier stint as a top SEC lawyer earlier in the decade, Becker was among those who failed to crack down on Madoff, despite highly publicized warnings.

Now Becker has decamped back to the corporate firm from where he came, leaving Schaprio, his former boss, sputtering about what she can and can’t say about what she knew about Becker’s Madoff investments and when she knew it.

This is, of course, catnip to the Republicans looking for any opportunity to embarrass the Obama administration. Never mind that they oppose any kind of regulation of the financial industry at all.

What a great gift Schapiro and Becker have handed Republicans: proof that the Obama administration’s promises to protect us from the “culture of greed and scheming” were nothing more than a sham. Meanwhile, Becker slams the swinging door in our faces and goes back to his real job – representing the interests of big banks and financial interests.

 

 

 

 

Around the Web / Martin Column / Securities and Exchange Commission (SEC) - 03/09/2011

Giving Toxic Waste a Bad Name

Face it, if we found out that a Vegas casino was run like our banking system, the worst strung out addict wouldn’t gamble there.

Even they wouldn’t be able to stand the stench.

Casino operators know you have to provide at least the appearance that the games aren’t crooked.

Casino operators know they can’t force people to spend their hard-earned money gambling on a toxic waste dump.

But the bankers and their political cronies who have been playing us for suckers forced us to pay to clean up the shambles, as well as the continuing costs of the broken economy.

Now the casino operators are trying to assure us that everything is hunky-dory, but that same foul scent is still wafting from their dumpsite. Goldman Sachs shrugs off  the Securities and Exchange Commission’s fraud charges, hiring the president’s former lawyer to fight them, while it rakes in eye-popping profits that beat even the most optimistic projections.

The man we hoped would clean up the mess, President Obama, appears at long last to be taking a more nimble, hands-on approach to financial reform than he did on health insurance reform. But the plans endorsed by him and the Democratic leadership contain too little actual reform and too much reshuffling of the same weak hand regulators have been bringing to the casino.

We’ll never win against the sharks the way the game is rigged now.

That’s the bitter lesson brought home by the revelations of the last month, from probes into the tragic bank follies of the Lehman and Washington Mutual collapses, and the  SEC lawsuit charging Goldman-Sachs with fraud.

As we learn more details of each of these debacles, they provide potent weapons  in the fight to overhaul the system that led to the financial meltdown.

Far from being an unforeseeable natural disaster, it was a predictable consequence of the system we still have in place today. In each case, the financial giants rigged the game with fraudulent bookkeeping and lack of disclosure while regulators looked the other way. And far from being isolated instances of improper conduct, the Lehman, WAMU and Goldman fiascoes are prime examples of how far the financial industry has fallen in common sense and ethical standards.

But the Democrat leadership has squandered its credibility on financial reform, offering legislation that largely preserves the status quo.

Rather than galvanizing public outrage against Wall Street into support for fundamental change to rebuild a financial system that truly serves our economy, the president and the Democratic leadership are caving in to Wall Street lobbyists and Republican obstructionists who pay lip service to reform while they block and dilute it.

Meanwhile, we’re treated to the truly disgraceful spectacle of each party accusing the other of having taken more campaign cash from Goldman-Sachs and the other major casino operators than the other.

The truth is they’re both beholden to the cash generated by the toxic dump of our financial system. The Democrats may be ahead in the fundraising game right now, but the Republicans are working hard to curry favor from Wall Street and catch up.

Meanwhile, the rest of us are left on the sidelines.

Fortunately we don’t have to stay there.
Several other Democratic senators have proposed amendments worthy of support.

Among the most articulate voices for a stronger version of reform is Sen. Ted Kaufman, D-Delaware. Along with senators Jeff Merkley, D-Oregon, Carl Levin D-MI, Sherrod Brown, D-Ohio and Jeanne Shaheen, D-N.H., Kaufman has proposed a bill that moves toward rebuilding the wall that used to separate traditional, federally guaranteed banking activities from high-risk speculative gambling. That wall was torn down when the Depression-era Glass-Steagall Act was repealed during the Clinton Administration. In addition, a conservative Democrat who faces a tough reelection fight, Blanche Lincoln, D-Arkansas, has proposed derivatives regulation that is substantially tougher than that which has been proposed by the Obama Administration.

Now is the time to clean up the casino. We have to channel our  genuine, justified anger into action to push our politicians to do the right thing, whether they want to or not.

Action / Glass-Steagel / Goldman-Sachs / Martin Column / President Barack Obama - 04/20/2010

Angelides Commission: All Puff, No Punch

Here are some early reactions to the the first hearing, now underway, of the Financial Crisis Inquiry Commission in Washington, D..C and televised on CSPAN 2.

Three hours into the FCICs much-hyped first public hearing, what’s being said is less important than what is not being said.

The bankers, beleaguered as they may like to appear, have little to fear if the questioning continues as it began.

So far, this is no Pecora Commission, the Depression-era investigation into the cause of the financial crash that led to landmark reforms including the Glass-Steagall Act and creation of the Securities and Exchange Commission.

Financial Crisis Inquiry Commission / Martin Column - 01/13/2010