Such a grandiose statement is not only self-promoting, and thus suspect on its face, it’s also just not true.
Granted, Republicans have been as large an obstruction to the Obama administration as would a tennis ball be to a bowel movement — but historic?
Come on Mr. Attorney General! No. Hell No!
Four years after the near collapse of their financial system, Americans have, correctly, a sinking suspicion that justice not only has not been served, it has been abjectly avoided. Financial fraud claims against companies like Citigroup and Bank of America have been settled for pennies on the dollar, with no admission of wrongdoing. Investment Bank CEOs who ran companies that made, packaged and sold trillions of dollars in toxic mortgages and mortgage-backed securities remain largely untouched if not financially improved.
Merely saying that most of the disappointment with the Obama administration is due to its failure to go after the offenders would be an understatement of gargantuan proportions.
Resources to investigate these wrongdoings have been consistently inadequate for the size and scope of the financial assault perpetrated against our economy and American citizens. Trillions of dollars in household wealth was wiped out resulting in 30 million people jobless or underemployed. The Financial Crisis Inquiry Commission, which Congress created to examine the full scope of the crisis, was given a budget of $9.8 million but very little, if any new information was reported.
The final report from the investigation was completed last year, but given the resources that were expended, it may as well have never been commissioned at all.
Included in The Financial Crisis Inquiry Commission’s report was evidence about Clayton Holdings LLC, a company hired by more than 20 major financial institutions to perform “due diligence” on mortgage loans that companies were buying, bundling and selling. Clayton sampled approximately three percent of those mortgages and found a significant number of defective loans. Yet the other 97 percent were never sampled at all, and the information regarding significant loan defects were never disclosed to investors.
The lack of traditional sampling caused the Commission to raise, “the question of whether the disclosures were materially misleading, [thus] in violation of securities laws.”
In numerous court cases, plaintiffs, including the Federal Housing Finance Agency, have cited this evidence to support their claims of fraud and misrepresentation. Inexplicably, there is no indication that the Justice Department promptly convened a high-level investigation to thoroughly examine who knew what or when at these banks. In contrast, after the savings-and-loan debacle of the late 1980s, more than 1,000 bank and thrift executives were convicted of felonies.
The long overdue creation of a Residential Mortgage-Backed Securities Working Group, led by federal officials along with New York State’s aggressive attorney general, Eric T. Schneiderman, offers at least slim hope that the needed surge of investigations and enforcement may finally be initiated. But for it to succeed, the Obama administration must give the group the wherewithal to do so and the following must occur:
- First, the working group must have an independent staff with a sufficient budget and expertise to properly do the job. This is absolutely vital given the bureaucratic lack of impetus thus far. As prescribed by A.G. Holder, 55 lawyers, investigators and other staff members is a start, but far short of what is needed. And the new working group also needs to be free from political meddling, including from the House Republicans who have regularly run interference for their big-bank allies.
- Second, bank regulators, who are currently not part of the group, should be, just as they were during the savings-and-loan crisis. During the deregulatory mania that led up to the crisis, regulators like the Federal Reserve, the Office of the Comptroller of the Currency and the Office of Thrift Supervision (since abolished) made next to no referrals. Regulators can begin to atone for their past laxity by helping the working group now.
- Third, the working group’s scope needs to be broader and include mortgage origination, not just securitization. It should abstain from having a narrow view of mortgage fraud that focuses primarily on borrowers in favor of one that also includes the wholesale creation, sale and packaging of the defective mortgages, including any complicit corporate executives.
- Finally, the working group needs to prioritize the cases that caused the biggest losses and damage, and coordinate with state attorneys general like Mr. Schneiderman.
The clock is ticking.
During the S.&L. crisis, Congress extended the statute of limitations five years to ten years for financial fraud affecting banks and other types of financial institutions, but it’s already been nearly eight years since the F.B.I.’s now famous warning of an epidemic of mortgage fraud.
Congress should re-visit the law to ensure that the 10-year period applies to the range of activities and institutions under investigation by the working group. Of course it should also extend the statute of limitations if necessary to ensure a thorough investigation.
These laws, if neither vigorously pursued nor enforced, will not only fail to deter future malfeasance, it will encourage it.
Equally important, the American people need to believe that a thorough investigation has been conducted and that:
- Our judicial system has the capability and will to be fair to all, regardless of wealth and power, and
- That the terrible toll brought upon citizens of this country has been corrected.