New York State Attorney General Eric Schneiderman may go down in history as the most important public official in reforming the corrupt financial system that caused the great Financial Crisis of 2008 and holding the perps responsible -- if he can hold out against pressure from Wall Street, the Federal Reserve, and the Obama administration to give Wall Street a "Get Out of Jail Free" card.
Eric Schneiderman has played a key role in the investigation of foreclosure fraud and robo-signing by 50 state attorneys general against JP Morgan Chase, Bank of America, Wells Fargo, Citigroup, and Ally Bank. Reportedly, most of of the attorneys general -- with the support of the Obama administration -- are advocating a $20 billion settlement with the banks (less than a year's worth of Wall Street's bonus pool) in exchange for broad immunity from future investigations and prosecutions, not only of illegal foreclosures but of a wide range of fraudulent activity in connection with mortgage securitization over the past decade.
Schneiderman -- who would arguably be the single most important attorney general in making a global "Get Out of Jail Free" card stick -- has been objecting for months to a settlement which barred future litigation. "The attorney general remains concerned about any attempt at a global settlement that would shut down ongoing investigations of wrongdoing related to the mortgage crisis," said Schneiderman's spokesman.
Or as Matt Taibbi put it more tartly in a Rolling Stone blog,
The idea behind this federally-guided 'settlement' is to concentrate and centralize the legal exposure accrued by this generation of grotesque banker corruption in one place, put one single price tag on it that everyone can live with, and stuff the details into a titanium canister before shooting it into deep space.
According to last week's New York Times, Schneiderman has come under heavy pressure not just from the banks and the Federal Reserve, but from the Obama administration to drop his opposition to a wide-ranging settlement.
According to the Times, bank officials recently discussed asking Obama's Secretary of Housing and Urban Development Shaun Donovan for help in changing Schneiderman's mind about the global settlement. Donovan has contacted Schneiderman directly to convince him to back down, while he and other members of the Obama administration have been contacting Schneiderman's allies. (You can bet top administration officials wouldn't be doing this without the ok from their boss, President Obama. It couldn't, by any chance, have any relationship to a recent meeting in the White Green Room between President Obama and two dozen Wall Street executives, organized by the Democratic National Committee, to win back the allegiance of one of his most vital sources of campaign cash? )
A few days after the Times disclosed the Obama administration's campaign to intimidate Schneiderman, he was kicked off the executive committee of the 50 attorneys general negotiating the bank settlement, and accused by its chairman of "working to actively undermine" the settlement.
As attorney general for the state where Wall Street is located -- with the power to continue to investigate and prosecute financial crimes -- a global settlement with the other 49 attorneys general isn't worth that much to the banks without Schneiderman's buy-in. Or as Matt Taibbi quoted the immortal words of Al Pacino as Tony Montana in Scarface, "How do I know you're the last cop I'm gonna have to grease?"
As New York State's top law enforcement official, Schneiderman wields a powerful weapon in the state's Martin Act of 1921 which has been called "the legal equivalent of King Arthur's Excalibur" and the "legal equivalent of a weapon of mass destruction" when aimed at securities fraud. Unlike Federal securities law, it doesn't require proof of criminal intent to defraud--which is often difficult to prove--only that a defrauding act was committed. Courts have held that "fraud" under the Martin Act "includes all deceitful practices contrary to the plain rules of common honesty and all acts tending to deceive or mislead the public, whether or not the product of scienter or intent to defraud". As described in Legal Affairs Magazine,
The purpose of the Martin Act is to arm the New York attorney general to combat financial fraud. It empowers him to subpoena any document he wants from anyone doing business in the state; to keep an investigation totally secret or to make it totally public; and to choose between filing civil or criminal charges... Combined, the act's powers exceed those given any regulator in any other state.
Unlike the federal government under President Obama, which hasn't prosecuted a single top financial executive, Schneiderman seems intent on using the formidable weapons of his office to investigate possible financial crimes. According to The New York Times,
The New York attorney general has requested information and documents... from three major Wall Street banks about their mortgage securities operations during the credit boom, indicating the existence of a new investigation into practices that contributed to billions in mortgage losses. Officials in Eric T. Schneiderman's office have also requested meetings with representatives of Bank of America, Goldman Sachs and Morgan Stanley... The inquiry appears to be quite broad, with the attorney general's requests for information covering many aspects of the banks' loan pooling operations. They bundled thousands of home loans into securities that were then sold to investors such as pension funds, mutual funds and insurance companies.
Maybe there's no relationship to Schneiderman's investigation, but last week Goldman Sachs Chairman Lloyd ("I'm doing God's work") Blankfein hired a private criminal defense attorney with his own funds.
Schneiderman also recently used the Martin Act to intervene in court to block a settlement between Bank of America (the new owner of Countrywide bank, one of the biggest issues of "liar" loans during the housing boom) and Bank of New York Mellon, which would have released the banks from liability for a broad range of securities law violations, accusing Mellon Bank of "repeated fraud and illegality" and B of A of fabricating missing documents and "aiding and abetting" Mellon Bank's breach of fiduciary duty. Schneiderman warned that the settlement might interfere with his ability to investigate future claims against B of A, Countrywide, and Mellon.
Schneiderman's actions so angered Kathryn Wilde, a member of the board of the New York Federal Reserve Bank, whose job it is to regulate banks in the public interest, that Ms. Wilde confronted Schneiderman as he was leaving a memorial service for former New York Governor Hugh Carey. Ms. Wilde said to The New York Times that she told Schneiderman,
It is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street (emphasis added) -- love 'em or hate 'em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible."
As Matt Taibbi commented,
This.. is coming... from the person on the Fed board who is supposedly representing the public! This quote leads one to wonder just what Wylde would consider 'indefensible,' given that stealing is pretty much the worst thing that a bank can do -- and these banks just finished the longest and most orgiastic campaign of stealing in the history of money. Is Wylde waiting for Goldman and Citi to blow up a skyscraper? Dump dioxin into an orphanage?
The bank regulator's quote is reminiscent of George W. Bush's comment to a crowd of big money donors: "Some call you the elite. I call you my base."
With the Federal Reserve, Wall Street's biggest banks, and the Obama administration all pressuring Schneiderman to back off, you can be sure private investigators are looking into every nook and cranny of his personal life since he threw a spitball in kindergarten when the teacher wasn't looking. His personal and professional life had better be above reproach -- let's hope that unlike his predecessor Eliot Spitzer, who also tried to take on Wall Street, he never consorted with hookers or been involved with any other personal scandals. Morever, a Democratic president has the power to threaten a Democratic Attorney General's political future, to try to block him from higher office, and even to encourage a well-financed primary challenge to his reelection.
It takes steel cojones to stand up for the public interest against a united assault by some of the most powerful forces in the world, including Wall Street's biggest banks, the Federal Reserve, and the President of the United States. For those who would like to see the banksters brought to justice for crashing the economy while lining their own pockets -- and perhaps make a future generation of banksters think twice before doing the same thing again -- let's hope Schneiderman has the requisite assets.
In the meantime, you can email Eric Schneiderman and let him know that you've got his back and support him standing firm in continuing to investigate financial wrongdoing and resisting handing Wall Street a "Get Out of Jail Free" card, by clicking here.