Eric Schneiderman was right.
New York State's Attorney General told an audience at the Take Back the American Dream Conference that we need a "transformational politics" that will change the way we look at ourselves, our society, and our economy.
The wealthy have amassed an ever-greater share of our national income through conscious policy choices, said Schneiderman, not through an act of God. They've been able to divert our nation from a production economy to a financial-speculation economy the same way.
Schneiderman was suggesting that political action should help us change the way we view our economic world.
Free Your Mind, Arrests Will Follow
I couldn't agree more. Thanks to an expensive and intensive decades-long campaign of propaganda and political influence-peddling, many Americans re-adopted a mythology about wealth that had been discredited and abandoned by most of the world (including the United States) in the 20th century. We need to transform ourselves, remove the blinders, and see things as they really are.
Schneiderman's distinction between "transformational" and "transactional" politics was also valid: Voters don't just want to see a legislative accomplishment -- any accomplishment -- regardless of its impact. They want to see accomplishments that reflect who we are as a people, and which advance us as a society.
But transformation will need some involvement from the world of "transactional" activity, too. As I told the group, I can't think of any single act that would be more "transformative" that the arrest of a senior Wall Street executive.
Wall Street: CSI
The occasion was a panel discussion on "Taking on Wall Street" moderated by MSNBC's Alex Wagner. Activist Tracy Van Slyke and I joined Schneiderman for an open-ended discussion on the topic. (The video's below.)
Could a CEO arrest like the one I described ever take place? Should it? Individuals and groups of people are innocent until proven guilty -- but there's an overwhelming mountain of evidence suggesting that a great many crimes took place.
There are at least two areas of criminal activity worth concentrating on: mortgage documentation, and securities. Perjury, forgery, and tax evasion are among the potentially criminal acts that have been well-documented in the mortgage area. Most of these apparent crimes occurred around two basic activities, the first of which was the use of the MERS system. That combination database and pseudo-corporation was a mechanism for avoiding the payment of local taxes, and which allowed financiers to transfer ownership of a mortgage debt without notifying local authorities.
The second area of apparent criminal activity in the mortgage documentation arena involved "robo-signing," in which banks hired unskilled employees or vendors to mass-produce foreclosure papers in which courts were falsely told that the bank possessed title documents and other items which it did not in fact possess.
Securities fraud, as well as other forms of investor fraud, involved misleading investors about the true value of the institution or fund in which they're investing. That can be done by making false statements, or through lying by omission (leaving out important facts about the investment). There is considerable evidence that Wall Street CEOs and other bank executives did plenty of both. (See here, for example).
Jamie Talks, JPM Walks
Moderator Alex Wagner also asked the panel about the recent testimony of JPMorgan Chase CEO Jamie Dimon -- testimony in which the relentlessly self-promoting executive admitted that he knew more than he let on about his bank's multibillion-dollar London losses when he told investors on a phone call it was a "tempest in a teapot." That immediately triggers red flags for anyone who understands securities law, and the SEC promptly announced it was beginning an investigation.
Let's hope that the SEC's "London whale" investigation doesn't end as virtually all of them have in recent years: with a settlement in which the very investors who were presumably defrauded wind up paying the cost of a settlement which is paid by the bank, and not by the executives who broke the law -- while those executives "neither admit nor deny wrongdoing."
Bank shareholders should fight that kind of outcome as aggressively as anyone. They should lay down the law for executives: If the law wasn't broken, we're not paying a nickel in settlement charges. And if it was.broken, we want to know who the criminals are so we can punish them -- by "clawing back" their ill-gotten income, and then firing them.
Remember, JPMorgan Chase has paid billions of dollars in recent years to settle criminal charges. Their stock performance has been pretty lousy, too, like that of other big banks. With a track record like that, why aren't more shareholders up in arms?
We need to appropriate the gun lobby's slogan, with a little rephrasing:
Banks don't commit crimes. Bankers do.
Oh, yeah? Make me!
Attorney General Schneiderman is co-chair of the president's Task Force on Mortgage Fraud, and it was presumably with that role in mind that he told the audience of a (reportedly apocryphal) exchange in which Franklin D. Roosevelt told a group of activists: "I agree with you. Now go out there and make me do it."
Democrats and independent progressives should adopt that attitude toward the White House - with a passion. If the president and his party don't do something to convince the public they're really going after crooked bankers, they run a much greater chance of losing everything in November.
The counter-narrative being pushed by the Right -- and, too often, by the White House as well -- is that bankers may have behaved badly but "didn't break the law." Both the president and Treasury Secretary Geithner have taken that position in recent months. But it's wrong: It's wrong to ignore compelling evidence to the contrary. It's wrong to pronounce your own verdicts from Washington before any thorough investigations have been conducted.
And it's not just morally wrong. It's politically wrong, too. It undermines public confidence in our government -- and in those who lead it.
Homeowners 30 Percent Guilty, Bankers 100 Percent Innocent?
The narrative which says bankers are innocent also argues that underwater homeowners shouldn't receive meaningful mortgage relief because that would "reward the undeserving" and help "greedy" and "dishonest" homeowners.
To believe this narrative, you have to believe that 16 million homeowners defrauded their lenders, but not a single banker committed a crime! And that 31 percent of homeowners -- nearly one in three -- is an undeserving fake, but 100 percent of bankers are upright citizens who deserved all the federal help they received.
That's nonsense. Only today we received more evidence that Washington Mutual deliberately misled homeowners into borrowing more money on their homes than they were worth, by firing home appraisers who wouldn't dishonestly inflate the value of the home so that they could make more money on the loan!
This is exactly what a GE Capital subsidiary was accused of doing in places like West Virginia, and it provides even more compelling evidence that the vast majority of America's underwater homeowners were neither dishonest nor foolish:
They were conned.
Power to the (Underwater) People
Washington Mutual eventually failed, of course, and the government brokered its sale to... you guessed it: JPMorgan Chase. If the value of WaMu homes was artificially inflated by crooked adjusters, the result is artificially inflated value on JPMorgan Chase's books -- and unfairly inflated debt for JPMorgan Chase's borrowers.
No wonder influential bankers (and campaign contributors) like Jamie Dimon are resisting principal write downs. That's why, as Tracy Van Slyke pointed out, we need groups like the Home Defenders League which will organize underwater homeowners into a political force. As we noted, we did some calculations and concluded that we can reasonably estimate the following:
• 40 million people live in underwater homes.
• 24 million voters live there, too.
• They owe a total of $4.8 trillion in mortgage debt to the banks.
• $1.2 trillion of that amount is "underwater."
Here's the best way to help promote justice, economic fairness, and liberal ideals: Activists must demand real action on bank criminality from the president, attorney general holder, the Mortgage Fraud Task Force, and the attorneys general for all 50 states.
If underwater homeowners get organized, together with their friends, families, communities, and allies, the result could be... well, transformative.