10/02/2012 12:16 pm ET Updated Dec 02, 2012

Frontal Assault on the Big Banks?

While I would have preferred the first legal action taken by the securities fraud task force to have involved a perp walk, the strategy N.Y. Attorney General Eric Schneiderman is pursuing is an interesting one that has some promise. Schneiderman clearly has a theory of how to drive things forward, but it will take a while before we know how well the theory plays out in the end. The fact that he has brought a broad case targeting a multi-year pattern of behavior has potential, in my view.

Along with many other people following banking and economic issues, I have become increasingly convinced, since 2008, that there is a deep and pervasive corruption on Wall Street that will continue to endanger both our economy and our politics if it is not dealt with at its core -- and dealt with very aggressively.

Reading the many books, articles and blog posts about how the financial crisis went down, and how things have operated in the aftermath, it has become obvious that (a) a great many crimes were committed, from robo-signing perjuries to defrauding clients of financial firms to the LIBOR scandal to mortgage and investor fraud of all kinds; and (b) the biggest banks have become too big and powerful (politically, financially and legally) to be prosecuted for their crimes or have really tough regulation imposed on them. Like Abraham looking for ten honest men so that God wouldn't wreak havoc on our people, bank reformers and activists have been looking for prosecutors, policymakers, and/or regulators -- someone, anyone -- tough enough and fearless enough to do a frontal assault on the power of Wall Street. Because until the most powerful executives on Wall Street are in some significant way punished for their crimes, until their power is broken in some way, they are going to keep engaging in the kinds of corruption that got us into the financial crisis of 2008. And in the meantime, the millions of homeowners with underwater mortgages -- who are the biggest class of victims of these bankers' malfeasance -- are going to remain in a hole until the big banks start to feel the heat.

To focus on prosecutors for a minute, it is clear there are many obstacles in their way: laws are weaker than they should be, politicians friendly to bankers starve agencies in terms of their investigatory budgets, and bank legal defense teams have vastly more resources. And let's face it: too many agencies over the past 10 years have been led by people uninterested in taking on the big banks. But the job of prosecutors is to find a way through those obstacles to figure out how to put pressure on the banks. I think that is exactly what Schneiderman is trying to do with this JPMorgan Chase lawsuit, along with the MERS lawsuit he filed earlier this year and other cases he is likely to bring. I think he is using a diversified strategy to steadily build pressure that doesn't currently exist because of the failures of the Department of Justice (DOJ) and other federal agencies to be aggressive.

Look, I totally get why there is a lot of skepticism. The DOJ has been AWOL for a long time, and as far as I can tell hasn't contributed much to this case. A lot of regulators remain in the tank with the big banks, probably hoping for great jobs with those same banks once they leave government service. The fact that this lawsuit is civil instead of criminal, and is on behalf of investors instead of homeowners directly, is disappointing to many of the activists who have been pushing for more bank accountability for years.

This is a long game, though. My view is that those of us pushing for bank accountability need to keep demanding it, because this case by itself isn't going to get us anywhere near the promised land. But we also need to have some patience, and to see where Schneiderman heads from here. If I'm right, and his goal is to methodically build a web of related cases that steadily puts added pressure on these big banks, then we may get some justice yet.

Having worked in the Clinton White House, what I do know is that government has a wide array of powers available to it. Some of them involve regulation, some involve legislative initiatives that companies want to pass or kill, some of them involve prosecution (civil and criminal), some of them involve the power of the media and the bully pulpit, some involve procurement and purchasing.

Schneiderman, it seems to me, has a theory of how to use the power he does have to keep ratcheting up the pressure on these big banking conglomerates so that we will someday get real justice done. The biggest question in my mind is whether the administration, assuming Obama wins re-election, will fully join in that cause. I think they do deserve some credit already: Schneiderman got additional resources to work with and a much more visible platform to pursue his strategy because of President Obama's task force and the Consumer Financial Protection Bureau has been remarkable in their work, both contributing staff resources to the Schneiderman task force and taking on the banks in a variety of other ways, mostly visibly of late by going after credit card fraud. HUD Secretary Donovan has been very supportive of Schneiderman's work in a variety of ways. But I see very little evidence that either the DOJ or Treasury has joined the cause yet, and that desperately needs to change in a second Obama term.

Whether skeptics are right or whether I am right that this lawsuit -- along with the earlier MERS lawsuit -- is part of a steadily building strategy that will force the banks into real concessions down the road remains to be seen. The jury is still out. What I care about in the end is two things. First, that the millions of homeowners who got hosed by the banks because of their securities fraud get some compensation in the form of far bigger mortgage write-downs than anything we have seen so far. Second, that the banks and bankers that have committed this evident fraud get some measure of justice -- whether it is jail time or whether it costs them real money that they would notice, or preferably both. And by the way, my wanting that kind of justice has nothing to do with wanting what Tim Geithner dismissed as "Old Testament justice." It has everything to do with my fundamental belief that if the most wealthy and powerful in our society can avoid legal consequences for major crimes, they will keep committing them and will keep harming society in the process.

So we'll see what happens, but I think Schneiderman and the Obama task force deserve some credit for bringing this case. I hope we will see more cases brought soon, and the noose keeps tightening. This is a long game. So far, the big bankers have been cleaning the good guys' clocks. I'm still hoping we will look back on yesterday's lawsuit as a pivotal moment in starting to even the score.