Rumor has it that the 50 state attorney general investigation into the Fraudclosure scandal is wrapping up. It's time for a backbone check. Will the state attorneys general just ask the big banks and service providers to turn over a chunk of change from seemingly bottomless pockets? (This strategy was pursued by the Security and Exchange Commission (SEC) with little impact). Or will Iowa Attorney General Tom Miller take the lead in wrestling a real settlement out of the banks so that families hammered by unemployment and underemployment can stay in their homes?
Americans know that the big banks and the mortgage service providers got us into this hole by pursuing an array of financial crimes. The SEC settlements alone have revealed a plethora of illegal, predatory and deceptive lending related to mortgages, securities fraud, accounting fraud, insider trading, brokerage fraud, bribery of government officials, criminal conflict of interest, deception of shareholders and investors, and more.
Now the "robo-signing" scandal is pulling back the curtain on Act II of this white collar crime spree -- revealing a new array of financial crimes by the very same institutions: robo-signing, fake witnesses, fake notaries, fake documents, fake attorneys, not to mention plain old theft as servicers rob consumers of hundreds or thousands of dollars in misapplied fees. There are additional crimes related to the way that banks have failed to correctly transfer promissory notes through the system and efforts to mislead and defraud investors. The short story is that many homeowners were foreclosed upon based on falsified documents by a bank who was not the true holder of the mortgage note. This is a crisis not only for individual homeowners, but investors who bought flawed mortgage-backed securities and for the financial system as a whole.
Not a Single Prosecution of a Major Player
Perverse incentives on Wall Street allowed top executives to make more money on flawed loans than boring old 30-year mortgages. Even though there is widespread agreement that Wall Street's endless appetite for high-interest, high-fees loans to fuel the mortgage securitization machine had a causal role in supercharging the housing bubble, not one mortgage servicer provider or big bank CEO has been put in jail. This compares to over 1,000 successful prosecutions of top officers during the Savings and Loan crisis of the late 1980s.
While the SEC has been churning out fines resulting in a long list of "settlements", Wall Street firms are beginning to set aside money and treat these actions merely as the cost of doing business.
There is nothing more instructive than jail time, but the U.S. Department of Justice (DOJ) has been hoodwinked by America's biggest hoodlums, preferring to arrest a string of penny-ante Jersey mobsters than the Mafioso hiding in plain sight at Wall Street and Broadway. The DOJ delights in arresting people like Vinny Carwash" Frogiero, Frank "Meatball" Ballantoni, Anthino "Hootie" Russo. How about Jamie "Pretty Boy" Dimon, Lloyd "Godswork" Blankfein and Vikram "Slumdog" Pandit?
History is Calling
In the history of the financial crisis, state AGs have so far come out looking pretty good. State AGs were the first in the nation to recognize that the predatory lending practices of firms such as Ameriquest and Countrywide were a danger to consumers and to the entire U.S. economy. In 2004, they were radically preempted from taking action against these crimes by Bush-appointed federal regulators at the Office of the Comptroller of the Currency. Now state AGs have another moment to outshine negligent federal prosecutors.
State AGs can take a series of actions that the Feds have failed to take. First of all, they can book the crooks and force top officers to trade pinstripes for jail stripes. Secondly, they can force the banks into settlements with individual homeowners that really take a bite out of their profits, complete with foreclosure redos and damages for harmed homeowners. They can also subject the banks to ongoing independent audits of their foreclosure procedures and they can demand that the banks force principle write downs and other across-the-board measures that will stabilize communities and the economy.
February 3rd National Day of Action
National People's Action and other anti-foreclosure groups area calling for a national day of action tomorrow to urge the AGs to do the right thing. But why wait? You can go to BanskterUSA.org to email the lead investigator, Iowa AG Tom Miller, and urge him to do the right thing. You can also join thousands of people across the country by click here to find your AG's phone number so you can ask him or her directly for meaningful action on foreclosure.
If you are struggling with these issues, think about meeting up with your neighbors. "Mortgage Madness Meetups" are being facilitated by Huffington Post. The next worldwide meetup day is February 8th. Finally, if you are trapped in the snow today, check out Dylan Ratigan's excellent series on the housing crisis "No Way to Live" on MSNBC.