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Robert Scheer: California Refuses to Accept Obama’s Banking Sellout

Kamala Harris is one of the few state attorneys general standing up for the American people

By Robert Scheer |

There’s no three-strikes law for crooked bankers. There’s not even a law for a fifth strike, as The New York Times reported in the case of Citigroup, cited last month in a $1 billion fraud case. Unlike the California third-striker I once wrote about whom a district attorney wanted banished forever to state prison for stealing a piece of pizza from the plate of a person dining outdoors, Citigroup executives get off with a fine and by offering a promise not to do it again — and again and again.

As the Times reported when Citigroup agreed to settle Securities and Exchange Commission charges last month: “Citigroup’s main brokerage subsidiary, its predecessors or its parent company agreed to not violate the very same antifraud statue in July 2010. And in May 2006. Also as far back as March 2005 and April 2000.”

Not that the bankers face prison time, since the Justice Department has refused to act in these cases, and the SEC is bringing only civil charges, which the banks find quite tolerable. This time, the fine against Citigroup was $285 million, which may sound like a lot, except that the bank raked off as much as $700 million on this particular toxic securities deal. As the Bloomberg news service editorialized, “There should be only one answer from Jed Rakoff, the federal judge in New York assigned to weigh the merits of the agreement: You’ve got to be kidding.”

Not to pick on Citigroup, the too-big-to-fail bank that Clinton administration Treasury Secretary Robert Rubin helped make legal before he was paid off with a $126 million job on Wall Street; that corporation was not the only serial offender.

“Citigroup has a lot of company in this regard on Wall Street,” the Times noted. “Nearly all of the biggest financial companies — Goldman Sachs, Morgan Stanley, JPMorgan Chase and Bank of America among them — have settled fraud cases by promising that they would never again violate an antifraud law, only to have the SEC conclude they did it again a few years later.”

So forget relying on the federal government to hold the Wall Street swindlers accountable. Indeed, the Obama administration has been involved in negotiating a deal with state attorneys general to settle their complaints with the banks for a pittance of compensation for the victims. In return, the states would promise not to institute further legal proceedings against the banks.

The fix was in for what a New York Times editorial on Tuesday headlined “Letting the Banks Off Easy” described as “paltry” mortgage relief, reducing by less than $20 billion the balances of 14.5 million underwater homeowners who are “drowning in some $700 billion of negative equity.” The deal has been stalled by the refusal of California Attorney General Kamala Harris to accept this sellout. Among its other disastrous concessions would be ending further investigation by the states into financial skullduggery connected with the housing meltdown.

In September, Harris, elected in a Democratic sweep of the state’s top offices in 2010, went against the dictates of the Democrat in the White House, stating that she refused to release the banks from legal liability for the mortgage crisis. That is the nub of the pending White House-brokered deal with the banks. As the Times summarized it: “The proposed settlement reportedly would prevent the states from pursuing claims against banks relating to fraud or abuse in the origination of the bubble. It would also prevent states from pursuing claims for foreclosure abuses, like improper denial of loan modifications.”

Traditionally, the states provided the essential regulation of mortgage origination, ownership and sales as a transparent process duly recorded and subject to public examination at the county level. But in order to facilitate the gathering of those mortgages into the sort of collateralized debt obligations that the banks could then bet on and trade worldwide, homeownership became a murky matter. Many of the mortgages now in question, including the ones that Citigroup’s “synthetic” derivative was based on, are no longer owned by the banks that originated them. They are instead part of the Mortgage Electronic Registration Systems database, owned by a consortium of banks and residing in computers in Reston, Va.

The MERS system is described by the Times as “a land registry system implicated in bubble-era violations of tax, trust and property law.” The President Barack Obama-supported settlement would make it very difficult — if not impossible — to investigate at long last the workings of MERS and other systemic sources of what is now a full-blown international economic crisis. As the Times editorial put it, “In effect, the legal waivers being contemplated would let the banks pay up to sweep wrongdoing under the rug.”

Thankfully, we have a few state attorneys general, most prominently California’s Harris, standing up for the American people, but it is outrageous that a president who avowedly committed to defending the public interest would now be subverting that effort rather than leading it.

TruthDig.com editor in chief Robert Scheer‘s new book is The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America. Click here for more information. He can be reached at .(JavaScript must be enabled to view this email address).




comments powered by Disqus

» on 11.11.11 @ 06:36 AM

Oh god, this guy actually makes me want to defend Obama. He makes Obama look like a conservative, and that’s not easy to do.

» on 11.11.11 @ 02:50 PM

You know Lou, we conservatives have ourselves to blame for crap like this. If we would stop allowing ourselves to be the champions of criminal bankers, investors, vultures, gamblers and general all around wealth transferring parasites, and stuck to our core principles, we would be sending a lot of guys to prison. Instead we let the left dupe us into defending bad behavior as free market risk.

As I have said before, when you divide the economy into value producers and value consumers it’s real easy to stop defending Wall Street financial institutions. They are a service, a net wealth consuming service that does not deserve the stature we give them. They have done more harm than good even when acting in a moral fashion and have crippled us behaving badly.

As a conservative and advocate of a privately controlled economy (free market capitalism) I have no qualms with services, including Wall Street. If you can make money as a service or middleman as it were, more power to you. But when you do it at the expense (or worse detriment) of those enterprises that produce more value than they consume then you are acting in a way that will kill the very economy that allows you to exist and it is no difference than a government high on confiscatory taxation). And Lou, we have been doing that for more than 4 decades now.

We need to be the champions of capitalism practiced in a way that promotes growth in value (wealth) rather than promoters of capitalism that just transfers value. We have grown our economy fat and lethargic on services and much to our detriment, meanwhile allowing value production to be done by foreign competitors.

Jail these guys, make an example of wealth consumers who are capitalism killers and start focusing one promoting wealth builders, while we still have the opportunity to do so.

» on 11.11.11 @ 05:20 PM

AN50, I hear you and agree that many of the activities on Wall Street are a net drain on our economy. My only problem with this guy and others who think like him are that they feel the solution is always more regulations, even though the historical record would suggest that most of these regulations did not work, had unintended consequences and made it even more difficult for the people who do create wealth to operate in our free market.

The solution is to allow these Wall Street companies and banks to fail when they screw up. Instead, we actually make them bigger (4 banks control 50% of the deposits in US) and then create an avalanche of regulations to keep them from failing. This is not how the free market system is suppose to work. Break up the banks and if they lose money, they will have to go through an orderly Chapter 11 process, like most other companies in the US.

With regard to the mortgage fiasco and the housing crisis, there is plenty of blame to go around, although I think the lion’s share should be place on the door step of our govt. Yes, there are many people who have defaulted on their mortgages and would like to have their mortgages written down or even forgiven; and raving lunatic liberals like this guy would like to throw all the bankers in jail who made loans to these people. Unfortunately, it is not that simple, and the solution to this problem is much more complicated and probably unsatisfying for all the people who are looking for blood. The housing market will not recover until prices reach a level where an equilibrium exists between buyers and sellers. Which means the quicker some of these foreclosures can happen the better it will be for the economy. There are many people who cannot afford to own an house and should rent until they are in a more favorable financial position to purchase a home.

Jailing people, although satisfying on some level, is not going to deal with the core problems. Moreover, if it is the result of a lynch mob mentality without all the protections of our due process system of laws, it would ultimately be very problematical for our free market system. Sometimes, I think our most radical liberal friends won’t be truly happy until we imprison all the people who belong to the 1%, regardless of how they made their money.

» on 11.15.11 @ 02:34 PM

Lou, I have no love of bankers, that is pretty obvious in my rants. But I am speaking rhetorically when I say throw them in jail. The only ones who should be jailed are Dodds and Frank. Look I agree that the housing market needs to find that golden equilibrium in order to break free of the current spiral. But we passed any semblance of market value a year or so ago. What I see is valuation being “spooked” to lower and lower levels. It even has the vulture class intimidated. By vulture, I mean those with cash that specifically buy up depressed homes to later flip and make a killing on. What is happening is that even those people who were prudent in their buying are now finding themselves “upside-down” on mortgages.

I am not suggesting loan forgiveness, but modifications that eat into bank profits rather than taxpayers or home owners. Too much of the foreclosure market is elderly and fixed income retirees, not wayward buyers who should never have been. It’s a psychological spiral that has nothing to do with the intrinsic value of property anymore.

But even that won’t help, Lou. We both know the best way to save housing values is to save incomes and the best way to do that is grow the economy and the best way to do that is get the damned government out of it. The Fed is so damned corrupted by the revolving door lobbyist industry which is a huge drain on the economy, right along with the finance industry, that anything we can do to reduce government will definitely help.

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