As I head off to Washington for a protest march to the white house I wanted to look at all the talk on Maryland politics. We have two years to mount a campaign against the incumbents in state office our we will see this crime and corruption in government and corporations continue. These farm team players are all on board with the current state of the state.
The primary concern for Marylander's will be Maryland's ranking at the bottom nationally of all government watchdog and accountability organization's reports for fraud, corruption, lack of transparency, and the latest showing no oversight and suspected wide abuse in business tax breaks. This means that billions of dollars are being taken from government coffers and individual's pockets in plain view of our current state and local politicians. THIS IS BIG NEWS THAT WE NEVER HEAR ON BALTIMORE'S MEDIA STATIONS because they are captured by those moving the money out of Maryland's economy by illegal means.
The importance in these state races, whether for governor or state attorney general is correcting THIS GORILLA IN THE ROOM and as we know, whether Doug Gansler who has 8 years charged with addressing this systemic criminality and successfully ignore almost all of the crime and corruption, our Anthony Brown who has been connected deeply with the privatizing schemes of O'Malley of all that is public and with what we know are ply-to-play schemes that rule the development arena in Maryland and especially in Baltimore. The Columbia executive Ulman is just as steeped in this crime and corruption culture and will not do as a statewide exec.
All the money in the world buying all the advertizing will not fool people over this issue. So whether we look more closely at Mizeur or push a more credible candidate for office, we will make RETURN TO RULE OF LAW IN MARYLAND THE PRIMARY CAMPAIGN ISSUE!
When Governor O'Malley is faced again and again with reports of fraud and corruption from non-partisan research groups he simply brushes it aside as if it doesn't exist. This is the same attitude at the Federal level. IF WE ALLOW THESE PEOPLE WHO OPENLY FLAUNT A DISREGARD TO RULE OF LAW TO STAY IN OFFICE, WE ARE ALLOWING OUR COUNTRY TO MAINTAIN A THIRD WORLD STATUS.
VOTE YOUR INCUMBENTS OUT OF OFFICE AND RUN AND ELECT LABOR AND JUSTICE CANDIDATES!!!
WHEN A STATE IS RANKED AT THE BOTTOM OF THE NATION FOR FRAUD AND CORRUPTION AND THE CENTER FOR PUBLIC INTEGRITY GIVES MARYLAND A (D-) FOR STATE CORRUPTION........THE STATES ATTORNEY GENERAL IS THE ONE RESPONSIBLE FOR THAT GRADE.
Public Access to Information F
Political Financing C
Executive Accountability F Legislative Accountability F
Judicial Accountability D+
State Budget Processes C-
State Civil Service
nternal Auditing C+
Lobbying Disclosure D-
State Pension Fund Management F
Ethics Enforcement Agencies D
State Insurance Commissions F
CITIZENS OF MARYLAND AND BALTIMORE ARE FIGHTING SO HARD TO STOP WHAT IS A COMPLETE USURPATION OUR OUR DEVELOPMENT AND AS AN EXTENSION THE HANDING OVER OF PUBLIC LAND AND ALL KINDS OF TAX BREAKS TO CORPORATIONS THAT ARE NEVER IN THE PUBLIC INTEREST BUT ARE CLEARLY DRIVEN BY POLITICAL PAY TO PLAY AND OTHER CORRUPT SCHEMES. O'MALLEY AND RAWLINGS-BLAKE OF MARYLAND ARE THE KING AND QUEEN OF THESE SCHEMES AND THEY REFLECT THESE THIRD WAY CORPORATE POLS WHO RUN AS DEMOCRATS EVEN AS THEY ARE KILLING THE DEMOCRATIC BASE.....AND EVERYONE NOT ASSOCIATED WITH THE 1%.
Future of State Center in question after judge's decision
Rendering of the proposed State Center complex at Howard and MLK. (Mithun / January 14, 2013)
By Steve Kilar 9:37 p.m. EST, January 17, 2013
The $1.5 billion overhaul of State Center in midtown Baltimore is effectively dead after a judge voided development contracts essential to the project.
“The court’s ruling reconfirms the significance of following the competitive bidding laws,” said Alan M. Rifkin, the attorney for a group of business owners and landlords who sued the state, alleging that the contracts were illegitimate.
Unless the state mounts a successful appeal and can resurrect the public-private partnership deal, the court order Thursday requires the state to go back to the drawing board on the project, in the pipeline since the administration of Gov. Robert L. Ehrlich Jr. A new start would mean following the state’s procurement laws, which require finding public financing for the project — a tall order in austere times.
Attorney General Douglas F. Gansler’s office declined to say whether it would appeal Baltimore Circuit Judge Althea M. Handy’s ruling. The state is reviewing its options, said David Paulson, a spokesman for Gansler.
“We’re discouraged by Judge Handy’s conclusions,” said Caroline G. Moore, founding partner and CEO of Ekistics, State Center’s lead developer. The project has been through five Board of Public Works approvals and “hundreds” of public meetings, she said.
The Baltimore firm will consider all avenues for recourse, Moore said. At least Handy ruled quickly, she said, “so we can get on to the next step.”
The State Center deal guaranteed the developer long-term, above-market leases with state agencies that would enable the builders to secure financing. The arrangement leased state land to the developer, which agreed that the tract and structures would revert eventually to state ownership.
The landlords and business owners, from downtown and Little Italy, filed suit in 2010 alleging that the State Center lease terms would create unfair competition and cripple the downtown’s struggling economy.
The mixed-use plan for the 28-acre site would have replaced 1950s-era structures that house several state agencies with space for 3,500 state employees, residences and retail space. It was to be built over a period of 15 years but has been stalled by the litigation.
“Despite the purported structure of the transaction, the ‘essence of the transaction’ was not a simple disposition of land ... but a complex, creative way to develop state land,” Handy said in the order. The contracts, therefore, are subject to the procurement code, she said.
The Maryland attorney general’s office, during a hearing Tuesday, asserted that the contracts constituted the state disposing of land to a developer of its choice. Tuesday’s hearing was on the state’s motion for summary judgment.
“The court finds, and the defendants admit, that defendants did not comply with the procedures required in the code, therefore, the [contracts] and the ground leases are void,” Handy wrote.
Handy’s decision marks the fourth blow for the State Center plans.
She had previously denied the state’s motion to dismiss the case and threw out a $100 million countersuit the attorney general’s office filed on behalf of the state Department of Transportation and the Department of General Services, which are overseeing the project in conjunction with a private developer. The state contended that the delay caused by the business owners’ and landlords’ suit, financed largely by Orioles owner and trial attorney Peter G. Angelos, increased costs of construction, financing and building maintenance.
A General Assembly bill last year that set out new rules for public-private partnerships failed. The bill offered an expedited legal process for some public-private developments and would have applied retroactively to the State Center deal. The O’Malley administration plans to reintroduce a revised bill this year, which could restart the project if passed.
For now, the landlords and business owners are satisfied — and hope that the state will rethink its strategy, put more resources into the downtown and abandon the State Center plan.
“In the downtown district, rates are still above 20 percent vacancy,” said Dave Johnson, senior vice president of Lexington Charles LP, one of the landlord plaintiffs.
Too many large office buildings in the city center have gone into foreclosure and the owners of others remain stressed by mortgages, he said. A new development just north of the Inner Harbor would not help many downtown properties, which often appeal only to government agencies, Johnson said.
“With this ruling, we can at least stop, take a deep breath and reassess,” he said. “It would be great public policy if the state decided to invest in downtown.”
Bonnie Scible, owner of Bonnie’s Peanut Shoppe at North Charles and West Saratoga streets, was delighted by the news because a third of her customers are state employees, who might move to State Center if it is rebuilt, she said.
“When I moved here, on Charles Street, I was very happy because I thought I was at the heart of everything,” Scible said. “A business like mine, you really need a lot of foot traffic.”
Baltimore Sun reporter Candy Thomson contributed to this article.
Have a real estate news tip or experience to share? Email me at email@example.com.
Study: More corruption means more tax breaks for businesses
Posted by Suzy Khimm at 09:00 AM ET, 11/06/2011 Washington Post
A new study shows that municipalities with larger numbers of corrupt politicians are more likely to give out special tax breaks and other incentives to individual businesses. In a working paper for the National Bureau of Economic Research, R. Alison Felix and James R. Hines, Jr find that “increasing the rate at which government officials are convicted of federal corruption crimes by 1 per 100,000 residents over a 13 year period is associated with a 2.9 percent greater chance that a community will offer business incentives” to individual firms, including tax abatements, tax credits, and tax increment financing of infrastructure projects.
Felix and Hines explain that it’s not just because a small handful of corrupt officials are doing pay-to-play on a huge scale. Instead, they conclude that it’s because there’s a correlation between political corruption and policy dysfunction: “Jurisdictions in states with troubled political cultures are more likely than others to have dysfunctional tax and regulatory systems that make it difficult for them to compete for businesses except by offering special incentives.” Instead, low-corruption communities “prefer to tailor their general tax levels, spending programs, and other policies to attract businesses without designing specific deals for specific firms and industries,” they write. As a result, only 53 percent of cities and counties in states with comparatively low rates of corruption offer these kinds of municipal tax breaks to businesses at all, while 67 percent of more corrupt communities do.
THIS ONE LAW......NAMESAKE OF OUR MARYLAND SARBANES FAMILY WOULD PUT ALL EXECUTIVES IN JAIL FOR YEARS IF IT WAS ENFORCED. THE FACT THAT WE HAVE A GOVERNMENT THAT THINKS IT CAN CHOOSE NOT TO ENFORCE LAW WHENEVER EXPEDIENT SHOULD SCARE EVERYONE!!!!
Sarbanes-Oxley Act of 2002
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, which he characterized as "the most far reaching reforms of American business practices since the time of Franklin Delano Roosevelt." The Act mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud, and created the "Public Company Accounting Oversight Board," also known as the PCAOB, to oversee the activities of the auditing profession.
The full text of the Act is available at: http://uscode.house.gov/download/pls/15C98.txt. (Please check the Classification Tables maintained by the US House of Representatives Office of the Law Revision Counsel for updates to any of the laws.) You can find links to all Commission rulemaking and reports issued under the Sarbanes-Oxley Act at: http://www.sec.gov/spotlight/sarbanes-oxley.htm.
We must accept Obama's reinstatement of Eric Holder and know that corporate fraud will be protected again this next term, but we must look to our state and local levels to elect people who are not working to protect fraudsters.........we do have leaders that are speaking and they should be encouraged to run. In Maryland we want Greenberger running as Attorney General or Governor.
Greenberger faulted the Obama administration for regarding these practices as “immoral, unethical, and reckless,” but won’t go so far as to say they were criminal. No one has been indicted as happened during the Savings and Loan crisis, he says, when 400 were.
Greed, Lack of Transparency Caused Financial Crisis, Says Greenberger
Bad mortgage loans, obscured through complex and unregulated investment instruments, cost taxpayers billions By Gary Feuerberg
Epoch Times Staff Created: November 6, 2012 Last Updated: November 16, 2012 Related articles: United States » National News
Michael Greenberger, professor at the University of Maryland School of Law, served as director of the Division of Trading and Markets at the Commodity Futures Trading Commission, 1997-1999. Greenberger was the guest at the Center for National Policy on Nov. 1, 2012. (Gary Feuerberg/ The Epoch Times)
WASHINGTON—The U.S. economy is slowly making a recovering from a near-collapse and the worst recession since the Great Depression.
But what brought on the subprime mortgage crisis that led to huge financial losses, a decline in wealth for much of the country, a GDP drop of 5 percent for the period from Dec. 2007 to June 2009, and an official unemployment rate that peaked at 10.0 percent in Oct. 2009?
“Very few people understand [what happened],” said University of Maryland Professor Michael Greenberger at the Center for National Policy on Nov. 1. “I firmly believe that the president of the United States doesn’t understand. They don’t understand what went wrong.”
In layman’s terms, Greenberger attempted to explain the essence of how the near collapse of our financial system came about. It’s a story involving new complex financial creations that mask the risks that investors take. The story is also about the role of the federal government—that is, the taxpayers—in rescuing the banks, and the story is ultimately about “criminal” behavior that has eluded prosecution, says Greenberger.
Since 2001, Greenberger has been a professor of the Maryland School of Law. He has frequently been asked to testify before Congressional committees related to financial markets and complex and unregulated financial derivatives. He was director of the Division of Trading and Markets at the Commodity Futures Trading Commission (CFTC), where he served under Chairperson Brooksley Born.
Advertisement Greenberger was Born’s chief of staff in the late 1990s when they encountered fierce opposition to regulating the multi-trillion-dollar over-the-counter (OTC) derivatives markets whose crash later would be a major factor in bringing on the financial crisis. They wanted these derivatives traded transparently with adequate capital reserves and overseen by a regulator to prevent fraud and manipulation. Bill Clinton’s senior economic policy advisers—Treasury Secretary Robert Rubin, his deputy Lawrence Summers, Fed Chairman Alan Greenspan, and Security Exchange Commission Chairman Arthur Levitt offered vitriolic criticism of Born and the CFTC. Also, the titans in the financial industry and many in Congress were adamantly opposed. Born and Greenberger lost that battle but after the financial meltdown in 2008, the need for regulation and transparency of the derivatives market could not be denied.
$12,000 annual income, $729,000 mortgage Greenberger began with an illustration which anyone could understand, taken from Michael Lewis’ book, “The Big Short,” about a cherry picker, with an annual salary of $12,000, who actually signed up for a $729,000 mortgage. How could such a thing happen?
There was lots of fraud, robo-signed contracts, and “lying loans,” Greenberger said. Then these mortgages were pooled together as mortgage backed securities.
“[The banks] made these loans that are ridiculous loans—‘liar loans’—and immediately they get them off their books and sell them off to another bunch of investors to buy a share in these mortgage backed securities. But it was too easy for those investors to see that they were buying a share in something that said that a cherry picker earning $12,000 a year would pay back a $729,000 mortgage,” said Greenberger.
“So on a nationwide basis they took many more of these mortgage backed securities and packaged them into something called collateralized debt obligation (CDO).” It was made nationwide to give an investor the impression of less risk similar to when one diversifies one’s portfolio.The idea is that the housing market might collapse, say, in Michigan but it was deemed safe that it would continue to rise in Florida or Nevada where it was booming. Of course, that assumption turned out wrong and the entire U.S. housing market bubble burst and collapsed virtually everywhere.
Then the creators of these investments devices divided the investment into pieces, called tranches, which are different levels of risk and interest rates. One can think of the instrument as analogous to investing in various floors of a beach house. The basement which has the greatest likelihood of flooding would be dubbed the high risk investment and would pay out the most in interest. The other extreme would be the “top floor” which was the safest from flooding and would pay less interest.
Economist Mark Zandi wrote about CDOs in his book “Financial Shock,” “First and foremost, the risks inherent in mortgage lending became so widely dispersed that no one was forced to worry about the quality of any single loan.” Zandi adds, “As shaky mortgages were combined, diluting any problems into a larger pool, the incentive for responsibility was undermined.”
Next, the people who devised these CDOs went to the credit rating agencies, and paid them to rate the various tranches. The “basement” might get BB- rating while the “top floor” would receive a AAA rating on the theory that the top floor will never be flooded.
“So now you have masked the mortgage to a mortgaged backed security into a collateralized debt obligation, and then you got the further mask of the credit agencies Standard and Poor’s and Moody’s are telling us that these are triple A ratings,” said Greenberger, who is convinced that the rating agencies were paid off.
At the time this happened there were only seven public corporations in the United States that had AAA rating, but there were thousands of these tranches that got AAA rated, Greenberger noted. And nobody is investigating what’s behind these AAA ratings, and that behind them is an investment of whether a cherry picker can pay a $729,000 mortgage.
The plot thickens then when Hank Paulson, CEO of Goldman Sachs (and later Treasury Secretary), who made CDOs a big part of the firm’s business, could see that these investments were going to fail, said Greenberger. He wasn’t alone; others could see the same thing. Just by looking at the percent of mortgage defaults, one could see that the beach house was flooded.
Paulson then asked to buy insurance on some of the tranches that looked like bad bets. Wanting to make a profit on these investments, they devised what are called synthetic CDOs, to bet that the investments would lose value. So, without even owning the tranches, Paulson and many others like him paid one and half to two cents on the dollar as a premium, while the givers of insurance risked 100 cents on the dollar, he says.
Because the law didn’t require the givers of insurance to set aside a capital reserve to cover the debts, we, the taxpayers, ended up paying for the collapse of this market. For example, AIG, a multinational insurance corporation, needed a $185 billion bailout.
“When you generous taxpayers bought AIG, you weren’t really helping the people of AIG, you were really helping the people who bet with AIG,” Greenberger said.
Ethics The leading firm who collected on the bets was Goldman Sachs, said Greenberger, who believes they collected $7 billion on this matter.
To compound matters, betting on the tranches was not just a matter of paying the debt once. Greenberger said that the Financial Crisis Inquiry Commission investigations found that certain tranches were bet on nine times to fail.
“That means every time someone didn’t pay their mortgage, the consequences in the real economy were multiplied nine times. If you didn’t have the gambling refusal to pay, you would only had the real losses which would have been dramatically less than the betting losses, and the subprime meltdown would have been much, much less, and probably much easier to rebound from.”
Greenberger faulted the Obama administration for regarding these practices as “immoral, unethical, and reckless,” but won’t go so far as to say they were criminal. No one has been indicted as happened during the Savings and Loan crisis, he says, when 400 were.
At the bottom of these practices is one of ethical conduct.
Greg Smith worked at Goldman Sachs. In March he wrote an Op-Ed in the New York Times that said that the company was “ripping their clients off.” His new book, “Why I Left Goldman Sachs: A Wall Street Story,” was recently released.
He wrote in the Op-Ed, “I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.”
Morally Bankrupt Government, Justice Edition Part 1: Enforcement Against Financial Meltdown Perpetrators By Abigail Caplovitz Field | January 16, 2012
Perhaps the clearest window into a nation’s soul is its criminal justice system. Criminal law is legislated morality: certain acts are so vile, we exile the perpetrators to prison. But not every criminal. America will never have enough resources to catch and prosecute all criminals. As a result many guilty go free without ever being pursued, simply because the government decided spend its limited resources elsewhere. Looking at whom the government prosecutes, therefore, is an easy way to see law enforcers’ priorities in action.
Sadly, when it comes to the Financial Meltdown perpetrators, scrutiny reveals those priorities are deeply distorted. Our law enforcers chose to become the protection detail of our wealthy-beyond-dreaming-crooks-in-chief, while throwing the book at their guilty but less destructive subordinates.
Who should we be prosecuting? Well, there’s Dick Fuld of Lehman; James Cayne of Bear, Stearns; Joseph Cassano of AIGFP; Angelo Mozillo of Countrywide; and E. Stanley O’Neal of Merrill Lynch, just to name a few. There’s also all the bailed out top bankers still in power, such as Lloyd Blankfein, Jamie Dimon, and the meltdown era executives at the other biggest bailout recipients: Citigroup, Bank of America, Wells Fargo, Morgan Stanley. And that’s not an exhaustive list.
As I lay out below, AG Holder and President Obama have abandoned the cherished American principle–the core democratic principle–of equality before the law. That’s a kind of moral corruption that strikes at the heart of our national identity. And as best I can tell–again, the evidence follows–this corruption flows from Treasury Department/Wall Street fear mongering and revolving door conflicts of interest.
Worst of all, our top law enforcers abandoned equality before the law precisely when our democracy desperately needs it. Our only defense against the growing tyranny of the 1%, the only means we have of policing the bounds of their power, is the vigorous and equal enforcement of the law.
The Buck Stops with Holder and Obama
A couple of housekeeping notes first: Many at Justice and in the FBI are ethical and moral people who try very hard to do right by the American people. So even though I use the word “Justice” as in Justice Department throughout, my critique does not apply to the people below the very top. Fundamentally only Attorney General Eric Holder and President Obama are responsible our Department of Justice’s enforcement priorities.
Attorney General Holder runs the show, but President Obama gave him the job, and can fire him at any time. Holder’s enforcement priorities and strategies therefore must reflect Obama’s priorities. I realize that’s a very formal take, but it’s the only defensible one. I don’t care how much who knew about what, how decisions are or were in fact made, or any other framing or excusing of AG Holder & President Obama’s responsibility for our criminal justice priorities. In our democracy the only political control We, the People have on our national criminal enforcement priorities is our vote for President. And an incumbent President’s strongest advertisement of his enforcement priorities is his Attorney General and his record. The buck stops with them, period.
Another important caveat about this critique: I’m only looking at all things Financial Meltdown. In this part one, I’m looking at the prosecution of perpetrators, bankers and the companies they run. In part two I look at Justice’s defense of our legal system, of the rule of law itself. While Justice is responsible for many other topics–combating terrorism, for example–the Financial Meltdown devastated our economy, deranged our democracy and destroyed trillions of dollars of ordinary Americans’ wealth. So though I’m only grading one subject, it’s not a gotcha quiz. Nor does it say anything about Justice’s performance in those other areas.
Nor am I rigging the test: Justice itself defined the standard for judging it. The Justice Department’s Mission, as spelled out in its “Performance and Accountability Report 2011” is:
“To enforce the law and defend the interests of the United States according to the law, to ensure public safety against threats foreign and domestic, to provide federal leadership in preventing and controlling crime, to seek just punishment for those guilty of unlawful behavior, and to ensure fair and impartial administration of justice for all Americans.
And Justice cites these core values in guiding its mission:
“Equal Justice Under the Law….”Honesty and Integrity….
“Commitment to Excellence….”Respect for the Worth and Dignity of Each Human Being….”
This mission and these values are animated by “Strategic Goals” and the “strategic objectives,” under each (at p. I-2). For Part 1, this is the only strategic goal and objective that matters:
“II Prevent Crime, Enforce Federal Laws, and Represent the Rights and Interests of the American People
…”2.5 Combat public and corporate corruption, fraud, economic crime, and cybercrime.” [I'm not going to talk about cybercrime.]
Giving Credit Due
Let’s start with Justice’s self-assessment (at p. II-15). Basically, Justice thinks it’s doing a great job: ”the FBI obtained the most convictions in the history of its Corporate and Securities Fraud programs” and took down 340 “criminal enterprises engaging in white collar crimes”, hugely exceeding the target of 250. More; Justice reports it won 93% of its criminal prosecutions, including financial frauds and other categories. (at pp. II-17 to -21) That win percentage shows that when Justice puts crooks on trial, the bad guys don’t really stand a chance. Justice is more dominant than the Steel Curtain. Just ask Jeff Skilling, ex-CEO of Enron.
A closer, and still positive look at Justice’s work on all things Financial Fraud comes from the news pages of the Financial Fraud Enforcement Task Force. That task force was set up by President Obama “in November 2009 to hold accountable those who helped bring about the last financial crisis as well as those who would attempt to take advantage of the efforts at economic recovery.”
Highlights from the task force’s 2011 include winning important convictions for bid-rigging that defrauded municipalities; insider trading; executives’ embezzlement from their banks; multiple mortgage fraud schemes; and many other financial crimes. Justice even convicted a major CEO of securities fraud (ex-Duane Reade CEO Anthony Cuti) and took down Lee Bently Farkas, ex-Chairman of Taylor, Bean & Whitaker for bank and securities fraud. Finally, Justice has filed several important civil suits, like one against Deutsche Bank and its mortgage subsidiary MortgageIt, for defrauding HUD.
Those Successes Highlight the Big Failure
So yes, our Justice Department is prosecuting financial fraud on a large scale. But these cases are all against small and medium fish, or at best, are token cases. Why not take on the Great White Sharks, and do system-wide prosecutions? If the excuse is resources, well, that’s a leadership decision, not an insurmountable problem. And the decision is deeply flawed: the failure to target the sharks and clean up fraud systematically has damaged our nation deeply, and leaves it very vulnerable.
Here’s what I mean about small and medium fish: Justice considers 14 people who scammed $47 million using 22 Florida properties a “Large-Scale Mortgage Fraud Conspiracy” and $23 million in fraudulent loans for 44 NY properties a ”Massive Mortgage Fraud Scheme“. If those cases are “large scale” and “massive”, what’s the appropriate superlative to talk about the mortgage fraud conspiracy at Countrywide or WaMu or any of the others? What superlative would Justice use if it convicted their executives? SuperMegaGigantoNormous Fraud?
Similarly, the Financial Fraud Task Force went after mortgage modification scams like this not-quite-a-million dollar California loan modification fraud. The crooks in that case targeted homeowners with letters filled with false promises about modification help, and took the money of homeowners who relied on those representations. Now, those crooks deserve what they got; thanks, Justice, for nailing them. But as Massachusetts AG Martha Coakley and Nevada AG Catherine Cortez Masto’s lawsuits detail, the banks have done similar things themselves. (See Coakley’s suit starting at paragraph 124, and Masto‘s whole complaint.)
That is, the banks made and make numerous representations to homeowners that prove false–most devastatingly, that the foreclosure is on hold while the modification is in process–and they take money based on those representations, called trial payments. Under Massachusetts and Nevada law the banks’ practices are illegally deceptive. How come they’re kosher under federal law but the guy in California deserved jail?
So that’s the small fish/shark problem. And no, the Farkas conviction isn’t sufficient to address the issue. Farkas wasn’t one of the biggest boys. If he were one of many, fine. But on his own it’s not enough to matter.
By critiquing token cases, I mean suits like the one against Deutsche Bank. Deutsche Bank, through MortgageIT, was not the only major bank that defrauded HUD, according to HUD itself. Last May Shahien Nasiripour broke the story on HUD’s internal report essentially indicting Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial for precisely MortgageIT-type claims. Not coincidentally, the Deutsche Bank suit was announced May 3, and Nasiripour’s story hit on May 11–I’ll bet people inside HUD were outraged only Deutsche Bank was charged. Since then only one other defrauding-HUD case has been filed, and it also is relatively small fry: Allied Home Mortgage.
Consider that MortgageIt and Allied Home don’t even rise into the top 25 subprime lenders. When looking at the list, remember that Countrywide and First Franklin/National City/Merrill Lynch are now Bank of America (BofA); Long Beach Mortgage/Washington Mutual and Encore Credit/ECC Capital/Bear Stearns are now part of JPMorgan Chase (JPM); and Wachovia is now part of Wells Fargo (WFC). The liability those banks have surely dwarfs what MortgageIT created for Deutsche Bank or Allied Home created. Since Justice was given the HUD report and its veritable indictments of the biggest banks, why haven’t suits followed? Big, big money’s at stake.
The SEC has taken a similar approach to its CDO cases. Nail each of the big banks for one of dozens of similar securities. Tokenism is just as destructive in that context. Token suits in the face of such widespread wrongdoing have zero deterrent effect.
Recidivism Risk: Why The Failure To Prosecute Matters So Much
Look, AG Holder might say, why are you being so harsh? All the medium and small fry we’ve convicted hurt many people and deserved what they got. Each “token” case is a big deal, a major resources suck, but we’re bringing them anyway.
Well, on the token cases, if MA AG Coakley can sue several big banks at once, so can you. Don’t tell me the Massachusetts AG has more resources than Justice. More: win the cases and they more than pay for themselves. Can you win? Well, consider this case in which private investors beat Citi badly. With facts like those, how could you lose? And there’s similarly damning facts under any part of the Wall Street sidewalk you turn over.
Right now top bankers are so confident no one will prosecute them that they show absolutely no respect for the law. I mean, all the big banks, which means, all the top bankers, have repeatedly violated injunctions they’ve agreed to with the SEC. And why not? As Judge Rakoff noted, the SEC hasn’t enforced a single injunction “against a financial institution for at least the last 10 years.” But it’s more than that; the bankers’ disdain for the law is most clear in the fraudulent documents and the deceptive practices that are part of the banks’ current business model.
New York City hasn’t seen such lawlessness since its murderous 70s, 80s and early 90′s. Residents lived in constant fear, and graffiti marring every inch of every subway car reminded everyone that law enforcement had lost control. NYC’s gold-collar crooks are just as brazen now, wreaking economic violence across our planet. And like the subway graffiti, fraudulent documents defacing every inch of our courts and land records show law enforcement’s impotence.
Law enforcers took back the subway by frisking turnstile jumpers, arresting people for outstanding warrants, seizing guns and drugs. That’s important: police and prosecutors didn’t incarcerate little perps, turnstile jumpers. NY incarcerated violent felons by frisking and identifying turnstile jumpers. In addition, NYC visibly reasserted its control by cleaning the graffiti. The government can regain control of Wall Street by vigorous law enforcement against the Great White Sharks and cleaning up document fraud until not a visible trace remains, and the courts and land records are rendered harder to deface.
One key difference between the two crime waves, however, makes thorough prosecution of this gold-collar one crucial. Violent criminals are not easy to deter, because their decision to commit crime is often fueled by drugs and/or rage. Crime reduction comes more from incapacitation than deterrence. With rational people, however, deterrence is possible. All it takes is for the crook to perceive a high likelihood of getting caught and punished. And Wall Streeters are nothing if not rational, at least in the economic sense. Systematic, consistent, and punitive prosecutions of top gold-collar crooks would have a broad deterrent effect. But it has to be the top guys; the next Angelo Mozillo is not deterred by the prosecution of Angelo Rossi.
And frankly, we can’t afford not to deter gold-collar crooks. Wall Street financial frauds suck up so much wealth, nations are brought to their knees. Madoff’s money pile is an ant hill to banksters’ Burj Kalifa.
Is Holder Kowtowing to Geithner?
Part of Justice’s strategic objective is to “Combat public and corporate corruption”. If Justice were serious about achieving this objective it wouldn’t stop until it had incarcerated Darrel Dochow and his former boss, Scott Polakoff, and perhaps Polakoff’s boss too. Who are these people?
Well, they were top regulators at the Office of the Thrift Supervision (OTS). The OTS was a mindbogglingly bad bank regulator. OTS oversaw AIG, Washington Mutual, Countrywide, IndyMac, and BancUnited, to name a few. In fact, the Financial Crisis Inquiry Commission used OTS as a case study in regulatory failure. Dodd-Frank put the agency out of its misery, merging it into the better though still awful OCC.
But I don’t want Dochow and Polakoff prosecuted for mere incompetence. See, these “regulators” allowed (Dochow) and even ordered (Polakoff) banks they oversaw to lie about their financial health. These guys knowingly let the banks under their supervision cook their books. And it’s even worse when you consider Dochow’s history; he was part of the last great banking regulatory failure–the Keating scandal.
And yet Justice has to date declined to prosecute. When Louise Story and Gretchen Morgenson broke the story last November, they reported that the Dochow case had been referred to Justice for prosecution in 2009, so it’s not like Justice hasn’t heard of the situation. So what gives?
Story and Morgenson quoted a Texas law professor explaining that Treasury was blocking the prosecution because OTS was a subdivision of Treasury. If this case went forward, what else would Justice find to prosecute in Treasury’s actions? But if Justice doesn’t prosecute out of deference to Treasury, well, doesn’t that make Treasury and every bank regulator above the law?
There’s nothing inevitable or necessary about Justice’s deference to Treasury. I mean, Attorney General Robert F. Kennedy not only went after the mob, he went after a mobster–Sam Giancana–that had helped elect his brother president. The American people need and deserve an attorney general with that much integrity always, but particularly now.
So that’s where we are on holding the perpetrators of the Financial Meltdown accountable: Small to medium fish incarcerated; big fish and their conspiring regulators not even indicted. Two token cases brought over defrauding the government, but at least five viable cases against bailed-out banks worth many more billions not filed. Add to that dozens of cases brought by the SEC and securities fraud victims that Justice could pick and choose from for targets, but hasn’t. I mean, even if it was something of a joke because he kept his cash, the SEC went after Mozillo.
In all, the record above adds up to the law applied unequally, our economy left at the mercy of banker and regulator recidivism, our Justice system corrupted. But it gets still worse.
Much has been made of a national effort to negotiate with the bailed-out banks over their illegal loan making, servicing and foreclosing practices, their end-run around the public land record system, MERS, and their securities fraud. As the discussions have worn on, it’s become clear that not only is the settlement a hush money effort–look, the banks say, we’ll pay you some billions and you’ll hush up about all the wrong we did–but it’s also now clear that the driver for a quick and dirty settlement is the federal government. At least 14 AGs are so sick of this “law enforcement” charade they’re exploring how best to take effective action together. Why is the Justice doing the bankers’ bidding?
And it’s not just AGs committed to enforcing the law that are realizing Justice is playing for the other team. The FHFA–Fannie & Freddie’s overseer–has also split with Justice. As Nasiripour reported for the Financial Times, FHFA is now working the the NY AG’s office instead of Justice. See, FHFA filed major, evidence-backed lawsuits against all the big banks, but apparently it wants even more negotiating leverage before cutting a deal. (Note to Iowa’s AG Miller, this is how it’s done.)
The NY AG has criminal laws at his disposal, and if the alliance is fruitful, he can use that leverage to get a better deal for FHFA. And the NY AG gets all the documents and evidence FHFA has, simplifying its own enforcement efforts. Yves Smith points out what a slap this alliance is to Justice, since normally it would be the FHFA’s natural ally.
In short, law enforcers serious about enforcing laws and regulators serious about protecting taxpayers are bypassing the Justice department as useless and unhelpful.
So What’s Going On?
I see two basic reasons why Justice has displayed such distorted priorities, and I believe the truth is a combination of both. One possibility is that Secretary Geithner and President Obama’s various Wall Street donors and advisers have convinced AG Holder and President Obama to do this distorted enforcement to avoid another Financial Meltdown. The claim is the Great White Sharks must swim free and their companies be patted on the wrist because the banks’ balance sheets can’t handle the liability, investors can’t handle the uncertainty, and if these guys go to jail, who will run these companies?
But that’s crap. If the banks’ balance sheets can’t handle the liability, liquidate and/or restructure the banks. Since when must we operate in a world with SuperMegaGigantoNormous banks? If Holder and Obama bought this idea, they’ve given in to blackmail.
The other reason doesn’t run through Treasury or Wall Street directly, but from the lawyers that serve them. That is, the revolving door between Justice and the law firm of Covington and Burling meant the people designing the enforcement approach–the Financial Fraud Enforcement Task Force itself– otherwise made their careers and fortunes defending the banks and bankers Justice isn’t prosecuting.
Here’s some highlights, excerpted from my reporting for DailyFinance last Feburary:
AG Holder: Before becoming AG, Holder was a litigation partner at Covington & Burling in its D.C. office for eight years. His practice involved “high stakes civil litigation and white collar criminal defense.” In 2008, immediately before he became AG, Holder was one of six Covington attorneys ranked top in the country in white collar criminal defense.
Assistant AG Lanny Breuer, Head of Justice’s Criminal Division: Just prior to joining Justice, Breuer was co-chair of Covington’s white collar criminal defense department and also an award winner.
James Garland, who joined Justice with Holder but left in 2010: At Justice, Garland
“advised Attorney General Eric Holder on a range of enforcement issues, with an emphasis on criminal…matters, and helped to spearhead the Department’s response to the ongoing economic crisis. He was deeply involved in the creation of President Obama’s Financial Fraud Enforcement Task Force… He worked closely with senior officials at the White House, Main Justice, the U.S. Attorneys’ Offices, and other federal, state, and local enforcement agencies.” [Bold added]
NOTE: the bolded language is no longer in Covington’s bio of Garland. But it was when I wrote the piece last February.
Steve Fagell, who joined Justice with Holder but also left in 2010:
“a member of the Criminal Division’s senior leadership team, [and] a key advisor to Assistant Attorney General Lanny A. Breuer …[Fagell] was integrally involved, for example, in the formulation and communication of Division policy in connection with...corporate and securities fraud, and other forms of financial fraud.…Mr. Fagell also coordinated the Division’s work with the Financial Fraud Enforcement Task Force and the Financial Crisis Inquiry Commission…[Bold added]
And that’s just a piece of the connections between top Justice folks and Covington.
See, our top prosecutor, his top criminal enforcement deputy, and two key architects of Justice’s approach to Financial Meltdown enforcement all worked or now again work for the very people and companies Justice is failing to prosecute. How much of a coincidence can that be?
Robert F. Kennedy must be spinning in his grave.
AG Holder and President Obama, because you have turned our democracy into a de facto aristocracy, I call you morally bankrupt. However, it’s not too late: you can redeem yourselves at any time. Just indict the big boys, prosecute those epitomes of public corruption, ex-regulator Darryl Dochow and his former boss Scott Polakoff, and sue the heck out of all the big banks.
In short, you can redeem yourselves at any time by starting to vigorously and equally enforce the law. Will you?