Did the bankers buy off an investigation?
investigates the man who's supposed to investigate the bankers.
THE WORLD'S biggest banks, including Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial, are under investigation for one of the great frauds of the mortgage crisis.
With the number of mortgage loans in default skyrocketing as the economic crisis hit, the financial giants are accused of hiring workers and contractors to plow through large numbers of foreclosure notifications--as many as 450 a day, according to reports--without any investigation or review of the documentation.
In addition to "robo-signing," Fisher and Shapiro, a top foreclosure mill out of Chicago, was found to have illegally altered the contents of at least 1,700 affidavits used to show that a particular bank is the owner of a property in foreclosure.
Because of a variety of shenanigans, such as the mania for buying and selling mortgage loans for speculative purposes on Wall Street, the banks need the affidavits to replace lost documentation of who or what owns different pieces of property tied to mortgage loans--but many people suspect that the Fisher and Shapiro case isn't an isolated incident.
The investigation is being conducted by the attorney generals of the 50 states, led by Iowa's Tom Miller.
Miller has taken on mega-corporations such as Microsoft and major drug companies in the past. His track record has inspired comparisons to Eliot Spitzer--the former New York attorney general who earned national recognition for crusading against Wall Street corruption of Wall Street; but later fell from grace because of a sex scandal after he won the governor's office.
But when it comes to investigating the "robo-signing" scandal, Tom Miller is proving to be "Spitzer-like" only in his susceptibility to temptation.
A new report from the National Institute for Money in State Politics (NIMSP) found that nearly half of the campaign donations Miller raised in 2010 "was donated after the October 13 announcement that he would be coordinating the 50-state attorneys general investigation," according to NIMSP. Miller raised as much in two months as he did in the previous 10.
Two of Miller's contributors have become directly involved in defending the banks in the probe. One, Meyer Koplow of Wachtell Lipton in New York, gave Miller $5,000 and is representing Bank of America in direct negotiations with Miller. Elizabeth McCaul of Promontory Financial Group, gave Miller $10,000 and is consulting Bank of America in the negotiations, Miller says. Bank of America was one of the first and most prominent institutions accused in the foreclosure investigation. It gave more than $80,000 to the Democratic Attorney Generals Association, which spent more than $200,000 on Miller's campaign.
UNSURPRISINGLY, THE increase in legalized bribery appears to have weighed against the interests of the homeowners Miller swore to protect--so far, his "robo-signing" investigation has yet to yield a single subpoena or deposition.
Last January, an Iowa homeowner asked Miller, "Will we put [these bankers] in jail?" Miller responded, "I'm just not going to go into where we're going to go at this point. I'm going to leave that to the negotiations and the investigation and the work that we can do."
The bankers have some good friends at the top of the federal government, too--starting with the commander-in-chief. Citibank and JPMorgan Chase were among the top 10 campaign contributors to Barack Obama's 2008 presidential campaign. With Obama setting $1 billion as a fundraising goal for 2012, it's difficult to imagine that his administration would irk top financial bankers by pressing for a serious investigation.
All this has led to talk that the banks will get away with paying a meager settlement--the figure of $20 billion has been floating around since early February. If that seems like a lot, consider that JPMorgan by itself increased its first-quarter profits to $5.6 billion on revenue of $25.8 billion. And now insiders are predicting the final settlement number could go even lower.
Plus, if an agreement is reached, the banks would be indemnified against future "robo-signing" prosecution. As FireDogLake blogger David Dayen wrote:
[A settlement] would be just enough to make a big press conference full of back-patting about helping the little guy. But in the aftermath, states with strong consumer protection laws could be potentially unable to bring a lawsuit for servicer fraud or abuse.
Consumer advocates are trying to push Miller into demanding that the settlement money from the banks be used to "principal reduction"--that is, to lower the amount that homeowners facing foreclosure still owe on their mortgages.
Since the real estate bubble burst in 2008, housing prices have plummeted, and as a result, many mortgage loans exceed the value of the homes they're attached to. Principal reductions would help align mortgage payments with the reality of the current housing market and ease the burden on households that face foreclosure.
But Bank of America Chief Executive Officer Brian Moynihan says "broad-based" principal reductions aren't "a sound policy decision for America"--and Miller seems to agree with Moynihan: "Our position has been that principal reductions are one tool in the toolbox, and should only be used in appropriate circumstances. We have never advocated broad-based principal reductions that would pick winners and losers or trigger strategic defaults."
Meanwhile, Virginia Attorney General Kenneth Cuccinelli and six other Republican state attorneys general reject the idea of principal reductions outright.
In response to Millers' double-talk, Iowa Citizens for Community Improvement Director Hugh Espey said, "In our first meeting with AG Miller, we felt like we had a champion that was ready to go toe-to-toe with the big banks. [We now feel] as if the big banks had knocked the wind out of our state's top law enforcer."
Espey's sense of betrayal brought to mind the words of the Russian revolutionary Lenin, when he talked about:
the false notion that universal suffrage "in the present-day state" is really capable of revealing the will of the majority of the working people and of securing its realization...A democratic republic is the best possible political shell for capitalism, and, therefore, once capital has gained possession of this very best shell...it establishes its power so securely, so firmly, that no change of persons, institutions or parties in the bourgeois-democratic republic can shake it.