Eric Holder has come out with details on the task force. But first, let’s look at a smoke signal. At this press conference announcing the task force, Holder had to apologize for Lanny Breuer, Assistant Attorney General for the Criminal Division, one of the key leaders of the investigative unit. Breuer, you see, couldn’t make it to the press conference because he was traveling. That’s how important this task force is to Breuer, so important that his travel schedule couldn’t brook interference. Such a bureaucratic snub has been no doubt noticed by the various underlings at the DOJ and the US Attorney offices.
Ok, let’s go to the substance.
I am pleased to report that this Working Group has considerable Department resources behind it as it builds on activities that have been underway through the broader Task Force. Currently, 15 attorneys, investigators, and analysts – here at Main Justice and throughout our U.S. Attorneys’ Offices – are supporting the investigative efforts that this Working Group will be focusing on going forward. And the FBI has assigned 10 agents and analysts to work with the group immediately. In the coming weeks, another 30 attorneys, investigators, and support staff from U.S. Attorneys’ Offices will join the Group’s work.
So that’s a total of 55 people, 10 of whom are FBI agents. Let’s do a few comparisons. During the Savings and Loan crisis, Bill Black reminds us that there were about a thousand FBI agents working on the various cases. That’s one hundred times the number of people working on a scandal that is about forty times larger and far more complex.
To put it another way, let’s say that this scandal cost the American public $5-7 trillion in lost home equity. That’s about $100 billion of lost home equity per person assigned to this task force. If someone stole $100 billion a corporation, like say, if somehow Apple’s entire cash hoard which is roughly that amount, suddenly disappeared, I’m guessing that the FBI would assign more than one person to the case.
Another comparison might be Enron, which had 100 FBI agents assigned to the case. Or the stress tests. Remember this?
For the last eight weeks, nearly 200 federal examiners have labored inside some of the nation’s biggest banks to determine how those institutions would hold up if the recession deepened.
Yup, roughly four times as many people were assigned to conduct sham stress tests as are assigned to investigate the causes of the financial crisis and prosecute the people responsible. So we see that this is a not a serious deployment of government resources to unmask a complex economy-shaking financial scheme. It just isn’t. And as if to emphasize this, Breuer didn’t even show up to the press conference announcing it.
And finally, the fissures I warned about are already beginning to appear. Here’s more of what Holder said:
On Tuesday night, the President referenced this initiative, asking us to, “hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.”
That is precisely what we intend to do. And the good news is that we aren’t starting from scratch.
Over the past three years, we have been aggressively investigating the causes of the financial crisis. And we have learned that much of the conduct that led to the crisis was – as the President has said – unethical, and, in many instances, extremely reckless. We also have learned that behavior that is unethical or reckless may not necessarily be criminal. When we find evidence of criminal wrongdoing, we bring criminal prosecutions. When we don’t, we endeavor to use other tools available to us – such as civil sanctions – to seek justice. My number one to commitment to the American people is that we will continue to devote significant resources to combating financial fraud and be as aggressive and creative as we can be in holding accountable those who, in violating the law, contributed to the financial crisis.
For example, in just the last six months, the Department has achieved prison sentences of 60, 45, 30, and 20 years in a variety of financial fraud cases charging securities fraud, bank fraud, and investment fraud. And, just last month, I announced the largest fair lending settlement in history, resolving allegations that Countrywide Financial Corporation and its subsidiaries engaged in a widespread pattern or practice of discrimination against minority borrowers from 2004 through 2008.
I keep coming back to this point – the administration and its cabinet members truly believes they have worked hard to get to the bottom of the financial crisis, and has done so as best as anyone possibly could. To them, “mortgage fraud is a top priority”, and has been for years. They might think they have mishandled the politics, but as Holder makes clear, they have brought criminal cases where they felt they could, and they settled where they thought they needed to. Even the anecdote about Countrywide is weak – note he says they resolved “allegations”, because Countrywide didn’t even have to admit wrongdoing!
There are reasons Schneiderman wants to have Federal resources to bear on this problem, but this is a drop in the bucket compared to what is needed, and the leadership with whom Schneiderman needs to work simply doesn’t believe they have done anything wrong. To them, this is business as usual.
Now on to the other news of the week, which is a $25 billion settlement for foreclosure fraud, which is supposedly done along the lines of a narrow release just for robosigning. I haven’t seen the language, and until I do, I wouldn’t be comfortable describing it as a narrow release. But if it is, then it isn’t a real shift in the landscape. The banks simply don’t want to pay that much for so little, and they’ll probably end up gaming the financing so that they claim to have paid $25 billion by engaging in loan modifications and principal write-downs they would have engaged in already. And if it’s a broader release, it seems unlikely to be something the recalcitrant state AGs would agree to.
The real anchor in our financial system is the heavy burden of unpayable mortgage debt, as well as rampant servicer conflicts that render modifying this burden impossible. We need to find a way to cut that debt through a negotiated workout, which can’t happen without a real investigation of the people who are grabbing as much as they can. There are ways Schneiderman and the state AGs can force movement even without a big commitment of Federal resources by better leveraging the people on the ground who are fighting foreclosure fraud on a regular basis. And depending on how it’s organized, this task force gives state AGs more jurisdiction, access to the investigative resources and documents done by the Feds so far, and a few FBI agents and lawyers. Still, that’s not nearly enough. The administration saw this as a way of co-opting the issue for the reelection and stopping the bitter undercurrent from the Democratic base (similar to floating the rumor that Geithner won’t come back in term two). Will it work? I’d expect a few semi-significant actions in the months ahead, complaints or indictments perhaps. We’ve already seen some subpoenas. But without a major figure investigated and prosecuted (like if Vikram Pandit were really prosecuted for Sarbox violations), the administration’s policy of preserving the existing banking structure is the dominant policy framework.