Wall Street Wins … Again

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The secret truth: There never was a “task force” dedicated to ferreting out mortgage fraud

A year ago, President Obama gestured toward the first lady’s box at the State of the Union address at Eric Schneiderman, the attorney general of New York.  Schneiderman had just agreed to co-chair the Residential Mortgage-Backed Securities working group, an initiative between state and federal law enforcement officials and bank regulators, designed to investigate and prosecute fraudulent Wall Street activity that led to both the creation of the housing bubble and its collapse. In exchange, Schneiderman dropped his objections to a settlement over some of the banks’ fraudulent post-crash activity, particularly around fraud in foreclosure processing.

Recent profiles of this event have called last night’s State of the Union the “anniversary” of the formation of the working group.  But you can’t really have an anniversary of something that never existed in the first place.  There never was a Residential Mortgage-Backed Securities working group, never a so-called task force dedicated to ferreting out Wall Street fraud — the deceptive origination of mortgage loans, sale of worthless mortgage-backed securities for huge sums, and subsequent unloading of toxic debt to unsuspecting buyers. The working group fails to exist as a tangible entity to this day.  What does exist is the same years-old Financial Fraud Enforcement Group that serves as a conduit for press releases about investigative actions already in progress.

Schneiderman’s “task force” (a generous appellation) was merely a politically motivated shell organization grafted onto that public relations strategy.  This was evident almost from the moment of the announcement, but the coalition of self-proclaimed bank accountability advocates, who had backed the administration into a corner over the lack of prosecutions, decided to align with Schneiderman and his kabuki task force, losing whatever leverage they may have had.  If those same groups who feel “betrayed” and “lied to” had stayed on the outside and shamed those in power into action, we would probably have more accountability today.

Within a few months of the State of the Union announcement, a hearing in the House Financial Services Committee confirmed the essentially invisible nature of the task force.  Maxine Waters, then a senior member of the committee and now the Democratic ranking member, asked Robert Khuzami, then the head of enforcement for the Securities and Exchange Commission, whether the entity had sufficient resources to investigate.  Khuzami replied that the agencies involved – the SEC, the New York AG’s office and the Department of Justice – were supplying the resources.  No new dollars were dedicated to the effort.  When Waters asked when the task force would hire an executive director, Khuzami said they hired a “coordinator” to facilitate inter-agency activity.  Specifically, he uttered this incriminating evidence: “We hired a coordinator, but most of the investigative work being done here is not really being done by a staff that belongs to the task force, it’s being done by the individual investigative groups that make up the task force.”

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