Wow, I have to hand it to Obama’s spinmeisters. They’ve managed to find a way to resurrect his old hopium branding by calling it something completely different that still has many of the old associations.
And we have a twofer in Obama’s launch of his new branding as True Son of Teddy Roosevelt. Never mind that Teddy, unlike Obama, was accomplished in many walks of life and had meaningful political accomplishments (such as reforming the corrupt New York City police department) before becoming President at the tender age of 42. The second element of this finesse is that Obama is using the Rooseveltian imagery to claim he will pass legislation to get tough on Big Finance miscreants. That posture, is of course meant to underscore the idea that you just can’t get the perps with the present, weak set of laws.
Team Obama may have planned to wheel this new, improved image out later, with the timing accelerated by Judge Jed Rakoff’s decision against a proposed $285 million settlement between the SEC and Citigroup over a bum CDO in which Citi allegedly wielded considerable influence over its contents so it could bet against it. The SEC has gone on a full bore media offensive against Rakoff, with enforcement chief Robert Khuzami’s becoming uncharacteristically accessible to the media and also using scheduled speaking engagements to take issue with Rakoff’s ruling. And on top of Khuzami’s own efforts, the media has taken up some other dubious plants by the SEC. The biggest howler is a story in the Wall Street Journal earlier this week. Titled “Financial Crimes Bedevil Prosecutors,” not one of the sources for the story is a prosecutor!
The centerpiece of the piece is one David Cardona, who just joined the SEC. Gee, you think he is going to do anything other than sell the party line? And what was his last job? At the FBI, investigating financial crimes, which by the way, resulted in pretty much no criminal cases, except, curiously, Taylor Bean. But doesn’t count, since the wronged parties were even bigger fish.
Now why is Cardona’s opinion on these matters worthless? He was a cop, not an attorney. He is not a legal expert, and any opinion he has on the legal issues would come from the lawyers he worked with. And since neither the last nor the current DOJ has the slightest interest in getting tough on bank execs, you can be sure all he heard were persuasive rationalizations as to why all sorts of dirt he turned up just was not sufficient. It’s plenty easy to justify failure and timidity.
And who were the other sources for this dictation masquerading as reporting? Well, there was a lone dissenting comment by Phil Angelides of the FCIC, noting that the FBI investigations of mortgage fraud were inadequate. That’s one paragraph out of 24. Khuzami is quoted, as well as a Department of Justice in-house flack.
While we have the Feds insisting that it’s just too hard to go after miscreants in finance, this week we have Nevada Attorney General Catherine Cortez Masto continuing with her step-by-step, classic prosecution strategy of going after low level organization members to roll the higher ups. As we’ve indicated, she has targeted Lender Processing Services and is going after more mid level employees. Her effort has the potential to bust open bad conduct across all major servicers. LPS has among other things, allegedly engaged in escrow abuses and charging other impermissible fees, as well as foreclosure related abuses. LPS maintains that everything it did was with the full knowledge and approval of its clients, meaning the big servicers.
And the reach of Masto’s effort, and the potential damage to the Administration’s credibility has just grown considerably. Yesterday, California attorney general Kamala Harris joined the Masto effort. This strongly suggests that Harris will also be seeking indictments. And remember, California, unlike Nevada, has a major bank headquartered in state (Wells) as well as other substantial banking operations (the legacy Countrywide units). For Harris, who is reputed to be, shall we say it politely, sensitive to the political winds, to make a shift like this, suggests a real change in the political climate is underway.
So let’s return to the rebranding of Obama. From the Financial Times:
Barack Obama outlined a plan to toughen penalties against banks that commit fraud in a speech on Tuesday that hardened his attacks on Republicans for “collective amnesia” in backing policies that caused the financial crisis and economic downturn.
Speaking in Osawatomie, Kansas, Mr Obama summoned the spirit of another president, Teddy Roosevelt, who spoke in the same city a century ago about his “new nationalism” and the need for a fairer system that supported the middle class..
Mr Obama was scathing about the banks’ opposition to new financial regulations, saying they were only feared by “financial institutions whose business model is built on breaking the law, cheating consumers or making risky bets that could damage the entire economy”.
“I’ll be calling for legislation that makes [anti-fraud] penalties count – so that firms don’t see punishment for breaking the law as just the price of doing business.”
The misdirection is blindingly obvious. The claim is that the Administration needs new tools to get tough on banks. No, it has plenty of tools, starting with Sarbanes Oxley. As we’ve discussed at length in earlier posts, Sarbox was designed to eliminate the CEO and top brass “know nothing” excuse. And the language for civil and criminal charges is parallel, so a prosecutor could file civil charges, and if successful, could then open up a related criminal case. Sarbox required that top executives (which means at least the CEO and CFO) certify the adequacy of internal controls, and for a big financial firm, that has to include risk controls and position valuation. The fact that the Administration didn’t attempt to go after, for instance, AIG on Sarbox is inexcusable. The “investigation” done by Andrew Ross Sorkin in his Too Big To Fail (Willumstad not having a good handle on the cash bleed, the sudden discovery of a $20 billion hole in the securities lending portfolio, the mysterious “unofficial vault” with billions of dollars of securities in file cabinets) all are proof of an organization with seriously deficient controls.
But more broadly, it’s blindingly obvious this Administration has never had the slightest interest in doing anything more serious than posture. As we wrote in early 2010:
Recall how we got here. Early in 2009, the banking industry was on the ropes. Both the stock and the credit default swaps markets said that many of the big players were at serious risk of failure. Commentators debated whether to nationalize Citibank, Bank of America, and other large, floundering institutions..
This juncture was a crucial window of opportunity. The financial services industry had become systematically predatory. Its victims now extended well beyond precarious, clueless, and sometimes undisciplined consumers who took on too much debt via credit cards with gotcha features that successfully enticed into a treadmill of chronic debt, or now infamous subprime and option-ARM mortgages..
The widespread, vocal opposition to the TARP was evidence that a once complacent populace had been roused. Reform, if proposed with energy and confidence, wasn’t a risk; not only was it badly needed, it was just what voters wanted.
But incoming president Obama failed to act. Whether he failed to see the opportunity, didn’t understand it, or was simply not interested is moot. Rather than bring vested banking interests to heel, the Obama administration instead chose to reconstitute, as much as possible, the very same industry whose reckless pursuit of profit had thrown the world economy off the cliff. There would be no Nixon goes to China moment from the architects of the policies that created the crisis, namely Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and Director of the National Economic Council Larry Summers..
Obama’s repudiation of his campaign promise of change, by turning his back on meaningful reform of the financial services industry, in turn locked his Administration into a course of action. The new administration would have no choice other that working fist in glove with the banksters, supporting and amplifying their own, well established, propaganda efforts.
Thus Obama’s incentives are to come up with “solutions” that paper over problems, avoid meaningful conflict with the industry, minimize complaints, and restore the old practice of using leverage and investment gains to cover up stagnation in worker incomes. Potemkin reforms dovetail with the financial service industry’s goal of forestalling any measures that would interfere with its looting. So the only problem with this picture was how to fool the now-impoverished public into thinking a program of Mussolini-style corporatism represented progress.
The list of evidence supporting this view is so lengthy that I am certain to miss quite a few items: the lack of serious investigation, the phony stress tests, the perpetually missing in action DOJ, allowing the banks to exit the TARP pronto, the mortgage fraud
whitewash investigation, the clever sidelining of Elizabeth Warren, the way too weak Dodd Frank legislation, which is being watered down further with the blessing of Timothy Geithner. And speaking of legislation, gee, if it was really that hard to prosecute bank miscreants, why wasn’t that incorporated in Dodd Frank? Awfully convenient to notice that supposed oversight now, with no hope of getting a tough bill passed at this juncture and statutes of limitations running out.
Frankly, the fact that the Administration has joined Khuzami in the “oh, it’s SO hard to prosecute” messaging leads me to believe the SEC really will throw the case. It’s plenty clear this Administration has let the people who really count know it has no intention of ever carrying a stick.