By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller.
Since the President is now establishing yet another committee to look into the mortgage fraud crisis, I figured it would be useful to look into the history of the Obama and Bush administrations’ approaches to the problem of vast financial fraud. As with most Obama government activities, it’s largely a story of policy continuity with the last administration, though the boom-bust cycle meant that there was not a huge amount of public pressure on the Bush administration to act, so their PR apparatus was less visible.
In 2009, President Obama established the Financial Fraud Enforcement Network, whose purpose was “to hold accountable those who helped bring about the last financial crisis, and to prevent another crisis from happening.” In the State of the Union, he basically re-established this network, adding a new member, Eric Schneiderman, who has been something of a thorn in the side of the administration. My guess is that at least one reason (but not the only reason) for agreeing to this is that Schneiderman believes he needs the extra resources to investigate the mortgage crisis. But the resources of the Federal government have proven useless because the people who are in government are uninterested in and incapable of holding financial interests accountable for their behavior.
I realized this a few months ago, after a fairly irritating email exchange with a college classmate named Sujit Raman, who is now an Assistant US Attorney in Maryland. Raman is exactly the kind of person you don’t want in public service, a budding corporate ladder climber whose expertise in his young career is about how to standardize deferred prosecution agreements. So of course he’s an Assistant US Attorney. When I asked him about his department’s absurd approach to mortgage fraud, he told me with a straight face that mortgage fraud is one of the top priorities of the FBI and the US Attorney’s Office, and referred me to a few cases he had prosecuted of petty crooks (here, here, and here). I thought it was a bizarre statement, since it’s obviously not true. But then I went back and looked at the statements from various DOJ and US Attorneys, and they actually think this.
Here’s what I mean.
“Mortgage fraud is a top priority for this Administration, especially when public dollars are at stake,” West said in a statement at the time.
“The vigorous pursuit of real estate professionals who perpetrated mortgage fraud is a top priority for federal authorities in this region,” U.S. Attorney Lawrence G. Brown said in a statement.
“Mortgage fraud is a top priority for this administration,” said Tony West, Assistant Attorney General for the Department of Justice’s Civil Division. “We will aggressively pursue both individuals and corporations who defraud federal mortgage insurance programs, which are so important to this economy.”
Dennis K. Burke, U.S. Attorney for the District of Arizona, highlighted the significance of this sentence. “Mortgage fraud is a top priority for the U.S. Justice Department in the District ofArizona, where it has destroyed property values, lending institutions, and entire neighborhoods in our community. No question, complex fraud schemes — a prime example, here — played a role in crashing our real estate market. Culprits like these defendants will be tracked down, prosecuted and convicted. I congratulate the FBI for their thorough investigation that led to this significant sentence.
“The prosecution of those who commit mortgage fraud is a top priority of the Department of Justice and this U.S. Attorney’s Office,” said U.S. Attorney David Gaouette. “Those who commit such crimes seriously erode the confidence of financial institutions to lend money which is a key element of the future strength of our economy.”
U.S. Attorney Wifredo “Willy” Ferrer, who was sworn in two weeks ago as the top federal prosecutor for the Southern District of Florida, called fighting mortgage fraud one of his top priorities today during a session with journalists.
Combating fraud was one of three main priorities Ferrer vowed to pursue, following terrorism and public corruption.
“There is rampant fraud in South Florida,” he said. “I think that’s unfortunate. It is embarrassing that we are known in some circles as the fraud capital of the country. I don’t like that title.”
“The investigation and prosecution of mortgage fraud is a top priority of the Justice Department and this office,” said U.S. Attorney John Walsh. “Prosecuting these cases helps protect the integrity of the housing market.”
And prior to the Obama administration years, the Bush US Attorney network and FBI adopted the same posture. Here are two examples.
“We all have the same initiatives, the policies all come from Washington, D.C., and right now mortgage fraud is No. 1,” Becky Gregory, the Beaumont-based U.S. Attorney for the Eastern District of Texas, told about 50 lawyers munching their boxed lunches during a white-collar crime seminar at South Texas College of Law.
“On the local level lots of times, the big companies are the victims,”said Johnny Sutton, the San Antonio-based U.S. Attorney for the Western District of Texas. Sutton said the FBI is finding a lot of people who illegally took advantage of the lax mortgage system. He said his office just prosecuted 19 defendants in an Austin mortgage fraud case.
Richard Roper, the Dallas-based U.S. Attorney for the Northern District of Texas, said the coming mortgage fraud cases remind him of the bank fraud cases of the late 1980s.
“It’s going to be huge in the next few years,” he said.
Donald DeGabrielle, the Houston-based U.S. Attorney for the Southern District of Texas, told the gathered group of mostly criminal defense attorneys that “there will be a lot of work for you.”
Reiterating his comments at the summit, Swecker told attendees that mortgage fraud is a top priority for the FBI, and “prevention of mortgage fraud should be our collective goals. It is vital that policy makers, law enforcement and the public understand the reality and magnitude of the problem and work together to address this issue.”
I would be happy to be wrong, of course. I’d love to see real prosecutions of the people that caused the mortgage crisis and rigged the markets to collapse. But it’s important to recognize that it is the policy of the Bush and Obama administrations to protect the banks at all costs. That is, not prosecuting isn’t a failure, it’s a feature. Don’t believe me, believe Barack Obama, who said so in his very first State of the Union.
We will act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times. And when we learn that a major bank has serious problems, we will hold accountable those responsible, force the necessary adjustments, provide the support to clean up their balance sheets, and assure the continuity of a strong, viable institution that can serve our people and our economy.
That’s the policy. Oh, and that bit about holding those responsible accountable – didn’t you hear that mortgage fraud is a top priority of the administration?