The injustice of Geithner’s “elite frauds go free” doctrine is every bit as extreme as the stupidity of believing that giving fraudulent CEOs de facto immunity is the road to financial stability. It is a travesty that I have to defend the importance of integrity and justice. No nation can be great if it allows its elites to loot with impunity and prosecutes its whistleblowers. Geithner is destroying the things that made America great. He did so as part of Bush’s wrecking crew and he is doing so now as part of Obama’s wrecking crew.A tip o' the hat to bobswern at DailyKos, who points to Yves Smith of Naked Capitalism (Musings on Plutocracy) quoting David Runciman's positive London Review of Books' critique of Jacob Hacker's and Paul Pierson's book, Winner-Take-All Politics:
Geithner’s “elite frauds go free” plan is not new. Speaker Wright demanded that my colleagues and I go easy on fraudulent Texas S&Ls to save the Texas economy (which the S&L frauds were savaging – but he assumed they were salvaging). The five senators that became known as the “Keating Five” told us that Lincoln Savings was critical to the health of Arizona’s economy. In reality, it was the worst threat to Arizona’s economy. One of my agency’s presidential appointees, Bank Board member Roger Martin, argued that if Keating was a fraud and had made Lincoln Savings insolvent by looting the S&L it was all the more important to keep him in charge so that he could use his exceptional political power to get zoning changes that would reduce losses. He opposed any closures of insolvent, fraudulent Arizona S&Ls on the grounds that the Arizona economy was fragile. Here’s the difference. We, the professional regulators, explained in excruciating detail why leaving frauds in charge of S&Ls would massively increase losses and harm regional economies. Only one of the three Board members (Larry White) listened to us – the other two (Martin and Bank Board Chairman Danny Wall) took the unprecedented action of removing our jurisdiction over Lincoln Savings because we refused to withdraw our recommendation that it be promptly taken over and Keating removed. We told the Keating Five to their faces that they were intervening on behalf of a fraud. Even before Wall and Martin removed our jurisdiction over Lincoln Savings they expressly ordered us to cease our examination of Lincoln Savings, to cancel the upcoming examination (nominally, they ordered us to postpone it indefinitely), and ordered that the formal investigation of Lincoln Savings (which had produced the admissions of fraud) be terminated (nominally, suspended). The result was that Lincoln Savings became the worst S&L failure. Losses increased substantially after our examination, investigation, and supervision of Lincoln Savings were halted. All of this became a national scandal when House banking chairman, Henry B. Gonzalez, over the opposition of the Democratic leadership, conducted a series of intense oversight hearings that exposed the Bank Board’s capitulation to the political extortion of the Keating Five and Speaker Wright. Danny Wall resigned in disgrace as a result of those hearings.
In a fast-moving financial environment, it is usually easier to assemble a coalition of interests in favour of relaxing the rules than one in favour of tightening them. Similarly, it’s easier not to enforce the rules you have than to enforce them: non-enforcement is the work of a moment – all you have to do is turn a blind eye – whereas enforcement is a slow and laborious process.Failing to prosecute criminal behavior by economic and financial elites is the worst possible option for any political system to take: it inevitably leads to a Gresham's Law dynamic that eventually drives out honest actors in the economic and financial systems. Right now, the United States is about to squander another amazing opportunity to crack down and begin to legally remove some of the most vicious, powerful, and arrogant financial predators now roaming free in the land: the Obama administration has apparently decided NOT to fully investigate and prosecute the rampant criminal fraud behind the mortgage foreclosure scandal, in which financial firms outright lied to courts, and submitted falsified, bogus, and fake documents as proof of their standing to foreclose on the homes of millions of American families. Michael Collins at The Economic Populist has written a frightening article that ties together the past three years' of foreclosures, with the 2005 changes to federal bankruptcy laws, to show "the utter contempt that the ruling elite has toward citizens and the depraved tactics used to express that contempt, all to serve endless desire to accumulate more money and power."
Beyond ForeclosureGate - It Gets Uglier
The ForeclosureGate scandal poses a threat to Wall Street, the big banks, and the political establishment. If the public ever gets a complete picture of the personal, financial, and legal assault on citizens at their most vulnerable, the outrage will be endless. (Image)
Foreclosure practices lift the veil on a broader set of interlocking efforts to exploit those hardest hit by the endless economic hard times, citizens who become financially desperate due medical conditions. A 2007 study found that medical expenses or income losses related to medical crises among bankruptcy filers or family members triggered 62% of bankruptcies. There is no underground conspiracy. The facts are in plain sight.
ForeclosureGate represents the sum total illegal and unethical lending and collections activities during the real estate bubble. It continues today. Law professor and law school dean Christopher L. Peterson describes the contractual language for the sixty million contracts between borrowers and lenders as fictional since the boilerplate language names a universal surrogate as creditor (Mortgage Electronic Registration System), not the actual creditor. Other aspects of ForeclosureGate harmed homeowners but the contractual problems that the lenders created on their own pose the greatest threats.
When the Massachusetts Supreme Court upheld a lower court ruling that the actual creditor must named in the mortgage agreement (a legal requirement that the banks forgot to meet in their contracts), there was consternation on Wall Street. What would happen if a class action lawsuit challenged these flawed mortgages? Isn't the Massachusetts decision the latest of many attacking the legal basis of the shoddy business practices and boilerplate industry contracts? What if homeowners started walking away from their underwater mortgages based on the legally flawed contracts? If there were a viable prospect of a class action suit against financial institutions threatening to invalidate these contracts, wouldn't that crash the stock values of the big banks and some Wall Street firms?
The big banks and their partners on Wall Street need a preemptive strike to derail the legal process that threatens their existence.