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The Ministry of Truth Speaks: American Prospect Tries to Pass Off Mortgage Turncoat Schneiderman as Hero

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I’m not looking forward to months of pre-election image-burnishing fabrication. The nausea-inducing offering of the day, The Man the Banks Fear Most from the American Prospect, gives us an idea of what we have in store.

The good news is that this revisionist history on the craven sellout by Eric Schneiderman on the mortgage settlement appears to be in response to a damaging New York Daily News article last week. That story outed the fact that the mortgage task force, the trinket offered to Schneiderman in return for going silent on his stance on the settlement talks, appears to be going nowhere. (Efforts to rebut this charge served only to establish that the officialdom has totaled the investigations that were underway and are trying to depict them as new activity) Schneiderman had been the leader of the opposition. Getting him on the side of the Administration enabled them to push the deal over the line.

The good news is this shameless propaganda piece is unlikely to do much to change souring opinions of Schneiderman. Matt Stoller pointed out that he is either unknown or disliked in New York. Today, Politico, which is more influential in DC than American Prospect, ran an op-ed by Tracy Van Slyke on Obama’s Missing Task Force.

But you really need to have a look at the American Prospect piece to see how transparently awful it is. It is clearly based on interviews with Schneiderman and a few of his allies. Much of the piece is told from his perspective and other bits, such as a flattering recap of his career, are pure PR puffery.

The big lie of the piece, which comes in the opening section, is that trading the opposition to the settlement to being one of five co-chairmen in a severely understaffed (assuming it is ever staffed) mortgage investigation was a win, as opposed to a sellout. Schneiderman already had, as the article points out, the best litigation weapon in the US, the Martin Act. I’ve been told by people who know him various reasons for his caving: that he had too little in the way of staff, that he is temperamentally slow (as in too slow) in developing cases, that he was going to have even less in the way of manning thanks to pending budget cuts. I don’t find them terribly persuasive, since Catherine Cortez Masto of Nevada, in an office far less well staffed than Schneiderman’s, filed two important cases: one a suit against Bank of America for violations of its 2008 consent decree (the filing is devastating) and Lender Processing Services for its role in dubious foreclosure documentation.

The article presents the notion that Schneiderman was working on a counterproposal, which is consistent with what I was hearing at the time. But the plan as I understood it was that a group of dissident AGs would present their version, with the aim of derailing the Obama settlement and forcing something closer to their version, which included investigations rather than a broad release. The story blandly misrepresents what took place: the administration suborned Schneiderman with a similar-sounding but utterly different in substance task force.

The story also passes off lots of serious misrepresentations. It presents the settlement release as narrow, when this blog and others have debunked that. It tries to claim that the staffing of the mortgage task force is “under way” which is technically accurate (they are trying to hire an executive director, for instance) but substantively misleading. It extols the moribund task force as a son-of-Pecora-Committee level effort, able to produce damages dwarfing that of the settlement, when it has given up its best legal theories in the settlement and statutes of limitations are expiring on the remaining decent ones, securities law claims. And it actually suggests that the task force might indict “banking” executives. The only people that might get that treatment will be folks at designated liability shields like Lender Processing Services. This Administration could have prosecuted bank officers years ago using Sarbanes Oxley. It doesn’t need a magical task force to give it permission to file suits, it needs a willingness to cross one of its best meal tickets. If you think this might happen, I have a bridge I’d like to sell you.

The article also repeats the Administration’s canard that it couldn’t get the banks to make principal mods. If Team Obama had wanted meaningful principal reduction, they would have used the hundreds of billions of dollars available to them under TARP. Or they could have stared down the four biggest banks, which are far and away the biggest servicers, and told them if they didn’t get figure out how to do deep mods pronto, the regulators would force them to write down their second liens in a major way.

There are additional inaccuracies and misdirections. The story depicts Schneiderman and Biden as the only ones questioning the deal as of June 2011. Simply searching my own archives, I find that Masto and even Lisa Madigan were in opposition. The story also touts Schneiderman’s filing of a suit agains MERS and three major bank immediately after the State of the Union address, but fails to mention that he settled it for a paltry $25 million. And it takes up Schneiderman’s own Big Lie:

Had he just refused to deal and chosen to conduct an investigation by himself, his lack of both staff and jurisdiction would have limited him to a small settlement at best.

That’s nonsense. Schneiderman could have leveraged private attorneys, as Masto did (having them assist on an unpaid basis in return for being able to pursue related civil litigation). And he had a simple to prove nuclear weapon: false certifications by securitization trustees, a theory of action we’ve discussed repeatedly on this blog and one that was presented to Schneiderman. You don’t need big staff to produce big damages. You need a good legal theory that isn’t too hard to prove and has big damages associated with it. Threatening to demonstrate that mortgage backed securities might not be mortgage backed would have brought the banks to heel quickly, but no one has been willing to go after this issue.

And an astute reader can pick up signs of astonishing Schneiderman naivete. For instance, Schneiderman wanted the IRS in his fantasy task force because he thinks New York and Delaware can collect in a meaningful way on REMIC fraud. Readers of this blog know that the issue of blatant REMIC abuses has already been raised with the IRS, and it is taking the “nothing to see here, move on” position. Any REMIC violations would hit the investors, who have already been woefully abused by the banks. They’d have to sue the original parties to the deal to recover their losses….assuming those parties still exist. A transfer from pension funds investors to pay for yet more bank misdeeds is not likely to be a political winner.

The sad thing is that Schneiderman was positioned to make a real difference, and given the easy way out, he took it. The fact that he had a history of bolder action is irrelevant. The opposition to the mortgage settlement was a last-ditch effort to shore up the rule of law against ongoing assault by the banking oligarchs. And Schneiderman’s capitulation allowed the bad guys to win.

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20 comments

  1. chitown2020

    The sad truth is that only the 99% can put them all in their place by not participating. Too many Americans don’t know the truth about what has occurred here in America and believe everything they are told by the media. Maybe if those people were told the truth…that there has been a coup de tat of their country, and it was an INSIDE JOB maybe they would wake up?

  2. Hugh

    My view is that Schneiderman was just another revolving hero, basically a good Establishment type who is trotted out to placate the rubes for a while by giving them the impression that reform is both possible and on the way. When this gets a little old and it is time to advance the con, we in the rubiat are treated to smoke and mirrors. The temporary hero declares a victory of some kind, you know the best he/she could do under the circumstances, whatever, and they are allowed to lapse back into obscurity. This was the trajectory Schneiderman was on until the stories came out and got play about how non-existent his victory was, i.e. the illusory commission he co-chaired. Some pushback to this was needed, hence the puff piece in the American Prospect, a reliably Democratic mouthpiece.

    2. different clue

      But once one realizes that one is the “designated rube”, can one really BE a rube anymore? One learns to become a passive obstructionary at the very least.

      When President Clinton made a speech with the disgusting little line in it about “being responsible and playing by the rules”, I heard it as “being obediently profitable good little sheep”. I didn’t want to be a good little sheep. I know I will never become a saber-tooth sheep like they had in the Ice Age, but at least I can become a bad little sheep who grows dirty rusty brillo instead of clean profitable wool. Or I can at least aspire to try.

  3. Conscience of a Conservative

    I could see how some might have niavely wanted to give Schneiderman and the settlment the benefit of the doubt when it was announced. However enough time has gone on , that we see the announced get tough enforcment policy was as many suspected a politically motivated rebranding of a non-effort.
    Neil Barofsky got this one right and his fears have proven correct.

  4. timotheus

    Something still doesn’t add up. Is Schneiderman really that naive? A threat to set fire to his dog makes more sense. Still, he was always a loyal party guy and spent 20 years not ruffling Sheldon Silver’s feathers in Albany, so maybe he just never had the stones we gave him credit for.

  5. indio007

    Schneiderman was most likely using the “I’m going to get tough.” shtick simply to extort a greater share of campaign contributions. Also to be considered is all the free face time on the public airways he received.

  7. chitown2020

    Funny story regarding Ms. Madigan. I met with one of many so foreclosure defense attorney a while back. This particular attorney told me that he actually met with Ms. Madigan and asked her Lisa, what are you going to do about the banks if they don’t have the notes? She really did not give him a straight answer. To which he responded to her..Do we have a Constitution or not? Not sure if she answered him because then he started rambling on about how the banks own Chicago and if the judges start feeling sorry for us they get switched around. Needless to say I have been fighting pro se. I went to the courthouse one day, many months later to bring the judge a courtesy copy of my motion to dismiss and the clerk thought I was an attorney and confided in me that rumor has it, they are going to be switching the judges around. I have a ton of stories to tell about the corruption that I have witnessed first hand in fraudclosure court by the bank attorneys and how the judges are ignoring the blatant fraud by the banks..I have received no real response after I reported the fraud by the bank attorneys in court after I filed complaints to every agency imagineable including the Illinois States Attorney and the State AG as well as the IDFPR and the
    local media.

  8. Mark C

    Maybe Schneiderman had to cave because his Wall Street enemies were fixing to go public with his hooker credit card records or similar skeletons.

    Or maybe Schneiderman was engaging in kabuki all along and is just the quintessential lying, cheating, self-dealing scumbag politician.

    All things being equal my money would go on #2…….

  9. ep3

    yves, don’t forget the ability to make schniederman into a celebrity. look at that a/p photo; nice haircut, sport jacket, smooth smile. the next step is either a tv show or a movie star!

  10. Susan the other

    Is it true Mitt Romney is a major stockholder in LPS? Does that make him and the other shareholders (banks) responsible for the racketeering?

      1. chitown2020

        I have heard Romney say publicly that he doesn’t know exactly what he is invested in. He is a liar about a lot of stuff. I liked Eliot Spitzer for third party candidate but I have a feeling they have more dirt on him than we know. I came across a picture of him on the net looking kind of friendly with Larry Silverstein. The guy who got the big insurance payout from the collapse of the buildings on 9/11. Bloomberg reporter that Ron Paul’s biggest campaign contributors are the Wall Street hedge fund managers. Its all just plain ugly.

  11. Up the Ante

    “The nausea-inducing offering of the day, The Man the Banks Fear Most ..”

    Somebody should hack American Prospects page and link it to this,

    Best Way to Raise Campaign Money? Investigate Banks
    http://www.rollingstone.com/politics/blogs/taibblog/best-way-to-raise-campaign-money-investigate-banks-20110421

    http://www.rollingstone.com/politics/blogs/taibblog/jon-corzines-relationship-with-cftc-chair-gary-gensler-probed-20111207

    “Before being named chairman for the CFTC by President Obama, Gensler was a top official in the Treasury Department in the Clinton administration. He also was a Senate aide when Corzine was a U.S. senator from New Jersey, and both of them worked on legislation responding to the Enron scandal [ like SarbOx ?, http://www.thedailybeast.com/newsweek/2011/12/04/the-rise-and-fall-of-mf-global-chief-jon-corzine.print.html ].

    http://www.washingtonpost.com/business/economy/gensler-recuses-himself-from-cftcs-probe-of-mf-global/2011/11/10/gIQApqIz9M_story.html

  12. Up the Ante

    All this financial crisis BS really took off with AIG. Spitzer had AIG on the run, got himself in trouble, his Lt.Gov. Paterson “saving” AIG from [?] Eric Dinallo, New York State’s insurance superintendent .. did not bode well for Schneiderman doing much.

    “.. it has become widely accepted that without Cassano and AIGFP around to insure the risk that Wall Street was taking in underwriting these increasingly squirrelly assets, the debt bubble might have run out of air far before it did in 2007. ”

    http://www.theworldforgotten.com/archive/index.php/t-696.html

    Ok, fellow readers, who regulates “holding companies”?

    Perhaps there will be the cryptic clue to Paterson’s claim of ‘saving’ AIG,
    “AIG itself was a holding company, which guaranteed the debt of its unregulated financial subsidiary, AIGFP. ”

    http://www.huffingtonpost.com/david-fiderer/how-paulsons-people-collu_b_435549.html

    Seems AIG itself was bailed out, not AIGFP. There is some info in that HuffPo piece but a lot of it comes across as obfuscation.

    Seems the Martin Act would be ideal for prosecuting Cassano/AIGFP, Yves.

    http://www.nypost.com/p/news/opinion/opedcolumnists/devil_bargain_wall_st_the_martin_JmUXYCie3XWjzQyZHzK72N

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