Last week, we saw a host of commentators rush to defend the mini October surprise of a sign of life from the heretofore moribund Mortgage Task Force, in the form of a filing by Eric Schneiderman against JP Morgan for fraud charges under New York’s Martin Act, even though we and others took a dim view of the suit. And even though a bit more information has come out, it doesn’t change our view that this and parallel cases (which the Mortgage Task Force has said it will launch) will be settled quietly, well after the election, perhaps even after Schneiderman’s current term expires, for comparatively little.
There are two overlapping sets of issues described in the claim. First is that Bear was telling investors in its marketing materials and public filings that it had a robust due diligence process, when it in fact it purchased loans that were delinquent or otherwise failed to meet stipulated underwriting standards and sold them into securitizations. The filing depicts Bear as aggressively seeking to increase its origination volumes and regularly ignoring the findings of outside firms and its own quality control team regarding substandard loans.
Second, rather than repurchase loans that should not have been included in securitizations, such as ones that defaulted early, Bear would instead extract settlements from originators, which it retained rather than pass them on to the securitization trusts.
Now this might all sound impressive, save the Schneiderman filing was a bit too obviously cobbled together from other suits; Francine McKenna tells us it repeated an error in a filing by Ambac against JP Morgan, in which it mistakenly said Bear’s auditor was PricewaterhouseCoopers (in fact, it was Deloitte).
The fact that the Schneiderman salvo comes almost entirely from two other filings (Ambac and Syncora) matters. JP Morgan has been fighting them for nearly four years. As reader MBS Guy points out, the bank has put in thousands of hours into this case and almost certainly has deposed the Bear staffers that were involved. JP Morgan has gone into war of attrition mode on one case I know of against a very deep pockets party where the bank’s case looks pretty weak. It’s not hard to imagine that it would go this route if Schneiderman intended to put up a fight.
In the last few days, we have learned that the mortgage task force entered into tolling agreements with all the major banks, which means, contrary to our original assumption, they will be able to include actions back to 2005 (we had assumed they’d be subject to the Martin Act statute of limitation of 6 years, which would have limited the damages to late 2006 and onward conduct). While this in theory makes the economic value of the case higher, the fact is, as we pointed out, that Cuomo looked into this conduct in 2008 (the fact that mortgage originators ignored the reports of the firm hired to review mortgages, Clayton Holdings, that found many of the loans fell short of the standards promised to investors) and did nothing.
A tolling agreement, as Dave Dayen pointed out, is not given to DAs out of the goodness of the defendants’ hearts; it come out of a negotiation, which means Schneiderman had to give a concession….so what did Schneiderman and the task force concede to preserve cases that could have been filed years ago?
The real tell is in a tidbit Matt Stoller unearthed today, that Schneiderman is losing staff. From the Daily News:
Attorney General Eric Schneiderman has seen a mass exodus from his office in recent months, particularly in his communications shop.
The latest set to leave is press officer Michelle Duffy, who is going to work for Cuomo. She follows press shop alumni Danny Kanner and Dani Lever, who both left to join the Obama campaign, Jennifer Givner, who went to work for the Cuomo administration, and Lauren Passalacqua, who joined lame-duck Mayor Bloomberg’s press shop.
In addition, Blake Zeff, a former Hillary Clinton aide, quietly left recently to write about the presidential race, and several lawyers have also departed or are in the process of doing so, insiders said.
Several sources cited low morale in the office stemming from Schneiderman’s hard-charging chief of staff Neal Kwatra as at least a factor in some departures. But others said most who left went on to better or higher-paying jobs.
If Schneiderman were kicking ass and taking names, he wouldn’t be losing attorneys. The New York County DA’s office under Robert Morgenthau for over 30 years attracted top people on meager pay. The other jobs are “better” because Schneiderman is doing squat.
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I have a, perhaps naive, question
“Second, rather than repurchase loans that should not have been included in securitizations, such as ones that defaulted early, Bear would instead extract settlements from originators, which it retained rather than pass them on to the securitization trusts.”
How is this not basic theft? Is there some special version of law that I’m not aware of which makes this form of skimming, or wholesale theft, legal for banks? If it is theft why can’t it be prosecuted by say the FBI (cross state lines) or others?
Note, I’m not asking why they might not want to, that has been made abundantly clear by other news stories. I’m asking whether it is theft at all legally.
Its a good question C, and the answer is probably that it is not direct theft as the contracts in question are likely murky at best — giving the banks all of the leverage over the originators and over the customers that bought the fraudulent products. This may not be true, I’m not sure, but even if its not, it sounds like a contract(s) interpretation question and thus not direct theft. If you fix my house and I don’t pay you its not theft. Well, it can be “theft of services” of some kind, but of course I can make all sorts of claims like “you didn’t do the job adequately” etc., that muddy the waters. In the instant case, its hard to imagine how the banks could justify taking money from the “harming” party and not passing it onto the harmed party, but then again, whoever’s job it was to lean on the originators may not be the one who is responsible for passing it on to the customers. “Its just an office snafu” or some such “defense” could be raised. As we know, the lies fly fast and furious when banks get accused of wrongdoing. This case could be clearer, but if no one has been jailed for submitting hundreds of thousands of forged documents to the courts, and no one was jailed for the cases where firms knowingly and purposely filled securities with junk mortgages and passed it all off as AAA bonds, blatant fraud in other words, then why these minor, related frauds would be prosecuted is beyond me. As far as I can see, the business model of these banks is fraud. From the way they calculate their pay structures to the “services” they provide their “clients” (marks) to the products they sell that are designed to fail, its all fraud back to front.
But just as it is claimed that the bribes paid to politicians are not really bribes and the lie stands, so to the lie stands that these banks are anything but parasites that suck the lifeblood out of everything they can get their sweaty mitts upon. The lies are really stinking now. And the paid shills are getting sweatier and more nervous by the minute. Its a very strange state of affairs really. I can’t really imagine how it will continue, but I’ve been surprised before.
Remember Linda deMartini’s testimony re: Countrywide?
Perhaps there was no theft from the Bear MBS because the mortgages had never been conveyed into the trusts in the first place? This truth would become evident in court, where the myth of MBS would unravel, revealing them to be ‘nothing-backed securities.’
BINGO!
Are these politicians recruiting his staff away?
“…so what did Schneiderman and the task force concede to preserve cases that could have been filed years ago?”
Let me see…. S’pose it was “no CRIMINAL prosecutions?”
Continue the Obama Kibuki of “immoral, but not illegal.” More “foam.” More ‘we know where the answers lie, so let’s NOT go THERE’ RICO.
Can you say: Bill Black.
Can you say: Iceland.
Ireland Joining Iceland for Mortgage Principal Corrections
Posted on October 9, 2012 by Neil Garfield
http://livinglies.wordpress.com/2012/10/09/ireland-joining-iceland-for-mortgage-principal-corrections/
Perhaps looks aren’t so deceiving after all.
Schniederman talks a great game even if it is a sellout. Got to give him a 10 on style points. In the current environment, isn’t that a win-win?
I worked in the NYS Attorney General’s Office during the administration of Robert Abrams. At that time none of the employees in the “communications shop” were attorneys. That shop was known as the press office and the people in the shop all had press backgrounds, e.g., newspaper reporters. I do not understand the reason you believe the people now in that shop are attorneys rather than press people.
I know you might find it hard to believe, but Schneiderman has, or at least had, attorneys on his staff, I believe a dozen.
Since Spitzer, AGs have found the way to use the post as a stepping stone to bigger and better things is to pursue (or at least pretend to pursue) cases. Abrams topped out as AG, demonstrating the Spitzer/Cuomo strategy (Cuomo woke up in his last 18 months in the AGs’ office and filed a few cases) leads to higher office while the Abrams strategy is a way to park as AG for a long time.
banksters hiring?
“If Schneiderman were kicking ass and taking names, he wouldn’t be losing attorneys. The New York County DA’s office under Robert Morgenthau for over 30 years attracted top people on meager pay. The other jobs are “better” because Schneiderman is doing squat.”
By your own admission, some of these attorneys went over to the Obummer campaign. Are you they expecting Obummer to do something about it? Maybe it’s strictly a pay move?
Your conclusion doesn’t make sense.
It was press people who went over to Obama, not attorneys.
And Obama has greater short term needs, given the campaign. Someone who joins the Obama press shop now has not assurance of continued employment post election, even if he wins. That’s a real vote of no confidence. There are going to be a lot of unemployed Obama press people post the election. It’s not going to be a particularly distinctive credential, even if the short-term pay is better than what Schneiderman provided before.
Look, I once had a job where I could only pay well less than market pay to hire people. I nevertheless got very good people who worked their asses off for me and were very loyal and resisted internal and external job offers. So I’m not talking theory here, I’ve been in this position. To lose this many people is a sign morale sucks. One or even two might be special situations, but this level is something completely different.
Wow, I’m shocked that there is crossover between people working for Schneiderman and people working for Obama’s re-election campaign!
I mean, I so thought that the task force was really out to get wrongdoing and wasn’t an empty election-time stunt!
Doing squat is generous the piddly suits he filed are a joke any fine paid will be passed on to the customer anyway. If he or obama were serious there would be criminal prosecutions. I see they filed suit against Wells Fargo today another laugh probably done with Bailed out Buffoons permission. He’s particularly dirty too having been the majority stockholder in Moody’s. Time for obama to put on a show for the election nothing more.
Buffett’s Favorite Bank, Wells Fargo, Sued By US
http://www.zerohedge.com/news/2012-10-09/buffetts-favorite-bank-wells-fargo-sued-us