This Thursday will mark three years since the collapse of Lehman Brothers, a defining moment of the financial crisis. Today, it’s clear that very few lessons have been learned from it by our political leaders or those on Wall Street; if any, the wrong lessons have been learned. But one conclusion, seared into the minds of ordinary Americans, is as clear as it is wrenching: The banks play by one set of rules and are held to one standard, while the rest of us are held to another.
In exchange for taking the global economy to the brink, the banks have received $700 billion of relief from TARP funds and $1.2 trillion in secret loans from the Federal Reserve, at no interest. It’s no wonder record profits — and record bonuses—returned so quickly. American homeowners, on the other hand, have been devastated. The crisis wiped out $16 trillion in household value, little more than half of which has been recouped. More than 25 percent of homeowners are underwater on their mortgages. The suffering has not subsided — and it won’t for many, many years.
It was compounded by the fact that the very banks causing it made it worse. After signing off on shoddy loans, putting Americans in homes they couldn’t afford, on terms they could barely understand, the banks began foreclosing on homeowners en masse, using what’s known as robo-signing. That procedure allows banks to process foreclosures faster by encouraging employees to use fake signatures to approve documents they don’t read.
An investigation was launched, exposing once again that the banks play by a different set of rules. And so in negotiations ongoing between banks and state attorneys general on mortgage relief, the agreement on the table is nothing short of a sweetheart deal.
The banks are being asked to pay just $20 billion dollars to homeowners and investors, a pathetically meager sum that represents only a fraction of the damage they caused. In exchange, the banks will receive immunity from any further investigation into what happened behind their closed doors in the run-up to — and aftermath of — the financial crisis they are responsible for.
The group of 50 state attorneys general charged with negotiating on behalf of people who lost their homes – the very officials who should be working to discover the full extent of the crimes and fraud perpetrated by the banks – are being asked, essentially, to give up and go away.
Instead of being met with outrage, with outright indignation over the notion that egregious acts will be swept under the rug, the settlement has been met with enthusiasm from the vast majority of state attorneys general. In instances they have been actively pushed by the Obama administration, which fears that state-by-state litigation will injure the banks. Only a relative few have stood firmly against the bank’s demands: chief among them, New York Attorney General Eric Schneiderman.
Schneiderman called the settlement “quick” and “cheap” and refused to sign off on it. Agreeing to it would deprive attorneys general of the opportunity to further investigate bank actions, something he could not stomach. “The key is that you don’t settle claims you haven’t investigated,” Schneiderman told me in a phone interview. The attorneys general overseeing the settlement still haven’t deposed a single witness, have not been provided with a single document and have not done anything that remotely resembles a real investigation. In return for his refusal to give in, Schneiderman was booted off the steering committee in charge of the negotiation.
Schneiderman’s critics have complained that his blocking of the deal is nothing more than political grandstanding, that instead of helping homeowners, he’s hurting them. This is preposterous. Homeowners deserve a fair deal, and this isn’t one.
With attorneys general unwilling to do a serious investigation that would show how pervasive mortgage malpractice was — and how gravely the public has been damaged— how could the resulting deal possibly be fair? The kind of genuine investigation Schneiderman is fighting to undertake, on the other hand, could result in a full accounting of what really happened, and it could mean a different level of accountability for banks (perhaps there could even be criminal charges).
Schneiderman is an all-too-rare political leader — one who understands that public service isn’t just about talk. It’s about fighting for what he calls “transformational politics.” As he argued in 2008 in the pages of the Nation, our politics cannot merely be transactional. The difference is real — and substantial. Transactional politics aims to get the best deal today. Transformational politics, as Schneiderman puts it, “is the work we do today to ensure that the deal we can get . . . in a year — or five years, or twenty years — will be better than the deal we can get today.”
Though an effort has been made by some to cast Schneiderman as a loner in the mortgage-settlement fight, events in recent weeks show him as anything but. On Aug. 25, after Schneiderman was removed from the negotiations, 21 of New York’s congressional representatives sent a letter of protest to Iowa Attorney General Tom Miller, who was responsible for Schneiderman’s ouster. On Sept. 8, the New York City Council passed a resolution supporting Schneiderman’s stand and asking the larger committee of state attorneys general not to give up the right to pursue further investigations. Even former New York senator Al D’Amato, a conservative Republican, has offered broad praise for Schneiderman’s effort.
Schneiderman has also found strong support from two other important state attorneys general, Delaware’s Beau Biden and Massachusetts’s Martha Coakley.
Some now predict the negotiations will collapse, with banks unwilling to give back even what chump change is now on the table. Only an investigation like the one Schneiderman has been pushing for could provide the leverage needed to force banks to make an offer commensurate with the scale of the harm they caused.
At a time when so many of our political leaders seem more in touch with the needs of K
Street, detached from the people they represent, it is heartening to see a gutsy leader like Schneiderman willing to stand with people against the forces that blew up our economy.