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Is Eric Schneiderman Selling Out? Committee to 'Investigate' Financial Fraud Has Some Dark Implications

The aim of getting Schneiderman on board with an Administration “investigation” may very well be to undermine another effort by 15 Democrat attorneys generals.

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And it seems awfully plausible that the aim of getting Schneiderman on board with an Administration “investigation” is to undermine the effort by 15 Democrat attorneys general to devise their own strategy for dealing with mortgage abuses. We’ve heard reports privately that some of the defecting AGs are in a panic.

Put it another way: one thing that would convince me that this committee was serious was if the settlement pact was put on hold until the investigation were completed. The fact that the settlement push is in high gear is yet more proof that this committee is yet another bit of regulatory/enforcement theater,  just like the Foreclosure Task Force, or  the servicer consent decrees (confirmed as an embarrassment  via the use of badly conflicted “consultants”), or the current OCC investigation into foreclosure abuses, which excludes all sorts of injuries inflicted upon homeowners, most notably servicer fees abuses and misapplication of payments.

And another indicator that the Administration is using every tool at its disposal to put pressure on the dissenting AGs:  the Center for Responsible Lending has given a not terribly enthusiastic endorsement of the settlement pact. Why should this not be taken at face value? While the CRL has done some good work in the consumer lending space, anything it does in the mortgage arena should be viewed skeptically. The Center received a large grant from hedge fund manager John Paulson, who is famous for having made a fortune shorting subprime (readers of ECONNED will remember how we demonstrated that subprime shorts that used CDOs, as Paulson sometimes did, played a direct role in turning what would have been a contained subprime bubble into a global financial crisis). And most important,  Paulson has been a vociferous opponent of investigations and policies to promote mortgage modifications. Remember, as we discussed when the Roosevelt Institute accepted money from the Peterson Foundation and then repudiated FDR’s legacy by publishing policy papers on how to “reform” entitlements, the real prize for the neoliberals is to get trusted progressive organizations to do their dirty work.

It’s clear what the Administration is getting from getting Schneiderman aligned with them. It is much less clear why Schneiderman is signing up. He can investigate and prosecute NOW. He has subpoena powers, staff, and the Martin Act. He doesn’t need to join a Federal committee to get permission to do his job. And this is true for ALL the others agencies represented on this committee. They have investigative and enforcement powers they have chosen not to use. So we are supposed to believe that a group, ex Schneiderman, that has been remarkably complacent, will suddenly get religion on the mortgage front because they are all in a room and Schneiderman is a co-chair?

Maybe Schneiderman has convinced himself that he will get more reach or resources this way, but I have trouble fathoming the logic. While he did do a real service by begin the first to question the AG settlement when that was a isolated and courageous position, and was also early to crank up investigations, other less well resourced states (Delaware, Nevada, Massachuseetts) that started later have filed serious cases. In particular, Catherine Cortez Masto of Nevada has been doing old fashioned, go-after-the-foot-soldiers-to-get-the-capos prosecutions of the sort Eliot Spitzer recommended in Inside Job. Why has Schneiderman, after such a promising start, done so little?

Maybe Schneiderman has fallen for the same sort of pitch that the Administration used on Elizabeth Warren. But the tradeoffs were completely different for her. The CFPB was her baby; giving her the chance to set it up was terribly seductive. And she could convince herself that she’d have more power as an insider than running a shadow CFPB out of Harvard to keep the real one honest. But Schneiderman already has a real power base and media reach. It’s hard to see what the Administration could offer him to get him to compromise his independence (which this effort will, no matter what he has convinced himself).