I’ve been covering this matter, somewhat indirectly, in some of my recent posts, such as this one from this past Thursday: “NYT’s Editors, Yves Smith, et al: It’s Time For Democrats To Take A Good Look In The Mirror.” And, of course, I’ve been more critical of the administration’s economic policies than most in this community since day one. But, the reality is--as most on the list of pundits up above have noted over the past three days--there are clear and present, major, basic issues which divide those in support of #OccupyWallStreet and our own Party.
As the NY Times’ editors note, today, in “Protestors Against Wall Street,” the MSM and some in the pundit class were “…complaining that the marchers lack a clear message and specific policy prescriptions. The message — and the solutions — should be obvious to anyone who has been paying attention since the economy went into a recession that continues to sock the middle class while the rich have recovered and prospered.”
Today’s Times’ editorial continues on about the bipartisan deafness in D.C.…
Protestors Against Wall Street
October 9, 2011
…The problem is that no one in Washington has been listening.
At this point, protest is the message: income inequality is grinding down that middle class, increasing the ranks of the poor, and threatening to create a permanent underclass of able, willing but jobless people. On one level, the protesters, most of them young, are giving voice to a generation of lost opportunity…
…The protests, though, are more than a youth uprising. The protesters’ own problems are only one illustration of the ways in which the economy is not working for most Americans. They are exactly right when they say that the financial sector, with regulators and elected officials in collusion, inflated and profited from a credit bubble that burst, costing millions of Americans their jobs, incomes, savings and home equity. As the bad times have endured, Americans have also lost their belief in redress and recovery.
The initial outrage has been compounded by bailouts and by elected officials’ hunger for campaign cash from Wall Street, a toxic combination that has reaffirmed the economic and political power of banks and bankers, while ordinary Americans suffer…
…When the protesters say they represent 99 percent of Americans, they are referring to the concentration of income in today’s deeply unequal society…
…No wonder then that Occupy Wall Street has become a magnet for discontent…The country needs a shift in the emphasis of public policy from protecting the banks to fostering full employment, including public spending for job creation and development of a strong, long-term strategy to increase domestic manufacturing…
Robert Reich covers the matter this weekend in: “The Wall Street Occupiers and the Democratic Party.”
The Wall Street Occupiers and the Democratic Party
Friday, October 7, 2011
Will the Wall Street Occupiers morph into a movement that has as much impact on the Democratic Party as the Tea Party has had on the GOP? Maybe. But there are reasons for doubting it.
Tea Partiers have been a mixed blessing for the GOP establishment – a source of new ground troops and energy but also a pain in the assets with regard to attracting independent voters. As Rick Perry and Mitt Romney square off, that pain will become more evident.
So far the Wall Street Occupiers have helped the Democratic Party. Their inchoate demand that the rich pay their fair share is tailor-made for the Democrats’ new plan for a 5.6 percent tax on millionaires, as well as the President’s push to end the Bush tax cut for people with incomes over $250,000 and to limit deductions at the top.
And the Occupiers give the President a potential campaign theme. “These days, a lot of folks who are doing the right thing aren’t rewarded and a lot of folks who aren’t doing the right thing are rewarded,” he said at his news conference this week, predicting that the frustration fueling the Occupiers will “express itself politically in 2012 and beyond until people feel like once again we’re getting back to some old-fashioned American values.”
But if Occupy Wall Street coalesces into something like a real movement, the Democratic Party may have more difficulty digesting it than the GOP has had with the Tea Party…
Reich gives us a bit of a history lesson about the Democratic Party and its courtship of populism, earlier in the 20th century, and onward to present day. He notes: “Barack Obama is many things but he is as far from left-wing populism as any Democratic president in modern history.” He continues, “…Obama has been extraordinarily solicitous of Wall Street and big business…” And, he lists Geithner, Bernanke and Immelt as examples of this reality.
He points to the President’s “…unwillingness to place conditions on the bailout of Wall Street…” He tacitly asks us: Why didn’t the President “…demand that the banks reorganize the mortgages of distressed homeowners”? And, why didn’t he insist upon “the resurrection of Glass-Steagall” as another condition for the bailout?
David Dayen and Yves Smith take it one step further, citing some quite specific inconvenient realities for Democrats from just the past few days. Here’s dday: “Obama on Bank Prosecutions: They Did Nothing Illegal, Only Found Loopholes That We Worked to Close.”
Obama on Bank Prosecutions: They Did Nothing Illegal, Only Found Loopholes That We Worked to Close
October 6, 2011 8:55AM
For perhaps the first time, President Barack Obama was forced to explain why there have been no prosecutions of Wall Street executives for their fraudulent actions during the run-up to the financial crisis. Asked by Jake Tapper to explain this behavior, Obama basically suggested that most of the actions on Wall Street weren’t illegal but just immoral, and that his Administration worked to re-regulate the financial sector with the Dodd-Frank reform legislation.
“Banks are in the business of making money, and they find loopholes,” the President said. Apparently forging and fabricating documents to prove ownership of homes that are subsequently stolen from borrowers is now a loophole.
Many of the practices on Wall Street “weren’t necessarily against the law but they had a huge destructive impact,” said the President. The work of Bill Black, the Financial Crisis Inquiry Commission, the Senate Permanent Subcommittee on Investigations, and a host of other official studies, analyses, and even court cases cut against that. Just the other day, a new whistleblower lawsuit against banks for setting illegal fees against military personnel wasn’t joined by the Justice Department…
…In a follow-up, the President said that “if somebody they violated laws on the books, they need to be prosecuted, and that’s the Attorney General’s job.” Of course, investigations have to actually be carried out, and the President’s Justice Department has been at the lead of a foreclosure fraud settlement which would bail out banks that would otherwise owe in the trillions for fraudulent practices with the origination and securitization of loans, for a pittance of a sum. Only the work of a few Justice Democrats have put a stop to this…
As Dayen noted, “The question came up in the context of Occupy Wall Street, the series of protests in New York City and across the country over the past few weeks.”
Dayen also pointed out that the President “…touted the Consumer Financial Protection Bureau, whose director nominee, Richard Cordray, just passed the Senate Banking Committee on a 12-10 vote. But he did not seem to understand the broader context of the protests, against an economy that only works for the top 1% at the expense of the other 99%.”
Perhaps what was most notable about Dayen’s piece was his closing paragraph, where he observes that the President is now actually “…taking ownership of TARP, which did not pass under his Presidency but which he whipped as a candidate for President in 2008. He took ownership of the extraordinary financial support given to banks as they teetered on the verge of collapse. And this is a central grievance of the protesters on Wall Street and across the country.”
Not being one to mince words, Yves is even more direct than dday in: “Why #OccupyWallStreet Doesn’t Support Obama: His ‘Nothing to See Here’ Stance on Bank Looting.”
(Author’s Note: Naked Capitalism Publisher Yves Smith has provided written authorization to the author to reprint her blog’s posts in their entirety for the benefit of the DKos community.)
Why #OccupyWallStreet Doesn’t Support Obama: His “Nothing to See Here” Stance on Bank Looting
October 7, 2011 5:40AM
Despite the efforts of some liberal pundits and organizers (and by extension, the Democratic party hackocracy) to lay claim to OccupyWallStreet, the nascent movement is having none of it. Participants are critical of the President’s bank-coddling ways and Obama gave a remarkably bald-face confirmation of their dim views.
As Dave Dayen recounts, Obama was cornered into explaining why his Administration has been soft of bank malfeasance. His defense amounted to “They’re savvy businessmen”: “Banks are in the business of making money, and they find loopholes.”
Is breaking IRS rules a “loophole”? How about making repeated false certifications in SEC filings? Or as Dayen points out, fabricating documents? Or making wrongful foreclosures, aka stealing houses?
The Administration’s strategy for maintaining this posture is by being anti-investigation and anti-transparency. As we’ve discussed, the stress tests were a sham. The foreclosure task force didn’t even try to look serious, it was a mere 8 week investigation and of 2800 cases chosen for review (in no scientific manner), only 100 were foreclosures. The US Trustee’s office found a level of servicing errors more than 10 times that asserted by banks and happily parroted by Federal banking regulators. We expect readers could add to this list just as readily as we can.
There are plenty of grounds for legal action. Contrary to the Obama/Geithner position, this is a target rich environment. And some of the violations were persistent and deliberate enough that they might well raise to the level of being criminal. This is a mere illustrative tally:
1. Violation of REMIC (real estate mortgage conduit) rules, which are IRS provisions which allow mortgage backed securities to be treated as pass-through entities. As we’ve indicated, the violations were clear cut and are easily documented. Moreover, when the senior enforcement officer in the IRS was alerted last year, she was keenly interested. But the word that came back was the the question had gone to the White House, and the answer was to nix going after these violations: “We are not going to use tax as a tool of policy.” So this is not a case of creative use of “loopholes,” this is prima facie evidence of an Administration policy of protecting the banks.
2. Consumer fraud under HAMP. Catherine Masto of Nevada has already delineated this case in her second amended complaint against numerous Bank of America entities (in fact, the evidently clueless President could find a raft of other litigation ideas in her filing). All the servicers engaged in similar egregious conduct.
3. Securities fraud by mortgage trustees and serivcers. While the statute of limitations for securities fraud for the sale of toxic mortgage securities in the runup to the crisis has now passed, securitization trustees and servicers are making false certifications in periodic SEC filings. In layperson terms, the trustee certifies that everything is kosher with the trust assets. As readers well know, in many cases the custodians do not have the notes or they were not conveyed to the trust as stipulated in the pooling and servicing agreement (as in they were not properly endorsed through the chain of title).
Now of course, pursuing this sort of litigation would blow up the mortgage industrial complex. But it represents a powerful weapon to bring unrepentant bankers to heel.
4. Widespread risk management failures as Sarbanes-Oxley violations. As we’ve discussed, Sarbox provides a fairly low risk path to criminal prosecutions. And we believe the SEC has been incorrectly deterred by an adverse ruling in the early stages of its case against Angelo Mozilo. In that case, the judge (with no explanation of his ruling) barred the SEC from claiming SEC violations (which this case did) and double dipping by adding a Sarbox charge (securities fraud statutes parallel Sarbox language; indeed, that was one of the complaints re Sarbox, that many of its provisions were already represented in existing law). That’s far more significant than it appears. As we argued in an earlier post, the language in Section 302 (civil violations) tracks the language in Section 906 (criminal violations). A win on a Section 302 case would thus set up what would appear to be a slam dunk criminal case.
But Sarbox also contains language not present in existing securities statutes that would allow for criminal prosecution for exactly the sort of behavior that caused the crisis, namely, inadequate risk management (we discuss at length in ECONNED how risk management is kept politically weak by design and serves too often as a fig leaf for management). As we noted earlier:
Since Sarbanes Oxley became law in 2002, Sections 302, 404, and 906 of that act have required these executives to establish and maintain adequate systems of internal control within their companies. In addition, they must regularly test such controls to see that they are adequate and report their findings to shareholders (through SEC reports on Form 10-Q and 10-K) and their independent accountants. “Knowingly” making false section 906 certifications is subject to fines of up to $1 million and imprisonment of up to ten years; “willful” violators face fines of up to $5 million and jail time of up to 20 years.
The responsible officers must certify that, among other things, they:
(A) are responsible for establishing and maintaining internal controls;
(B) have designed such internal controls to ensure that material information relating to the issuer and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared;
(C) have evaluated the effectiveness of the issuer’s internal controls as of a date within 90 days prior to the report; and
(D) have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date;
These officers must also have disclosed to the issuer’s auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function):
(A) all significant deficiencies in the design or operation of internal controls which could adversely affect the issuer’s ability to record, process, summarize, and report financial
data and have identified for the issuer’s auditors any material weaknesses in internal controls; and
(B) any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal controls
The premise of this requirement was to give assurance to investors as to (i) the integrity of the company’s financial reports and (ii) there were no big risks that the company was taking that it had not disclosed to investors.
This section puts those signing the certifications, which is at a minimum the CEO and the CFO, on the hook for both the adequacy of internal controls around financial reporting (to be precise) and the accuracy of reporting to public investors about them. Internal controls for a bank with major trading operations would include financial reporting and risk management.
It’s almost certain that you can’t have an adequate system of internal controls if you all of a sudden drop multi-billion dollar loss bombs on investors out of nowhere. Banks are not supposed to gamble with depositors’ and investors’ money like an out-of-luck punter at a racetrack. It’s pretty clear many of the banks who went to the wall or had to be bailed out because they were too big to fail, and I’ll toss AIG in here as well, had no idea they were betting the farm every day with the risks they were taking.
As readers know, it isn’t that there is no case against the major banks, it’s that the Administration is determined not to make it. The fact that New York attorney general Eric Schneiderman, who has been in office less than a year and has only a dozen attorneys on his staff, has filed as many cases as he has on the banking front (and remember, this is one of many beats he is expected to cover) is a stinging repudiation to the Administration. As we’ve indicated, there is evidence of an active press campaign to promote Iowa state AG Tom Miller, the head of whatever is left of the “50 state” attorney general negotiations (and increasingly take down Schneiderman).
This truly embarrassing article from The Daily Beast is the latest example. There isn’t the slightest effort to understand why the failure of the formerly 50 state AGs to investigate means that the idea that there is a possibility of a worthwhile settlement for states and consumers is pure unadulterated horseshit. And so the author imputes bad motives to Schneiderman, when in fact there is a credible case that Miller was trying to curry favor with the Administration (he was fawning over the Treasury’s Michael Barr in Congressional hearings, and it was widely believed he was angling to become the head of the Consumer Financial Protection Bureau).
As much as I disagree with the overall story line of Ron Suskind’s Confidence Men (that the naive Obama was done a dirty by his economics team, in particular Geithner), many of the vignettes are relevant. For instance, the House Subcommittee on Telecommunications and Finance, frustrated with its inability to understand how Wall Street had changed, called imprisoned insider trader Dennis Levine to see if he might be able to shed some light. Representative Ed Markey recounted that Levine had said it had become a game, with the banks engaging in behavior that was “subtly fraudulent.” They used lawyers to help steer a path that would make it hard to prosecute them, and also focused on activities where the returns more than offset the risks.
What did Levine recommend?
You need to send out a slew of indictments, all at once, and on 3 PM on a sunny day, have Federal Marshalls perp-walk three hundred Wall Street executives out of their offices in handcuffs and out on the street, with lots of cameras rolling. Everyone else would say, “If that happened to me, my mother would be ashamed.”
Pretty much everyone who is not part of the problem instinctively knows that needed to happen. Yet Obama and other members of the elite keep trying to placate the protestors by acknowledging that they have legitimate concerns while refusing to take needed corrective steps.
The disproportionate media reaction to what even as of this week are still fairly small scale demonstrations reveals an acute and well warranted sense of vulnerability among the elites. The word “entitlement” has become inadequate to capture the preening self-regard, the obliviousness to the damage that high-flying finance has inflicted on the real economy. There is ample evidence of widespread opposition to the looting of the banking industry, going back to the 99 to 1 opposition in calls to Congress on the TARP (it fell to a mere 4:1 when the industry realized what was happening and mobilized employees to weigh in).
The officialdom has chosen to mistake sullen resignation of citizens in the face of the bailouts and brazen continued looting as complacency. But the ruling classes recognize, too late, that OccupyWallStreet is a spark on perilously dry tinder. Efforts by police to contain the demonstrators keep backfiring, giving them legitimacy, free PR, and eliciting considerable sympathy.
Ironically, the banks and their state backers seem almost hopelessly locked into strategies that will continue to fail. And if they escalate, that action has the potential to be the sort of galvanizing event that they fear most. The nightmare of the elites that may well be visited upon them is one day doors all over the US will open and hordes of the heretofore discenfranchised 99% to walk to their town squares and show by the mere force of turning up united against known enemies that they can and will prevail.
Today, Yves also covers the reality that the robosigning fiasco has been all but completely overlooked by the administration, and mortgage fraud continues on, virtually unabated, as you read this.
Author and Columbia University professor of journalism and communications Todd Gitlin covers the overarching story as to why the #OccupyWallStreet protestors maintain a pervasive animosity towards both major political parties in an op-ed in today’s NY Times, in: “The Left Declares Its Independence.”
The Left Declares Its Independence
New York Times
October 9, 2011
…The corporate rich — those ostensible “job creators” who somehow haven’t gotten around to creating jobs — rule the Republican Party and much of the Democratic Party as well, having artfully arranged a mutual back-scratching society to enrich themselves. A refusal to compromise with this system, defined by its hierarchies of power and money, would be the current moment of anarchy’s great, lasting contribution.
Until now, fury at the plutocracy and the political class had found no channel to run in but the antigovernment fantasies of the Tea Party. Now it has dug a new channel. Anger does not move countries, but it moves movements — and movements, in turn, can move countries. To do that, movements need leverage. Even Archimedes needed a lever and a place to stand to move the world. When Zuccotti Park meets an aroused liberalism, the odd couple may not live happily ever after. But they can make a serious run at American dreams of “liberty and justice for all.”
As I noted it in my post on Friday, covering Krugman’s commentary on the matter, it’s up to the Democrats to seize the day and capitalize on the opportunity to reestablish their brand via the new populism generated by #OccupyWall Street.
But, Reich is much more pessimistic, and here’s how he closes out his piece on the matter…
…Nothing good happens in Washington – regardless of how good our president or representatives may be – unless good people join together outside Washington to make it happen. Pressure from the left is critically important.
But the modern Democratic Party is not likely to embrace left-wing populism the way the GOP has embraced – or, more accurately, been forced to embrace – right-wing populism. Just follow the money, and remember history.
I’m going to close this out with some commentary from Jared Bernstein in a NY Times piece to which I linked in my post on Friday, entitled: “For Obama, Threats and Opportunities in Wall Street Protests.”
For Obama, Threats and Opportunities in Wall Street Protests
October 7, 2011
…the protesters do not think the president has done nearly enough to crack down on abuses. Several pointed out the lack of prosecutions of investment bankers or others involved in the mortgage-finance industry. Others said the Dodd-Frank legislation did nothing to curb the missteps of banks, while Mr. Obama’s economic team, particularly Mr. Geithner, came in for stinging criticism.
“With the people he put in, Goldman Sachs basically occupies the White House,” said one of the protesters, Bill Brunot, 60, a mechanical engineer from Winchester, Va. “We got sold out; the banks got bailed out…”
…Jared Bernstein, a liberal economist and former senior adviser to Vice President Joseph R. Biden Jr., said it was inevitable that progressive voters would be disappointed with the Obama administration’s track record, given the compromises that presidents have to make to steer major legislation through Congress.
But Mr. Bernstein said the protests were valuable as an indicator of broader sentiment in the country. “I would advise the administration to think very carefully about the validity of the themes these folks are raising,” he said, “because these are themes that resonate well past the folks on Wall Street.”
Thinking of the results of the 2010 midterms, I would strongly concur with Bernstein’s sentiments.
# # #
Click on THIS LINK for more information on protests throughout the U.S. as well as appropriate messaging guidance from the OWS organization.
Get the message out! In a battle of wits, Wall Street is defenseless because we have the nuclear weapon: THE TRUTH!
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Go to OccupyWallSt.org and make a donation to their General Fund.
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