David Dayen via The Intercept: Stealth Attack on Wall Street Bank Reform foams the runway for the next Financial Crisis

Editor’s Note:  S.2155 is known in Washington as the Crapo bill.  A fitting name.  Even Georgetown Law professor and former CFPB adviser Adam Levitin in a blog post warns the dangers of further bank deregulation.  This bill functionally exempts 85% of US banks and credit unions from fair lending laws in the mortgage market

By David Dayen/The Intercept


In mid-January, Citigroup executives held a conference call with reporters about the bank’s fourth-quarter 2017 earnings. The discussion turned to an obscure congressional bill, S.2155, pitched by its bipartisan supporters mainly as a vehicle to deliver regulatory relief to community banks and, 10 years after the financial crisis, to make needed technical fixes to the landmark Wall Street reform law, Dodd-Frank.

But Citi’s Chief Financial Officer John Gerspach told the trade reporters he thought that some bigger banks — like, say, Citigroup — should get taken care of in the bill as well. He wanted Congress to loosen rules around how the bank could go about lending and investing. The specific mechanism to do that was to fiddle with what’s known as the supplementary leverage ratio, or SLR, a key capital requirement for the nation’s largest banks. This simple ratio sets how much equity banks must carry compared to total assets like loans.

S.2155 did, at the time, weaken the leverage ratio, but only for so-called custodial banks, which do not primarily make loans but instead safeguard assets for rich individuals and companies like mutual funds. As written, the measure would have assisted just two U.S. banks, State Street and Bank of New York Mellon. This offended Gerspach. “We obviously don’t think that is fair, so we would like to see that be altered,” he told reporters.

Republicans and Democrats who pushed S.2155 through the Senate Banking Committee must have heard Citi’s call. (They changed the definition of a custodial bank in a subsequent version of the bill. It used to stipulate that only a bank with a high level of custodial assets would qualify, but now it defines a custodial bank as “any depository institution or holding company predominantly engaged in custody, safekeeping, and asset servicing activities.”) The change could allow virtually any big bank to take advantage of the new rule.

Multiple bank lobbyists told The Intercept that Citi has been pressing lawmakers to loosen the language even further, ensuring that they can take advantage of reduced leverage and ramp up risk. “Citi is making a very aggressive effort,” said one bank lobbyist who asked not to be named because he’s working on the bill. “It’s a game changer and that’s why they’re pushing hard.” A Citigroup spokesperson declined to comment.

A bill that began as a well-intentioned effort to satisfy some perhaps legitimate community bank grievances has instead mushroomed, sparking fears that Washington is paving the way for the next financial meltdown. Congress is unlikely to pass much significant legislation in 2018, so lobbyists have rushed to stuff the trunk of the vehicle full. “There are many different interests in financial services that are looking at this and saying, ‘Oh my God, there’s finally going to be reform to Dodd-Frank that may move, let me throw in this issue and this issue,’” said Sen. Chris Coons, D-Del., in an interview. “There are a dozen different players who decided this is the last bus out of town.”

And Coons is a co-sponsor of the bill.

A hopeful nation — and the president himself — expected that the Senate would begin debate on major gun policy reform next week, but instead a confounding scenario has emerged: In the typically gridlocked Congress, with the Trump legislative agenda mostly stalled, members of both parties will come together to roll back financial rules, during the 10th anniversary of the biggest banking crisis in nearly a century. And it’s happening with virtually no media attention whatsoever.

Aside from the gifts to Citigroup and other big banks, the bill undermines fair lending rules that work to counter racial discrimination and rolls back regulation and oversight on large regional banks that aren’t big enough to be global names, but have enough cash to get a stadium named after themselves. In the name of mild relief for community banks, these institutions — which have been christened “stadium banks” by congressional staff opposing the legislation — are punching a gaping hole through Wall Street reform. Twenty-five of the 38 biggest domestic banks in the country, and globally significant foreign banks that have engaged in rampant misconduct, would get freed from enhanced supervision. There are even goodies for dominant financial services firms, such as Promontory and a division of Warren Buffett’s conglomerate Berkshire Hathaway. The bill goes so far as to punish buyers of mobile homes, among the most vulnerable people in the country, whose oft-stated economic anxiety drives so much of the discourse in American politics (just not when there might be something to do about it).

“Community banks are the human shields for the giant banks to get the deregulation they want,” said Sen. Elizabeth Warren, D-Mass., who is waging a last-minute, uphill fight to stop the bill. “The Citigroup carve-out is one more example of how in Washington, money talks and Congress listens.”

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David Dayen at New Republic: Every day in America, somebody gets tossed out of a home based on false documents


The Left’s Misguided Debate Over Kamala Harris

My article about a bank’s law-breaking during the housing crisis became a political football, obscuring the real issue at hand.

Back in January, after Donald Trump had nominated Steven Mnuchin as treasury secretary, I uncovered a leaked document from the California attorney general’s office that showed OneWest Bank repeatedly broke foreclosure laws under Mnuchin’s six-year reign as CEO and then chairman. Prosecutors in the state’s Justice Department wanted to file a civil enforcement action against the company for “widespread misconduct,” but the attorney general at the time, Kamala Harris, overrode the recommendation and declined to prosecute. She never gave a reason.

Months later, this revelation has been granted new life, wielded as a political weapon by those who oppose Harris’s possible presidential run—most prominently in Ryan Cooper’s column in The Week about why “leftists don’t trust Kamala Harris.” My report either confirms impressions of Harris as an ambitious sellout, or is breezily dismissed by her defenders as “propaganda” or even subtle racism. Though my story was published before Harris was seated as a senator, and was mostly about how OneWest Bank skirted the law in a rush to kick people out of their homes, it has become a flashpoint in the civil war over the Democrats’ future.

Missing in all of this are the victims of OneWest’s policies. Politicians and partisans only manage to care about the millions of families who saw their lives ruined over the past decade when they can be used as props against political enemies. The lack of accountability for the criminal enterprise in our nation’s boardrooms goes well beyond Harris and continues to this very day. But when actual issues sit on the periphery of our political debates, these problems will never get fixed.

Let’s recognize that no public official in this country, from Barack Obama on down, covered themselves in glory during the foreclosure crisis; to say that Harris failed to prosecute bankers is simply to say that she was a public official with authority over financial services fraud in the Obama era.

From the late Bush years through most of Obama’s presidency, at least 9.3 million American families lost their properties, whether to foreclosure or forced sale. The original sin of faulty loan originations, inflated appraisals, doctored underwriting, and improper placement into subprime loans led to fraudulent misconduct in securitization, loan servicing, loan modifications, and foreclosures, with millions of faked and forged documents used as evidence for the final indignity of eviction. There’s not a single step of the mortgage process that wasn’t suffused with illegal fraud during the housing bubble and its collapse.

The crisis resulted in a punishing recession and countless destroyed lives, not to mention what has been credibly described as an “extinction event” for the black and Latino middle class. Yet from New York to California, Arizona to Florida, Washington state to Washington, D.C., the political class and law enforcement elite responded largely with indifference. Powerful bankers with armies of lawyers were allowed to get away with the crime of the century (thus far).

Just look at the actual charge the Consumer Law Section wanted Harris to file in the OneWest case: a civil enforcement action. Though he was OneWest’s chairman, Mnuchin was never at risk of indictment or conviction. At best, California would have extracted a decent-sized fine from the company—paid for by shareholders—and guarantees meant to deter further law-breaking; it’s possible that Mnuchin, his reputation sullied, would not have ended up in charge of federal banking policy. This watered-down version of public accountability was seen as the best possible outcome, and Harris didn’t even go for that.

This doesn’t make her particularly special. Eric Holder and Lanny Breuer took hiatuses from their careers as corporate lawyers to join Obama’s Justice Department and ensure light punishment for financial abuses. Tom Miller, the attorney general of Iowa, ran the 50-state investigation of foreclosure fraud, which investigated nothing and moved directly to a weak settlement that delivered 90 percent less relief for homeowners than promised. Eric Schneiderman, New York’s attorney general, sold out supporters by agreeing to that settlement, saving it from the brink of collapse. He co-chaired a so-called “task force” on bank crimes that did nothing but ink more toothless settlements and proudly proclaim fake headline numbers about fines from behind a podium.

In other words, if you were to rank the performance of law enforcement officials during this period, everyone would be tied for last. They all deserve criticism for their inability to hold the perpetrators of the biggest incidence of consumer fraud in American history to account. They all displayed shocking cowardice and let down millions of vulnerable people, when they had reams of documentary evidence revealing the crime, enough to extract much more justice and far better outcomes for the victimized. They all ushered in the two-tiered system of justice that sapped people’s faith in democracy and at least partially led to the rise of Donald Trump.

There are plenty of reasons why bank executives avoided the fate they suffered in the late 1980s, when in the wake of the savings and loan crisis over 1,000 executives were convicted. But if we want to indulge in a litmus test over corporate crime, we don’t have to wait for the next wave of abuse to occur.

Every day in America, somebody gets tossed out of a home based on false documents. Their elected officials surely know this; if I get a steady stream of letters from people with consistent stories about mortgage fraud, then senators and congressmen surely do as well. So instead of debating who was “tough” on corporate criminals and who wasn’t—since no one was—we should implore these would-be leaders to speak the hell up about the perversion of justice happening every day in courtrooms and foreclosure auctions across the country.

Senator Harris represents California, where the unconscionable treatment of foreclosure victims continues to terrorize families. Senator Cory Booker styles himself a leader in New Jersey, home to the highest foreclosure rate in the nation. The last time Senator Bernie Sanders said a word about foreclosures was when he was trying to win a primary election in hard-hit Nevada. There are activist groups all over Massachusetts fighting foreclosures that could use some high-profile support from Senator Elizabeth Warren.

Homeowner victims have spent the past decade largely invisible from public debate. The only time their plight gets highlighted is when somebody has an axe to grind against a particular public official. Only then do homeowners get trotted out for sympathy, as if the country didn’t ignore them for years. This is the problem with a politics of personality, which is consumed more with doling out praise and blame for high-profile politicians than demanding justice for broad social problems. It’s time the left put the issues back at the center of public debate.

David Dayen: Revoke Wells Fargo’s Bank Charter

Last week Wells Fargo was caught forcing unwanted insurance on car loan borrowers. This week, they’ve been exposed profiting from a DIFFERENT kind of unwanted insurance:
The latest inquiry, by officials at the Federal Reserve Bank of San Francisco, where the bank has its headquarters, involves a different, specialized type of insurance that is sold to consumers when they buy a car. Called guaranteed auto protection insurance, or GAP, it is intended to protect a lender against the fact that a car — the collateral for its loan — loses significant value the moment it is driven off the lot…

It is not mandatory for car buyers to carry GAP insurance, which typically costs $400 to $600. But car dealers push the insurance, and lenders like it because of the protection it provides. When borrowers pay off the loans early, they are entitled to a refund of some of the GAP insurance premium because the coverage they paid for is no longer needed.

Wells never paid the refunds. It’s hard to keep calling these types of problems mere “oversights” when they pile up. There’s a strategy of neglect at Wells Fargo, where indifference becomes profit. Also the role of a bank is to, you know, be good with counting and distributing money.

In its latest regulatory filing, Wells’ note on Legal Actions is three pages long and includes twelve different open investigations and cases. It says that the firm my have to spend $3.3 billion more than expected just to deal with all the payouts we know about today. As the rest of the industry’s legal risk falls, Wells Fargo’s is rising.

This is why Wells Fargo needs to have its bank charter revoked, and why more people should be making that case. Tossing out the board is a good start, which the Federal Reserve can do today, and which major shareholders can demand. But we don’t have to sit passively and wait for the next revelation about fraud and customer abuse. A take back the charter movement must start today.

David Dayen Broadcasts: Wells Fargo deserves the Corporate Death Penalty


David Dayen also joins Ring of Fire Radio withScott Millican today.

Today on Ring of Fire, Investigative Journalist, David Dayen, will join us to unpack the latest Wells Fargo Bank scandal and why he thinks they should receive the corporate death penalty.


David Dayen: The financial regulation life cycle: write, water down, chip away, obliterate

By David Dayen, August 2, 2017

The Volcker rule was a sensible principle on the day Paul Volcker announced it in January 2010, in the first Obama administration response to Scott Brown’s Senate victory. Financial institutions shouldn’t be able to take deposits and use the money to gamble in the capital markets. Simple, right? But that one-sentence rule got pinched and hedged when made into legislation, shaped into an incomprehensible mess by the regulators, delayed from enforcement and compliance for years and years, and now is poised to be further pushed into irrelevancy.

Under new management in the Trump administration, the same regulators that wrote the Volcker rule now plan to rewrite it, presumably on terms favorable to the banks. It’ll take a year or more, but RIP Volcker (not him, the rule). By complete coincidence, bank stocks are at an all-time high today.

Regulators can’t completely depart from the legislative text but they have significant leeway. Treasury Secretary Mnuchin already outlined some of these changes earlier this year, including allowing proprietary trading up to $1 billion. We will subsequently see the flowering of subsidiaries at the major banks to duplicate and maximize that $1 billion number. Treasury’s call for “increased flexibility” for exempting market-making or hedging from the rule would just lead to banks calling every trade market-making or a hedge. We’ve already seen banks invent “porfolio hedging,” claiming that virtually any trade offsets the rest of the balance sheet. And the proposed increase in the “seeding provision” would allow banks to make excluded investments (in hedge funds, for example) for up to three years.

The Office of the Comptroller of the Currency (still led by a part-time temp who in his day job is a bank lawyer) has already kicked off this process by soliciting public feedback. None of this requires Congressional input, which is the only way most things have gotten done under Donald Trump. The result will not be so different from the current complex, unenforced rule we have today. But it should give pause to technocratic-based solutions that can be endlessly damaged behind closed doors. If and when lawmakers turn again to breaking down the power of the financial industry, they’d better be prepared to draw some bright lines.

David Dayen: More Trump Populism: Hiring a Bank Lawyer to Attack CFPB Bank Rules

President Trump and Republicans in Congress have broadcast their every intention to gut the Consumer Financial Protection Bureau. The president’s budget attempted to defund it and leading Republicans have called for its director to be fired and replaced with a more Wall Street-compliant regulator.

But much like the bulk of Trump’s agenda, that assault remains in the aspirational phase, and the agency continues to do its work. Earlier this month, the CFPB released a major new rule, flat-out barring financial institutions from using forced arbitration clauses in consumer contracts to stop class-action lawsuits.

Now, Trump has sent out his lead attack dog to overturn the arbitration rule — a former bank lawyer who has used the very tactic the CFPB wants to prevent.

Class-action lawsuits are often the only way abusive behavior is checked. Take one of the more flagrant examples relating to overdraft fees. Millions of Americans are painfully familiar with the little perforated postcard that kindly arrives in the mail, courtesy of your financial institution, informing you that you have overdrawn your bank account and have been assessed a fee. Or, sometimes, you get three of them in the mail.

In order to make sure you get three and not one, banks in the past would re-order your transactions. The case of Gutierrez v. Wells Fargo is instructive here: a federal class-action case in California, the suit charged the bank with debit card reordering, or altering the sequence of debit card withdrawals to maximize overdraft fees. So if a cardholder with $100 in their account made successive withdrawals of $20, $30, and $110 over the course of a day, instead of getting hit with one $35 overdraft fee, Wells Fargo would reorder the transactions from high to low, thus earning three fees.

The plaintiffs won a $203 million judgment in 2010. But in an appeal before the 9th Circuit in 2012, Wells’ lawyers argued that a U.S. Supreme Court ruling in 2011, AT&T Mobility v. Concepcion, gave Wells Fargo the right to compel arbitration and quash the case, even after the judgment was rendered.

The 9th Circuit ruled that Wells Fargo never requested or even mentioned arbitration for five years of litigating the case. Only after losing in court and getting a potential lifeline from the Supreme Court did the lawyers take the shot. “Ordering arbitration would … be inconsistent with the parties’ agreement, and contradict their conduct throughout the litigation,” the court ruled.

Wells Fargo eventually paid California customers, but only after six years of appeals. Yet the company is still trying to use arbitration to quash a similar class action on overdraft fees, which would affect consumers in the other 49 states. Over 30 banks have been sued for this conduct, and every one of them settled the case except Wells Fargo.

Banks have a lot riding on the CFPB rule. Luckily for Wells Fargo, a former senior attorney of theirs is now a top federal regulator. In fact, Keith Noreika worked on that class-action defense in Gutierrez v. Wells Fargo before becoming the acting chair of the Office of the Comptroller of the Currency.

In May, President Trump hired Noreika to take over OCC, in an unusual arrangement where he would serve as a “special government employee,” retained to perform “temporary duties” for not more than 130 days, and exempt from most ethics rules or Senate confirmation.

His first high-profile move is to insert himself into the CFPB rule-making process, the bureaucratic equivalent of laying down in the street in front of the bus.

Right before the CFPB released its final arbitration rule, Noreika charged in a letter that the rule could create “safety and soundness concerns.” On Monday, Noreika asked the CFPB to delay publishing the rule in the Federal Register until OCC could review it for safety and soundness concerns. Essentially, Noreika is saying that allowing consumers to band together to stop petty theft by banks threatens the ability of those banks to survive. The CFPB already sent the rule to the Federal Register, and called Noreika’s request “plainly frivolous.”

Noreika threatened to use Section 1023 of Dodd-Frank, which allows the Financial Stability Oversight Council (FSOC), composed of the major bank regulators, to halt CFPB rules if they put the safety, soundness, or stability of the banking system at risk. The chair of the FSOC, Treasury Secretary Steve Mnuchin, could stay the rule for 90 days pending a vote of the 10-member council. Seven votes would be needed to set aside the rule.

On Tuesday, Sherrod Brown, ranking Democrat on the Senate Banking Committee, wrote to Noreika about his objections. Brown noted that the CFPB made its rule and the research behind it publicly available for two years, and collaborated with safety and soundness regulators throughout the rule-making process. OCC never raised any objections in that time, even after Noreika was named acting chair. “The argument that consumer protections will jeopardize the soundness of banks is as specious today as it has been in the past,” Brown wrote.

Brown also cited a case study in the CFPB’s 2015 arbitration report, which “deals with banks manipulating the order in which they process checking account transactions to charge their customers more overdraft fees.” The CFPB found that consumers benefited from class actions in the overdraft case, while those barred saw little restitution.

“It is especially surprising that you are not familiar with these outcomes,” Brown wrote. “Previously, as an attorney in private practice, you represented Wells Fargo in just such a case, and attempted to quash a class action brought by consumers harmed in exactly the same way by invoking Wells Fargo’s forced arbitration clause.”

Noreika is in fact required to recuse himself from matters involving Wells Fargo, Bank of America, JPMorgan Chase, HSBC, and others, because he has previously represented all of them as a lawyer. Because the arbitration rule isn’t targeted at a specific bank, Noreika is getting around that restriction.

Using FSOC to nix the CFPB rule is a long shot, though it could delay its taking effect. In addition, Congress can overturn the rule by majority vote in both chambers through the Congressional Review Act, as it has done 14 times this year. They have 60 legislative days to take those votes. Senate Republicans are preparing the legislation, led by Banking Committee Chair Mike Crapo.

Top photo: Keith Noreika, acting comptroller of the currency, listens during a Senate Banking Committee hearing in Washington on June 22, 2017.

Contact the author:

David Dayen    david.dayen@​gmail.com

David Dayen: Wells Fargo Is Trying to Bury Another Massive Scandal

The bank became notorious last year for creating fake accounts on behalf of customers. Now it’s trying to kill a class-action lawsuit over shady debit card fees.

Wells Fargo became a poster child for corporations that abuse their own customers last year when it got fined for ginning up roughly 2 million (maybe even more) fake accounts to meet high sales goals. The bank has since tried to block customer lawsuits over that misconduct, using fine print buried in contracts known as the forced arbitration clauses, which force customers to go not before judges but a secretive non-judicial process to get relief.

It turns out Wells Fargo has a long history of using arbitration to evade legal scrutiny. In fact, for the past six years, Wells has tried to use arbitration to block a class-action suit that every other major bank in America long ago settled. This has not only delayed restitution for regular customers, but revealed exactly why Elizabeth Warren’s brainchild Consumer Financial Protection Bureau (CFPB) moved to eliminate class-action bans through arbitration clauses earlier this month: It hands big banks a license to steal with impunity.

The case centers on something called debit card reordering. Let’s say you have $100 in your bank account, and you make three purchases, costing $20, $30, and $110. Under Wells Fargo account guidelines, the bank can charge you a $35 overdraft fee for taking out more than you have in your account. But by reordering the transactions from highest to lowest, putting the $110 charge first, the bank could charge three separate overdraft fees, one for each attempt to draw insufficient funds. Simply by altering the transaction order, Wells Fargo could make an additional $70.

Multiply that by millions of customers, and you’re talking about serious money.

This was a common scheme in the banking industry for years, affecting the poorest customers—those most likely to overdraw their account. A 2014 federal report showed that approximately 8 percent of the US customer base paid nearly 74 percent of all overdraft fees. High fees are one reason the poor often stay out of traditional banks, but lack of access to banking also imposes large burdens from check-cashing and payday lending. In short, it’s very expensive to be poor in America.

Reordering has been ruled deceitful in federal court. Starting around 2008, consumers filed national class-action lawsuits against more than 30 different banks over these bogus overdraft fees. The cases got consolidated in 2009, in the Miami federal courtroom of US district court Judge James King. Most banks eventually settled with the plaintiffs: Bank of America agreed to pay $410 million in 2011; JPMorgan Chase promised $162 million in 2013. To date, banks have shelled out $1.1 billion in restitution for overdraft abuses.

Wells Fargo was the only one to keep fighting.

The bank knew it could be liable for a big payout. In 2010, a California judge ordered it to pay $203 million to customers in that state alone over deceptive overdraft practices. Wells fought that all the way to the US Supreme Court but lost last spring; they finally starting paying Californians in 2016.

A national class-action suit was supposed to compensate Wells Fargo customers in the other 49 states, but a 2011 US Supreme Court ruling offered the bank a potential reprieve. In AT&T Mobility v. Concepcion, a 5-4 decision effectively said companies could use arbitration agreements to ban class-action lawsuits. “Before that, it was assumed that consumers had a right to join a class action,” said Amanda Werner, campaign manager with the consumer groups Americans for Financial Reform and Public Citizen.

Literally two days after the Concepcion ruling was released, Wells Fargo filed to dismiss the overdraft case in favor of arbitration. But Wells had a problem: In both 2009 and 2010, Judge King explicitly asked banks if they wanted to file a motion to move to arbitration, and Wells Fargo declined, apparently preferring to try to win the case. Wells told the court then it “did not move for an order compelling arbitration… nor does it intend to seek arbitration of their claims in the future.” For two years, company lawyers took depositions and filed motions and did everything a litigant would do. Then, after receiving more favorable precedent from the Supreme Court on arbitration, Wells Fargo changed course.

Judge King denied the bank’s motion to dismiss at the end of 2011; Wells appealed to the 11th Circuit. In a unanimous ruling in 2012, the higher court denied appeal, arguing that Wells Fargo missed its chance at arbitration, and pointing out that lots of money and resources had already been spent on the case.

Two years ago, Judge King certified the class, meaning he officially allowed defrauded customers to band together and sue jointly. But the bank again tried to move to arbitration. This would have blocked anyone not named in the lawsuit from joining the suit, limiting millions of potentially affected customers. Judge King again denied the motion last year, writing, “Wells Fargo deliberately chose to pursue a strategy of litigation… it would be unfair to permit Wells Fargo to effectively ‘wait in the weeds’ and invoke arbitration… now that the alternate path the bank chose did not turn out as it had hoped.”

I think you can guess the next sentence: Wells Fargo appealed again, and the 11th Circuit will hear arguments next month. If the bank loses, it could appeal to the US Supreme Court—and all of this is happening before the trial can even begin. “The bank is being uniquely aggressive,” as Lauren Saunders, associate director at the National Consumer Law Center, a consumer justice organization, told me.

In a statement to VICE, Wells Fargo spokesman Kristopher Dahl said, “Wells Fargo continues to believe that arbitration is a fair, efficient and effective way for a customer to pursue a legal claim and resolve a legal dispute.” Dahl added that Wells Fargo stopped reordering debit card transactions in 2010, although they continued to do so for checks and automatic account withdrawals until 2014.

While Wells Fargo has been unsuccessful in blocking the overdraft case, they’ve already managed to punt for six years without having to pay up. (Even after the initial ruling in the California overdraft case, the bank spent six years appealing before eventually complying.) So through legal maneuvering, Wells Fargo could keep accountability for its deceptive practices at bay for years to come.

If the bank does prevail in moving the case to arbitration, people who got screwed and charged extra fees would have to pursue overdraft complaints by themselves. They would be at a major disadvantage: A recent study by the non-profit Level Playing field found that Wells Fargo customers have won only seven arbitration cases in the past eight years, out of just 48 that actually got to a final hearing. And just to pursue the case, consumers would have to spend heavily on legal representation and hearings. As federal judge Richard Posner of the Seventh Circuit Court of Appeals once wrote in a ruling, “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”

In this sense, arbitration can stop people from enjoying their legal rights, effectively allowing corporations to overturn the law by making it unenforceable. Deepak Gupta, who argued the Concepcion case in 2011, calls arbitration “a basic threat to our democracy.”

Incredibly, Wells Fargo went so far as to try and use a separate case to sweep this whole overdraft saga under the rug. In a $142 million settlement over the fake account scandal, Wells Fargo tried to fashion such a broad release—”any and all claims and causes of action of every nature and description”—that it could conceivably have forced some overdraft victims to give up their suits. Lawyers for the overdraft plaintiffs objected, and US district court Judge Vince Chhabria ordered the settlement rewritten to be narrower.

Congressional Republicans have been making noise in recent days about overturning the new federal ban on arbitration clauses that prevent customers from joining class-action lawsuits against their banks. Congress can use the Congressional Review act to kill regulations within 60 legislative days of their release; the rule was made final last week. But Republicans will have to explain why corporations like Wells Fargo would benefit from the rollback; the Consumer Protection Bureau’s director Richard Cordray even cited Wells Fargo—albeit over its fake account scandal—when announcing it.

We have an excellent idea of what corporations could do with such a gift: like Wells Fargo, they might try and make it virtually impossible for customers to prevent small-time rip-offs and change their shady behavior. And that could serve to just enable petty theft. In fact, according to one FDIC study, overdraft fee income at Wells Fargo in the first quarter of 2016 increased 16 percent relative to a year earlier, the largest uptick of 600 banks reviewed. We don’t know whether any of those fees were illegally gained, and if Wells Fargo has its way, we never will.

The new federal regulation on class-action suits against banks will not affect the Wells Fargo overdraft case; it doesn’t apply retroactively. But this real-world example of arbitration in action is so blatant that a Republican-led reversal of the rule would seem like a giant upturned middle finger at millions of Americans.

As Amanda Werner of Public Citizen put it, “I don’t know how [Republicans] can look a Wells Fargo customer in the eye.”

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David Dayen at Vice: Billions in Student Debt could Disappear because of Lost Paperwork

Billions in Student Debt Could Disappear Because of Lost Paperwork

The latest example of America’s legal system being a total shitshow might actually help you out—if it doesn’t screw you over first.

In 2006, Pablo Ramirez took out a private loan to attend Westwood College, a now-shuttered for-profit diploma mill in Fort Worth, Texas. Eight years later, he got a court document in the mail: Without his knowledge, he said, a company called National Collegiate Student Loan Trust had won a judgment against him for defaulting on that loan and was demanding roughly $50,000. When Ramirez challenged the ruling, he learned something even stranger.

National Collegiate did not seem to have any actual evidence it owned the debt.

The judgment against Ramirez was eventually overturned this March because National Collegiate “had failed to demonstrate that it was the holder of the note,” as an appeals court found. Ramirez hadn’t kept up with his payments, but at least for now, he’s off the hook.

Thousands of private student loan borrowers may find themselves in the same situation, according to a massive New York Times report this week that’s bringing new attention to a uniquely American legal nightmare. At least $5 billion in defaulted loan debt might not be collectible, potentially bailing out tens of thousands of student debtors.

If this sounds familiar, that’s because it is. One of the huge problems America had to deal with in the mortgage market after the collapse of the housing bubble in 2007 and 2008 centered on something called “chain of title.” Millions of securitized mortgages lacked these “chains,” essentially the ownership record passed down from sellers to buyers. Banks covered for this glaring fuck-up by mass-producing false documents to paper over inaccuracies. Judges mostly played along, but they haven’t given National Collegiate the same courtesy.

Check out this look at how America’s criminal justice systems preys on the poor.

So far, this student loan mess only seems to affect some private loans, which represent about 7.5 percent of the total student loan market, according to data collected by analyst Measure One. Private loans were mostly phased out in 2010 after the feds took over the market; they’re primarily used today to attend sketchy for-profit colleges that, by law, cannot rely entirely on federal financing. Many of these for-profit college loans, which target vulnerable students, have been found to be deceptive.

Before 2010, private student loans were often securitized, just like subprime housing loans before the financial crisis. What this means is that a student would take out the loan, and the lender would bundle it with hundreds of others and sell them through multiple transactions into a trust. The trust would then issue bonds based on the student debt and sell them to investors around the world. The trust would then hire a servicer to take in monthly payments from students, and that money would pass back to investors.

This is where National Collegiate got into trouble. According to an audit of the company’s loan servicer, the Pennsylvania Higher Education Assistance Agency (PHEAA), National Collegiate never received assignments of the loans in its trusts, which would establish the transfer of ownership. In fact, “100 percent of the accounts did not contain an assignment,” the audit found.

How could this be? Why would a company buying hundreds of thousands of loans never secure the proper paperwork showing they actually owned them? The audit hints at a reason: money. The lender assured National Collegiate and its servicer that it could figure out ownership documentation after the fact—if needed. “This became a standard process as it was a less costly option,” according to the audit. After all, many people with student loan debt don’t challenge default judgments, so it made some sense for National Collegiate’s powers that to be to think cutting corners wouldn’t be too costly.

Now that might change. Already, in case after case, from New Hampshire to Ohio, the lender has been found to not actually have possession of the documentation necessary to prove ownership. In hundreds of other instances, according to the Times, National Collegiate has been dismissing cases as soon as they’re challenged to provide docs. That means Pablo Ramirez and other borrowers who stopped paying their loans are getting off scot-free.

All of this might sound vaguely unfair. Why should Ramirez get a break when millions of other former students have to pay? Well, just like borrowers have obligations (to pay their debts), so, too, do lenders. Pablo Ramirez didn’t force the company that took out his loan to engage in multiple complex transactions and then forget to turn over the ownership documents. If National Collegiate is going to aggressively pursue borrowers who fall behind on their loans, proving it owns the debt in question seems like a pretty barebones ask.

Without that requirement, I could walk into a court and announce that Pablo Ramirez—or, for that matter, Donald Trump—owes me money. The system of commerce America has established for centuries relies on proof of ownership. It’s been thrown into disarray in the last few decades, but in theory, at least, this is still how things work.

The real problem here is the near-total lack of accountability for financial companies lending people money in America. In fact, despite numerous no-fault settlements, banks continue to fabricate documents and kick people out of their homes based on false mortgage evidence. It’s no surprise that these tactics have begun to migrate to other kinds of loans. JPMorgan Chase was fined $136 million two years ago for selling credit card debts to collectors with inaccurate and fabricated information. Now we’re seeing the shady behavior crop up in student loans, and you can be virtually certain that National Collegiate isn’t the only offender.

What this comes down to is America failing to defend property records laws by imposing real consequences on violators. In that sense, it was all too predictable that ownership records, from housing to student loans, would turn into cesspools. And it’s worth bearing in mind that way more borrowers are harmed by this chaos than are bailed out.

Maybe someday we’ll hold companies like National Collegiate as responsible for their obligations as we do borrowers who aren’t quite as lucky as Pablo Ramirez.

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David Dayen at the Intercept: The Repeal of Dodd-Frank is a Wishlist for Deregulation and Big Bank Monopolies


The Treasury Department’s first report recommending changes to the financial regulatory system wildly differs from the plan to dismantle Dodd-Frank that House Republicans passed — and the Trump administration endorsed — just last week. In fact, the report attacks the central mechanism in the House GOP’s bill, even while paying lip service to considering it.

That doesn’t make it benign, however. The Treasury report, compiled with the assistance of 244 different banking industry groups, often cites or lifts directly from bank lobbyist briefing papers. It identifies numerous ways that regulators could go around Congress and significantly undermine the already weakened rules in Dodd-Frank. It’s a wish list for deregulation — but one that could actually get done.

The report was mandated by a February 3 executive order, where President Trump identified core principles for regulating finance. Treasury was supposed to report by June 3 on conforming all financial laws and policies to those core principles. Last month Treasury admitted they couldn’t get such a review done on time, and would instead do it in stages. This report, publicly released nine days after the deadline, only covers banks and credit unions.

But in between that time, the House passed the CHOICE Act, bank lobbyist fantasy legislation that would eliminate most of Dodd-Frank’s core rules. The “choice” in the CHOICE Act, the bill’s signature element, allows banks to opt out of most enhanced regulatory requirements if they maintain a ratio of liquid assets to overall debt — known as the “leverage ratio” — of 10 percent. Every House Republican but one voted for the CHOICE Act.

This put Treasury in a bind, having to pass judgment on the legislation preferred by its party regulars. And in a couple places, they nod to the CHOICE Act, saying that “Treasury supports an off-ramp exemption … for any bank that elects to maintain a sufficiently high level of capital.” But this was almost certainly added in at the last minute. Because elsewhere in the document, Treasury completely contradicts and even savages the types of changes made in the CHOICE Act.

For example, the report asserts that “continual ratcheting up of capital requirements is not a costless means of making the banking system safer,” reflecting the banking industry’s desire to reduce, not increase, capital ratios like leverage. The more debt a bank can play with, the more money they can earn, so banks don’t want to be constrained by high leverage ratios. Treasury has their backs. In that paragraph, at least.

Furthermore, Treasury writes, “a capital regime that is exclusively dependent upon a leverage ratio” — in other words, the one being advocated by House Republicans — “could have the unintended outcome of encouraging risk-taking by banking organizations.” That’s because, under the GOP plan, all debt counts the same toward the ratio, so if banks want to make higher returns, they need to make riskier bets on the debt they take on. The report suggests, instead, a “risk-weighted” system, so as not to “discourage critical banking functions.”

There’s a lot of debate over this point — some experts find risk-weighting overly complex and easily gamed — but the point is that Treasury, while mouthing support for the CHOICE Act’s leverage ratio-dependent off-ramp, is attacking the entire concept of a leverage ratio. Though the Trump administration endorsed the CHOICE Act just last week, one of its most important financial regulatory agencies cut it to ribbons.

Treasury diverges with the House on other parts too. The House GOP wants to eliminate the Volcker rule, a mini-Glass-Steagall preventing banks that take deposits from engaging in risky “proprietary” trading on their own accounts. But Treasury “supports in principle the Volcker rule’s limitations on proprietary trading and does not recommend its repeal.” Both the House GOP and Treasury savage the Consumer Financial Protection Bureau (CFPB), but Treasury pulls back from repealing the agency’s critical ability to police unfair, deceptive and abusive acts and practices — it only says that that authority should be “more clearly delineated.”

Of course, Treasury and House Republicans share a wrongheaded view of financial regulation and its effect on the economy. That’s because both take their cues from the same sources. In an appendix, Treasury lists the organizations and individuals who provided input to them for the report. Sen. Sherrod Brown’s office ran the numbers, finding that Treasury consulted with 14 consumer advocates and 244 banking industry groups, a ratio of around 17-to-1.

You can see this influence in several places. The report goes on a long tangent about reducing regulatory requirements on boards of directors that is lifted from a report by The Clearing House, a major bank lobbyist. The section on CFPB cites the Heritage Foundation four times, the Republican staff of the House Financial Services Committee twice, Cato Institute fellow and Antonin Scalia Law School professor Todd Zywicki twice, a lobbyist for the American Bankers Association, conservative Congressman Patrick McHenry, and corporate law firm Ballard Spahr, which represents numerous financial institutions.

Just the authors of the report guaranteed its tilt in favor of Wall Street. Mnuchin was CEO and later chairman of “foreclosure machine” OneWest Bank. Craig Phillips, a Treasury aide, spent the housing bubble years creating fraudulent mortgage securities for Morgan Stanley.

That sets the stage for an orgy of spin and bad-faith arguing. Treasury claims that community banks and credit unions are being strangled by Dodd-Frank regulations, while citing an unbroken trajectory of small bank closures going back to 1984, 26 years before Dodd-Frank’s introduction. The report opposes regulatory fragmentation and overlap and calls for streamlining, but goes after the one Dodd-Frank action that streamlined a fragmentary regulatory framework, the CFPB, as holding too much authority. It blames regulations for low bank growth, not the slow recovery and lack of opportunities to profit. It laments that private mortgage-backed securities are well below the level from 2005-2007, as if the housing bubble should be seen as something to shoot for again.

This leads to a series of recommendations that regulators could accomplish on their own, without waiting for Congress to reach consensus. “A sensible rebalancing of regulatory principles is warranted in light of the significant improvement in the strength of the financial system and the economy,” the report argues, in a literal recounting of how the regulatory pendulum swings toward rolling back rules when people forget crises.

Treasury wants to coordinate bank supervision and enforcement actions spread across multiple regulators, reducing turf wars but also shrinking legal liability for banks. To show what it’s really after here, it wants to cut the FDIC out of the assessment process for living wills, the road maps banks create to unwind themselves in a crisis; the FDIC has been much more stringent on living wills than its counterpart, the Federal Reserve.

The report also calls for eliminating multiple burdens on small banks and credit unions, raising the exemption thresholds for stress tests, capital and liquidity rules, and supervision. But that tailoring doesn’t stop at small banks; even institutions with over $50 billion in assets would likely get relief.

Treasury wants to make stress tests and supervision “more transparent,” which is code for allowing banks to know when examiners will arrive and how to game the process. It also wants to reduce the frequency, with stress tests and living will plans every two years instead of annually. It wants to add multiple exemptions to nearly all capital rules, and would blow enough holes in the Volcker rule (including allowing proprietary trading up to $1 billion) that its support for the idea in principle would not extend to practice. It wants all regulators to engage in cost-benefit analysis in rulemaking, a way to bog the process down in bureaucracy — and to set up targets for lawsuits after the rules are written. It wants to roll back mortgage rules put in for borrower protection after a crisis that resulted in millions of foreclosures. There’s even a reference to targeting the Community Reinvestment Act, the law that makes sure banks lend in low-income communities, the mythical demon many on the right have taken to blaming for the entire financial crisis.

On the CFPB, Treasury recommends making the director removable at will by the president or making the agency a multi-member commission, and putting its funding structure through the appropriations process — all arguments Republicans and bank lobbyists made unsuccessfully during debate over the agency’s creation. But Congress would need to act there; in its place, Treasury supports actions a new director could take unilaterally, like favoring “cease-and-desist” notices over sanctions, making the consumer complaint database secret, and eliminating the agency’s authority to supervise financial institutions.

There’s basically something for every bank of every size here, with enough exemptions, reductions, and referrals back to the lowest common denominator to enable the industry to run wild. And most of it could get done behind closed doors, without a public vote on C-SPAN. “The Trump administration could unilaterally introduce major additional risks to our financial system,” said Americans for Financial Reform Policy Director Marcus Stanley in a statement.

It’s true that fulfilling this industry wish list would take time; regulators would have to traverse the laborious regulatory process to undo the rules, often with multiple agencies having to sign off. Plus, Trump hasn’t appointed key regulators needed to carry this out. But the industry has taken that path before to much success. Dodd-Frank already is a shell of what was envisioned, after insistent lobbying through the legislative and then the rule-making process. The banks will be happy to run the gauntlet again.

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When Crime Pays: Bankers Behind Financial Crisis were Promoted, not Jailed



The Bankers Behind the Financial Crisis Actually Got Promoted
David Dayen

Millions lost their homes and jobs, and not only did the bankers not go to jail, most of them got new and better gigs, according to a new study.

By now it’s well known that no senior bank executives went to jail for the fraudulent activities that spurred the financial crisis. But a new study shows many of the senior bankers most closely tied to pre-crisis fraud didn’t suffer one bit in the aftermath. They mostly kept their jobs, enjoying the same kinds of opportunities and promotions as their colleagues.

Worst of all, the most plausible explanation the researchers came up with for why senior management didn’t fire the people who blew up the economy is that they didn’t want to admit their own failure as bosses. And if nobody on Wall Street is willing to see the problem, and the Trump administration is stocked with bankers and corporate cheerleaders, you can bet fraud will continue to shift into other products, harming consumers and investors while executives look the other way.

The study comes from John Griffin and Samuel Kruger of the University of Texas-Austin, and Gonzalo Maturana of Emory University. They tracked 715 individuals involved in issuing residential mortgage-backed securities (RMBS) from the key housing bubble years of 2004 to 2006, including the senior managers who actually signed off on the deals.

RMBS were the building blocks of the crisis, bundles of toxic loans passed on to investors who were not told about their poor quality. Since the crash, major banks that issued RMBS have paid over $300 billion in government penalties, at least implicitly acknowledging they fucked up.

With settlements and deferred prosecution agreements, federal law enforcement tried to influence corporate culture so banks would discourage bad behavior and punish those responsible within their own ranks. But until now, nobody had studied whether the large civil fines actually did lead to internal discipline. So the researchers compared the careers of RMBS bankers after the crisis to other bank employees whose work was relatively free of fraud.

“We find no evidence that senior RMBS bankers at top banks suffered from lower job retention, fewer promotions, or worse job opportunities at other firms compared to their counterparts,” Griffin, Kruger, and Maturana write.

By 2016, according to the study, 85 percent of RMBS bankers remained in the financial industry, and 63 percent received a promotion in job title, a similar ratio to non-RMBS colleagues. They were also able to move freely to join competitors, with Bank of America, JPMorgan Chase, and Citigroup “particularly aggressive” in hiring RMBS bankers. The dynamic was true for every major underwriter. There was simply no evidence of any large-scale punishment.

Employees at smaller firms were hit marginally harder after the crisis. But there’s an easy explanation for that: The market for residential mortgage-backed securities disappeared after the crisis. While bigger banks had the ability to fold RMBS bankers into their larger operations, smaller firms couldn’t.

The study doesn’t just lay out this lack of consequences, but tries to explain the reasons why. The evidence contradicts the idea that the most culpable senior managers or those who caused the biggest penalties were held accountable, or that discipline was merely delayed until after public knowledge of fraud, or that employees were kept at their companies so they wouldn’t turn on their employers in future litigation.

The researchers concluded that one main explanation is that upper management “is concerned that large-scale discipline would implicitly acknowledge widespread wrongdoing and lack of oversight.” In other words, if the executives fired too many bankers for fraud, they would point the finger back at their own loss of control, and risk their own job.

We don’t necessarily see such fear with smaller-scale bank crimes. But, Griffin, Kruger, and Maturana write, “An important difference is that RMBS fraud was widespread.” While executives can cultivate a zero-tolerance reputation through disciplining small-time frauds, they’re less willing to do so when their own lack of awareness or oversight would come into question. So they accepted self-serving explanations that the crisis resulted from mass hysteria, that nobody was truly “responsible,” and moved the employees seamlessly into other parts of their business.

In other words, these bankers were too big to fail—too entrenched to get in real trouble.

This totally alters the perception of whether Wall Street is safer now than it was before 2008. If the response to industry-wide fraud was to pretend it didn’t exist, of course you would expect more fraud to occur in the future. And that’s exactly what seems to be happening. Banks have started to run screaming from the subprime auto-loan market, after spiking defaults raised questions about the same deceptions foisted on auto borrowers that we saw with mortgage borrowers a decade ago. The long post-crisis rap sheet, from rigging foreign exchange rates to saddling customers with fake accounts, suggests the same triumph of short-term profits over ethics. And these are just the abuses we know about today.

This all stems from the failure to hold individuals directly accountable. As the researchers conclude, “these employment outcomes send a message to current and future finance professionals that there is little, if any, price to pay for participating in fraudulent and abusive practices.” If you can help generate the worst meltdown since the Great Depression—arguably helping set the stage for a populist demagogue to take the presidency—and keep your job, why would you care about the implications of your next great swindle?

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David Dayen: HAMP Is Hurting Liberalism


by David Dayen/Shadowproof.com

I wanted to circle back to this point I made on our foreclosure panel that I really do think expresses both the frustration and the danger I and some other commentators are feeling about the situation. Simply put, HAMP is hurting liberalism. It’s putting a face of bureaucratic incompetence on a program designed to help people. It’s making the lives of its participants worse while promising to make it better. It’s adding to their indebtedness and failing to reduce their principal.

Of course, we know that it’s not a liberal program in any way, with its maddening structure as a public-private partnership where the lender doesn’t have to make any changes to the mortgage unless they determine it in their best interest to do so. And that design was a conscious choice, not the result of legislative compromise. I have to laugh at that sliver of the liberal commentariat who constantly excuses the President and the Administration for having to make painful choices given the Congress they have. The President, you see, isn’t that powerful, and must work within those legislative constraints. But none of this is true with respect to HAMP. The Administration designed this entirely on their own, using money already appropriated. And they designed it terribly.

In fact, they lied right from the beginning, according to Sen. Jeff Merkley, who was also on the panel. He was told that the White House would devote $50-$100 billion in TARP money to homeowners and that they would fight for cramdown (what he would rather call lifeline bankruptcy) when it came up in Congress. These were the conditions under which Merkley voted to release the second tranche of the TARP money. And neither of these two things really came to pass. The White House stood mute as cramdown failed, and though HAMP is supposed to have $75 billion in backup, they’ve spent less than one-half of one percent of it.

Without the threat of a bankruptcy judge modifying the mortgage as a hammer on the side of homeowners to get lenders to comply, the HAMP design totally failed. It was no longer in the financial interest of the lenders to do anything, and so millions of people come into a system and get really nothing out of it. They end up more indebted and just float along, propping up the banks who don’t want to acknowledge the bad loans still on their books. This was the Administration’s design, specifically Gene Sperling’s design, according to reports. And as I said on the panel, he should be fired for the damage he’s causing. Obama is famous for saying he only cares about what works. Well, this isn’t working.

The more important damage is to those getting no relief on their mortgages, falling victim to predatory lending for the second time, first from the loan officers and now from the government. But on another level, it’s only confirming what Ronald Reagan famously said, that the most dangerous words in America are “I’m from the government and I’m here to help.” That’s true when a neoliberal, extend-and-pretend scheme designed more to save the banks from reality than help people gets implemented. Those people getting foreclosed or losing everything they’ve got can point the finger at one thing, that government didn’t provide a safety net for their struggles. As Elizabeth Warren said on the panel, in the 1930s we had a belief that government could step in and help us with our problems. And that has faded. It faded over the last thirty years with a coordinated demonization of government and it’s fading now because the group in the White House has a different worldview, one oriented toward the banks over the people. And so how can you tell the guy in this story to vote for Democrats ever again? (cont’d.)

At the foreclosure panel I went to, HuffPo’s Ryan Grim, who had been interviewing people around town, told the story of a 50something guy who was going to lose a house he’d put $100K down on. A lot of the Tales Of Foreclosure Hell have focused on people who bought houses with little money down and who therefore in some sense didn’t lose much, but there are a lot of people who did lose/will lose their life savings over this.

I get the occasional angry email because I’m not hopey changey enough, but right now I’m angry at the administration over HAMP. It was their baby, it didn’t require Congressional action of any kind, and when it was introduced the usual suspects said it was unlikely to help people. More than that, it’s actually hurting people, extracting payments during the extend and pretend period before finally chucking people out.

Ironically, that guy did say he’d vote for Harry Reid over Sharron Angle. But over time, he knows that the government did not step in to help when his work dried up and everything he worked so hard to create went away. And millions of people join him in that belief. And so the idea of government as a backstop for those facing troubled times, as a great equalizer between the average people and the seats of power, just crumbles.

I was talking to Jack Conway, the Senate candidate from Kentucky, and he said that the biggest issues from constituents on the campaign trail are spending and jobs. I asked if he explains that the two are contradictory, and he explained that people don’t see it that way, that they’ve concluded that more public spending will not create jobs but just go to the banks on Wall Street. I don’t know if the Administration understands how pernicious this game they’re playing is. It could last for a generation.

This program is not just a terrible deal for struggles homeowners – it’s a terrible confirmation of government not working. It needs to stop and those responsible need to be fired, before it consumes the entire progressive project in its wake.

David Dayen Repost: Inside the Abortive FBI Investigation of Illegal Foreclosure in Florida

Low-wage workers posed as bank presidents and signed bogus documents that kicked people out of their homes. Illustration by Dola Sun
Flashback  to May 2016.
Inside the Abortive FBI Investigation of Illegal Foreclosure in Florida
David Dayen

The massive probe threatened to implicate the biggest banks in America, but sent just one woman to prison.

Six years ago, FBI agents in Jacksonville, Florida, wrote a memo to their bosses in Washington, DC, that could have unraveled the largest consumer fraud in American history. It went to the heart of the shady mortgage industry that precipitated the financial crisis, and the case promised to involve nearly every major bank in the country, honing in on the despicable practice of using bogus documents to illegally kick people out of their homes.

But despite impaneling a grand jury, calling in dozens of agents and forensic examiners, doing 75 interviews, issuing hundreds of subpoenas, and reviewing millions of documents, the criminal investigation resulted in just one conviction. And that convict—Lorraine Brown, CEO of the third-party company DocX that facilitated the fraud scheme—was sent to prison for duping the banks.

Thanks to a Freedom of Information Act request, VICE has obtained some 600 pages of documents from the Jacksonville FBI field office showing how agents conducted a sprawling investigation. (The Jacksonville case is also featured in my new book, Chain of Title.) The documents suggest the feds gained a detailed understanding of how and why the mortgage industry enlisted third-party companies to create false documents they presented to courts, as detailed in the 2012 National Mortgage Settlement, for which the big banks paid billions in civil fines. The banks’ conduct is described in the settlement documents as “unlawful,” and the Jacksonville FBI had it nailed almost two years earlier.

In these case files, you can see the seeds of an alternative history, one where dedicated law enforcement officials take on some of the country’s most powerful financial institutions with criminal prosecutions.

So why didn’t they?

“Given everything I see here, you’d have thought there would be many more convictions,” said Timothy Crino, a now-retired FBI forensic accountant who reviewed case file documents. “If I was the case agent, I would be devastated.”

At the center of the FBI investigation were the documents required to turn ordinary mortgages into mortgage-backed securities (MBS). During the housing bubble, banks bought up mortgages and packaged thousands of them at a time into MBS; this was known as securitization. The mortgages were transferred through a series of intermediaries into a trust, and the trust paid out investors with the revenue stream from homeowners’ monthly payments.

In the end, of course, an upswing in the number of homeowner defaults led the MBS market to collapse disastrously, nearly taking down the worldwide financial system along with it. But there was another problem. In order to legally foreclose on homeowners, the financial institutions doing the foreclosing must produce documents proving the mortgages were properly transferred from their originators through intermediaries and on to the trusts, detailing every step along that chain.

“If evidence collected shows intent to defraud investors by the real estate trusts, this matter has the potential to be a top ten Corporate Fraud case.” —FBI Criminal Investigative Division memo, June 2010

This is common sense: If you accuse someone of stealing your car, you have to establish that you actually owned it in the first place.

This chain of ownership was at the heart of the FBI investigation, according to a “request for resource enhancement” sent on May 25, 2010, from the Jacksonville office to Sharon Ormsby, then chief of the FBI Financial Crimes Section in Washington. (Ormsby no longer works for the bureau, and an attempt to contact her through the Society of Retired Special Agents of the FBI was unsuccessful.)

“The fraud in this matter was the result of negligence in the process of creating Mortgage Backed Securities (MBS),” the memo reads.

The Jacksonville FBI agents cite three reasons why the banks didn’t properly transfer the mortgages. First, the sheer volume—millions of loans—would have made it too time-consuming to file each transfer in county courts in advance. Second, it would have been too costly, as each transfer triggers a recording fee of somewhere between $35 to $50. And finally, “during a booming market, the trusts did not recognize the need to secure the loans,” because they didn’t believe it would ever be called into question in the courts.

The Jacksonville FBI memo claims the trusts committed fraud by reporting to the Securities and Exchange Commission (SEC), the credit rating agencies, and investors that they had clear title to the properties when they actually didn’t. And agents present evidence that mortgage-servicing companies and their law firms hired third-party outfits to falsify the mortgage documents needed to foreclose after the fact.

Among those companies was DocX in Alpharetta, Georgia, which provided “default services” for mortgage-servicing companies and their law firms; when a loan went into default, they came to DocX for assistance. Because the company was a subsidiary of Jacksonville-based Lender Processing Services (LPS), the primary default services provider in the United States, the Jacksonville FBI office had jurisdiction over the case.

It used to be fun to work at DocX, one employee said in an FBI interview. Now, it was more like a “sweat shop.”

“LPS and other default services created false and fraudulent documents which appeared to support their foreclosure positions,” the memo reads. “LPS and the associated foreclosure mills utilized these false and fictitious docs in Courts across the nation to foreclose on homeowners.”

It wasn’t even that difficult to discover the falsehoods when you actually looked at the documents. Lynn Szymoniak, a West Palm Beach attorney who specialized in white-collar insurance fraud, fell into foreclosure in July 2008, and got sued by the trustee of her mortgage, Deutsche Bank. But when she finally received her mortgage assignment, it was dated October 17, 2008, three months after Deutsche Bank filed for foreclosure. So at the time of the foreclosure filing, Deutsche Bank didn’t legally own the loan over which it sued her.

Adding to the chaos, one of the so-called witnesses on Szymoniak’s mortgage assignment, Korell Harp, was in state prison in Oklahoma at the time he supposedly signed the document. (Ironically, Harp was in prison for identity theft, even as his own identity was being stolen for use in foreclosure documentation.) The copy of the promissory note was a hastily executed cut-and-paste job, fabricated after the fact. A woman named Linda Green signed the mortgage assignment in Szymoniak’s case in her capacity as the vice president of American Home Mortgage Servicing Inc.; she also signed as the vice president of at least 20 other financial institutions, according to public records Szymoniak compiled. And Green’s signatures all featured different handwriting, meaning they weren’t just fabricated, but forged.

It was Szymoniak, based on weeks of public records searches, who wrote the first official fraud report to the US attorney’s office in Jacksonville. She had several friends in that office, prosecutors she’d partnered with on insurance fraud cases. So she sent a complaint to Assistant US Attorney Mark Devereaux and FBI Special Agent Doug Matthews, who managed mortgage fraud cases. The result was the Jacksonville grand jury investigation.

Szymoniak filed her own whistleblower lawsuits detailing foreclosure fraud and eventually won $95 million for the government under the False Claims Act. For bringing the case to the government’s attention, she received a share of that award, totaling $18 million.

The banks had foreclosed on exactly the wrong person.

FBI agents visited people across America who endured illegal foreclosure after the financial crash. Illustration by Dola Sun

According to dozens of interviews conducted by the FBI, DocX originally created lien releases, signifying when mortgages got paid off. But as the housing bubble collapsed and trustees suddenly needed evidence for their foreclosure cases, the business model shifted to pumping out mortgage assignments. Temporary and low-wage workers hired by DocX were now posing as bank vice presidents, working long hours signing documents at two long tables.

It used to be fun to work at DocX, one employee said in an FBI interview. Now it was more like a “sweat shop.”

The documents coming out of DocX were sloppy at best. Several mortgage assignments were filed with courthouses that listed the recipient of the mortgage as “BOGUS ASSIGNEE.” This was apparently a placeholder on a DocX template assignment that employees habitually forgot to change. At other times, employees appear to have forgotten to change the date, executing assignments effective “9/9/9999.”

“When I joined the bureau, white-collar crime was the number one priority in the country.” —David Gomez, former FBI agent

In the Jacksonville FBI files, DocX employees said that they were constantly pushed to process more documents. Eventually, the company hit on a concept called “surrogate signing.” Only one individual was identified on corporate resolutions as the officer authorized to sign on clients’ behalf, but under surrogate signing, other employees at DocX would sign for that authorized individual. Employees would sign as many as 2,100 documents per day, and each surrogate signer would double the workflow. In early 2009, DocX management hung a banner in the office proudly displaying its successful document production to superiors visiting from LPS.

It read: “Two Million Assignments.”

The employees don’t appear to have ever seen any official documents authorizing them to sign on behalf of financial institutions where they did not actually work. Indeed, when the Jacksonville FBI office subpoenaed them, agents found that the “corporate resolutions do not give DocX/LPS employees the authority to sign on behalf of the institution.”

But while many people working at DocX believed the scheme to be fraudulent, according to the memo, none of them questioned the practice for fear of losing their jobs. They were reassured repeatedly that everything was legitimate. Some managers apparently told employees to keep quiet for “the good of the company.” Even the managers professed that they were trying to meet LPS demands and accomplish an impossible task of completing millions of mortgage assignments.

One manager stated in an FBI interview that if she “was guilty of anything, she was guilty of being ignorant.”

LPS management in Jacksonville broke up the surrogate-signing party in November 2009, after a foreclosure defense attorney began questioning their practices. Executives at LPS fired Brown, founder and CEO of DocX, claiming she began surrogate signing without their knowledge. But DocX continued to sign on behalf of corporate officers at defunct companies for months afterward, according to the memo. And because the trusts had to receive mortgage assignments within 90 days of their establishment and not years later, the document production itself was fraudulent, the Jacksonville FBI alleged, whether the signatures were forged or not.

(LPS, now known as Black Knight Financial Services after a series of corporate mergers, did not respond to a request for comment for this story.)

Between February and May 2010, Jacksonville FBI agents met with state and federal officials, including members of the SEC, Federal Deposit Insurance Corporation (FDIC), and Florida’s Department of Financial Services. They issued hundreds of subpoenas and prepared to seize more than $100 million in assets in the case. On May 17, they met with officials from the FBI’s Economic Crimes Unit, which is responsible for overseeing financial fraud investigations in the field like Jacksonville’s, to discuss the case and explain what they needed.

A week later, Jacksonville agents made the formal request for help to FBI headquarters in Washington.

“Jacksonville is a small field office with a White Collar Crime Squad of nine agents,” the memo reads, explaining that six of the nine were committed to other cases. “In short, Jacksonville does not have the necessary resources to begin addressing this matter.”

Jacksonville wanted the Economic Crimes Unit to activate the “Corporate Fly Team,” a group of experienced agents with backgrounds in white-collar crime who travel to work on big cases. The extra bodies would help conduct interviews with officials at loan servicers, foreclosure law firms, trustees, and document custodians around the country. In addition, Jacksonville’s office wanted an investigative team of 12 agents and two forensic accountants. Six agents and one forensic accountant would come from FBI headquarters, the Florida Department of Financial Services and the IRS would supply a few agents, and Jacksonville would provide the rest, including the second accountant. The agents from headquarters would have a 90-day “temporary duty” (TDY) assignment. After that, Jacksonville wanted to augment their “Funded Staffing Level” (FSL) with eight additional white-collar crime agents “to permanently address this matter.” Jacksonville also wanted to rent an offsite facility for the storage and review of documents.

“It’s a typical bureau request,” retired FBI agent Timothy Crino told me. “You ask for everything you can possibly ask for and hope you get half of it.”

And they did get about half, at least at first. The Criminal Investigative Division (CID)—the FBI’s single biggest department—replied to the Jacksonville request on June 24. “If evidence collected shows intent to defraud investors by the real estate trusts, this matter has the potential to be a top ten Corporate Fraud case,” the reply reads. CID agreed to pony up the Corporate Fraud Response Team for assistance with interviews, and offered two TDY Forensic Accountants for at least 90 days. They requested a detailed estimate for the off-site facility, and expressed a preference for obtaining records in digital format to reduce storage needs. But CID did not agree to the additional agents or FSL request “until a further evaluation of the case is completed.”

Shuffling around resources and prioritizing investigations is always tricky and involves layers of FBI office politics. “The guy running the Jacksonville desk must sell it to the unit chief,” said David Gomez, a retired FBI agent with the Center for Cyber and Homeland Security at George Washington University. “The unit chief is fighting with other unit chiefs to sell it to the section chief.” And after 9/11, the FBI shifted attention to fighting terrorism, making the funds and bodies dedicated to financial crime even more scarce. “When I joined the bureau [in 1984], white-collar crime was the number one priority in the country,” Gomez added. “Now people come in expecting and wanting to work on terrorism.”

But proper resources can make or break a case. “If you don’t get everything you want, you have to pick your battles,” said former Agent Crino. “You can’t work the whole thing, can’t go after the biggest targets.”

In this case, that would mean not going up the chain, from the companies like DocX that created the false mortgage assignments to the trustees and mortgage-servicing companies who were their clients. That chain could have implicated some of America’s biggest and most powerful banks and bankers; the practice was systemic, as Jacksonville agents recognized. But a small FBI office can only do so much.

Before the end of the 90-day temporary agent assignment in Jacksonville, stories about foreclosure fraud began appearing in the news. “Robo-signers” who signed thousands of documents with no understanding of their contents were exposed through depositions placed on the internet. GMAC Mortgage, JPMorgan Chase, and eventually every major mortgage servicer in the country paused their foreclosure operations, because they were shown to be illegitimate.

The Jacksonville FBI office made a second request for resources on January 20, 2011. Agents said the local US attorney was considering indicting unidentified members of LPS for their role in the fraud, and also “identified Deutsche Bank as a subject trustee… who provided services in the conspiracy and made material misrepresentations to the SEC and the investing public.” (Deutsche Bank spokesman Oksana Poltavets declined to comment on the case.) The FBI in Jacksonville also said the US attorney there had the commitment of the main Justice Department in Washington for the case going forward, bolstering the agents’ contention that they needed more resources.

Agents in Jacksonville made a bevy of new asks, from additional use of the Corporate Fly Team to conduct interviews and review 3 million documents—produced by LPS after a subpoena—to help from other field offices for interviews in their own jurisdictions with homeowners evicted based on false documents. Finally, agents in Jacksonville wanted the Minneapolis FBI office to look into another LPS facility in Minnesota to see if employees had created false documents there, as well.

The FBI bosses in DC honored several of these requests. Fly Team members helped review the documents. Field offices pitched in on homeowner interviews. The investigation seemed to be making headway.

And then the trail went cold.

It is still difficult to pinpoint why, given that all the major players won’t comment on the investigation. That includes the FBI’s field office in Jacksonville, the FBI’s Economic Crimes Unit in Washington, and the Justice Department. The last document in the FOIA file is dated June 28, 2012, describing planned travel from Jacksonville to Atlanta to interview “at least six” witnesses.

After that, there’s nothing.

The grand summary of the investigation, which would typically be written up at the end, is not included in the FOIA documents. “It’s just such a huge question mark,” former FBI Agent Crino told me, “how this could have gone so horribly wrong.”

The only person ultimately convicted in the Jacksonville case was Lorraine Brown, who was sentenced in June 2013 to five years in prison after pleading guilty to conspiracy to commit mail and wire fraud. The indictment claimed she directed the document forgery and fabrication scheme “unbeknownst to DocX’s clients.” In other words, according to prosecutors, mortgage servicers contracted Brown to provide evidence, so they could prove standing to foreclose, but didn’t know the resulting evidence was faked.

But the Jacksonville FBI agents stated in their reports that any mortgage documents created after the closure of the trusts would have to have been fabricated. As recently as the January 20, 2011, request for resources, agents wrote, “When the notes were bundled, an assignment of mortgage should have been prepared and filed at the county court level… to ensure clear title in the event of sale and/or foreclosure.” And they explained how and why the trusts failed to do so, necessitating the creation of documents after foreclosure had already begun.

So the charging documents in the Brown case positions the banks as unwitting dupes of the scheme, a reversal from the consistent determination by agents in the field that they were fully aware of and in fact responsible for the situation.

“I thought, Well, this is one friend saying to another friend: ‘This is over,'”—Lynn Szymoniak

In the sentencing phase, the feds turned to county registers, the public officeholders who track and manage mortgage documents, to provide horror stories about DocX. One of them was John O’Brien, county register in Essex County, Massachusetts. He was determined to recoup $1.28 million from Brown to clean up falsified DocX land records filed with his office.

When Assistant US Attorney Mark Devereaux asked him to testify, however, O’Brien recalled the prosecutor insisting the judge wouldn’t accept the claim, because registers—a.k.a. the public—were not victims.

“What do you mean, we’re not a victim?” O’Brien exclaimed. “We’re the ones with all these false documents!”

“No, the bank is the victim,” Devereaux replied, according to O’Brien.

(The US Attorney’s office in Jacksonville, where Devereaux still serves as a prosecutor, declined to comment on the case.)

Lynn Szymoniak, whose complaint triggered the Jacksonville FBI probe, believes that officials at the Justice Department, determined to stage-manage their own resolution to the scandal, stonewalled the agents on the case. She told me about one moment when she sensed the whole thing was rigged, sometime in the middle of 2011, well over a year after the investigation got underway.

Szymoniak had been unofficially assisting the Jacksonville team with research. US attorneys there would ask for 200 examples of a law firm signing mortgage assignments after they filed their foreclosure case, or 30 Linda Green documents in a certain region of the country. Szymoniak spent hours on these projects, feeling like she couldn’t say no. But she wondered why the requests kept coming, even after she went public and appeared on 60 Minutes in April 2011, detailing the false document scheme. “I really thought that in response they would have to file [an indictment],” Szymoniak said. “When they decided to hold tight and it would go away, I realized I had no cards left to play.”

At one point, the assistant US attorney requested a massive set of files. Szymoniak emailed her friend Henry “Tommy” Clark, a detective with the Florida Department of Financial Services’ Division of Insurance Fraud, who also partnered with the FBI on cases. She complained to him that the file request was going to take her 14 hours to assemble. Clark called her within a few minutes and didn’t even say hello.

“Don’t waste your time,” he said.

Clark worked with the Jacksonville FBI field office for a long time, and he saw the agents there as honorable people willing to follow the evidence wherever it led, Szymoniak recalled. So when Clark said, “I’m not working on it anymore, I’ve got a whole lot of other cases where I can file,” he seemed to validate the eerie feeling she had about the case. Their shared recognition was that someone seemed to be preventing Jacksonville from completing the investigation, and the two knew each other well enough to broach that fear in just a few words.

“I thought, Well, this is one friend saying to another friend: ‘This is over,'” she told me.

In a phone conversation, Detective Clark, who has since retired, confirmed that he worked on the FBI case but declined to comment for this story.

The FOIA documents detail an intense investigation in the aftermath of economic disaster, with Jacksonville agents and US attorneys going all-out for the public interest. They spent years running down leads and cultivating information, with the national office in Washington accommodating many of their resource requests. But all that work amounted solely to putting one non-banker in prison.

In February 2012, the Justice Department and 49 state attorneys general reached their civil settlement with the five biggest mortgage servicers over a host of allegations of deceptive and unlawful conduct, including “preparing, executing, notarizing, or presenting false and misleading documents… or otherwise using false or misleading documents as part of the foreclosure process.” The feds boasted that the settlement was for $25 billion, but only $5 billion of that was in hard dollars, with the rest in credits for activities that included bulldozing homes and donating others to charity. Homeowners wrongfully foreclosed on received about $1,480. The Justice Department claimed it reserved the right to criminally prosecute anyone suspected of wrongdoing. That still hasn’t happened.

After Brown’s sentencing, Szymoniak called up one of the FBI investigators and thanked him for at least snagging the one conviction—for proving real crimes were committed by some of the most powerful economic players in America, crimes theoretically punishable with prison time.

There was a long pause.

According to Szymoniak, when the agent finally broke the silence, he said, “I don’t think the taxpayers were very well served.”

David Dayen: How Congress Could Make Steve Bannon’s Wildest Dream Come True

A regulatory freeze on day one delayed every final rule awaiting its effective date. Many got pushed back further by federal agencies after the freeze lifted, including life-saving measures to prevent cancer-causing dust and toxic beryllium in workplaces. Lawmakers used a their power under the Congressional Review Act, which requires only a majority vote, to nullify 13 other rules. And now, the administration is venturing into rolling back regulations already in place, from new food product labeling to a ban on arbitration clauses in nursing home agreements to net neutrality, to name only a few.

But as Wayne Crews of the right-wing Competitive Enterprise Institute recently wrote, “Even with all these actions from the executive branch, there is still one large barrier to regulatory reform that remains: the U.S. Senate.” Only enough senators to break the 60-vote filibuster threshold would realize Steve Bannon’s dream of deconstructing the administrative state permanently.

Last week, that dream nudged closer to reality when Sens. Rob Portman (R-OH) and Heidi Heitkamp (D-ND) reached a bipartisan deal to introduce the Regulatory Accountability Act. Like a number of House bills passed this year, it attacks the agency rulemaking process, inserting additional hurdles to make it harder to get regulations done, and easier for industry to use courts to throw them out. Unlike the House bills, Portman-Heitkamp could actually pass the Senate. “The short version is it would shut down rulemaking,” said Rob Weissman, president of consumer advocacy group Public Citizen.

Before I explain what’s in the bill, you need to understand how enormously difficult it already is for federal agencies to complete a regulation. Take a look at this insane flowchart Public Citizen helpfully constructed, listing the hundreds of requirements facing any agency that wants to do its job. “To be legible it has to be blown up to 6 feet by 8 feet,” Weissman noted.

The Administrative Procedure Act of 1946 created the basic rulemaking structure, but since then, Congress and the executive branch have added tons of restrictions. The Paperwork Reduction Act, the Regulatory Flexibility Act, the Unfunded Mandates Reform Act, the Congressional Review Act, the National Environmental Policy Act, the Federal Advisory Committee Act, three executive orders and two court rulings all play a role. Costs to small businesses, cities, states and affected industries must be analyzed. Public comments must be solicited, read and considered. The centralized executive branch review at the Office of Information and Regulatory Affairs can clog a rulemaking for years. And even after that gauntlet, Congress can disapprove of the rule, or industry could argue in court that one of these endless steps was not followed correctly.

Put it this way: If a Last Man on Earth-style virus methodically began to kill U.S. citizens, and we knew the cause, we’d still have to wait a couple years for a formal rule to counteract it.

People assume that old whipping boy, government bureaucracy, is responsible for this mess. Actually, big business encouraged Congress to create these hurdles, solely to frustrate the regulatory process. At no point did policymakers ever streamline the old rules when they layered on new ones. Rulemaking just became this giant, unwieldy beast, entirely by design, so corporations could continue imperiling workers and consumers, and so agencies would shrink at the very thought of climbing the regulatory mountain. “We have stories of rules we’re worked on for 20 years,” said Weissman, of Public Citizen.

No honest observer could look at this and think that we need another set of cost-benefit analyses. But that’s what Portman-Heitkamp would do, for any rule costing over $100 million or with significant impact on the economy. These cost-benefit analyses, which in recent years have become “cost-cost” since benefits to the public are no longer really accounted for, would need to be completed at every stage of the process — before drafting a proposed rule, after determining its significance, before finishing the proposal and after public comment. After that tsunami of analysis, the agency must choose the “most cost-effective approach” that still accomplishes the goals of the rule (“most cost-effective” should read “least obtrusive on business”).

Incidentally, these cost studies end up mostly using industry data, since such cost detail doesn’t exist elsewhere. So Portman-Heitkamp would force the federal government to effectively let industries decide when it’s viable to regulate them.

In addition, agencies would have to reach out for public comment before a major rule gets proposed. The “best reasonably available” economic, scientific and technical information would need to be acquired, adding another vague but time-consuming legal step. “High-impact” rules would require an administrative hearing, where businesses could challenge the agency directly. And all rules would be automatically reviewed once every 10 years, in case corporations didn’t strike it down the first time.

Portman and Heitkamp claim they’re just putting into statute a process already established through presidential executive orders, as a more moderate counterpoint to extreme efforts by House Republicans. But the purpose of codification is to expand judicial review. “In the off chance an agency decides to regulate despite the endless gauntlet, and if after that the industry is unhappy, they can sue and say the study was wrongly conducted,” said Weissman.

In fact, Portman-Heitkamp would increase the legal standard on federal agencies, subjecting regulations to a “substantial evidence review.” And since it’s mostly the industry’s evidence, they can almost always claim that it was used improperly. Courts have proved sympathetic to industry whining on cost-benefit analyses in the past. The extra volume of requirements here just makes it more likely that a court would find some pretense to throw out a rule.

The bottom line is that Portman-Heitkamp would eat up time and money to produce new rules, making the already onerous agency compliance almost impossible. The duo already has Sen. Joe Manchin (D-WV) as a co-sponsor, and would only need six more Democrats to pass the Senate. With the House extremely likely to follow suit, this would create a brick wall around rulemaking lasting long beyond Trump.

That’s why several liberal groups are pushing Democrats to not collaborate. But the U.S. Chamber of Commerce’s overwhelming support for Portman-Heitkamp will likely lead local business affiliates, whose regulatory concerns are largely about moves at the city and state level, to pressure senators. The local auto dealer or restaurant provides cover for the polluting and worker-harming behemoths that really want rulemaking crippled.

This effort by Portman to set the regulatory process in concrete has flown below the radar of Trump tweets or health care bumbling. But it would have a massive effect, which is why hundreds of lobbyists have pinned their hopes on it (and given big to Portman to make it reality). The goal is nothing less than to prevent the government from ensuring clean air and water, safe workplaces, consumer protection or a host of other aims. Citizens who like any one of those things need to engage on this before it’s too late.

David Dayen: The CFPB Just Sued a Crooked Mortgage Servicer, but Indicted Itself

The lawsuit against Ocwen is welcome, but should have happened four years ago.

David Dayen: A Bank Even a Socialist Could Love

A Bank Even a Socialist Could Love

The fight for public banking is gaining ground in cities and states across the country.

BY David Dayen

“We have Tea Partiers and Occupiers in the same room liking public banking. What does that tell you?”

“Money is a utility that belongs to all of us,” says Walt McRee. McRee is a velvety-voiced former broadcaster now plotting an audacious challenge to the financial system. He’s leading a monthly conference call as chair of the Public Banking Institute (PBI), an educational and advocacy force formed seven years ago to break Wall Street’s stranglehold on state and municipal finance.

“This is one of the biggest eye-openers of my life,” says Rebecca Burke, a New Jersey activist on the call. “Once you see it, you can’t look back.”

This ragtag group—former teachers, small business owners, social workers— wants to charter state and local banks across the country. These banks would leverage tax revenue to make low-interest loans for local public works projects, small businesses, affordable housing and student loans, spurring economic growth while saving people—and the government—money.

At the heart of the public banking concept is a theory about the best way to put America’s abundance of wealth to use. Cities and states typically keep their cash reserves either in Wall Street banks or in low-risk investments. This money tends not to go very far. In California, for example, the Pooled Money Investment Account, an agglomeration of $69.5 billion in state and local revenues, has a modest monthly yield of around three-quarters of a percent.

When state or local governments fund large-scale projects not covered by taxes, they generally either borrow from the bond market at high interest rates or enter into a public-private partnership with investors, who often don’t have community needs at heart.

Wall Street banks have used shady financial instruments to extract billions from unsuspecting localities, helping devastate places like Jefferson County, Ala. Making the wrong bet with debt, like the Kentucky county that built a jail but couldn’t fill it with prisoners, can cripple communities.

Even under the best conditions, municipal bonds—an enormous, $3.8 trillion market—can cost taxpayers. According to Ellen Brown, the intellectual godmother of the public banking movement, debt-based financing often accounts for around half the total cost of an infrastructure project. For example, the eastern span of the San Francisco-Oakland Bay Bridge cost $6.3 billion to build, but paying off the bonds will bring the price tag closer to $13 billion, according to a 2014 report from the California legislature.

Public banks reduce costs in two ways. First, they can offer lower interest rates and fees because they’re not for-profit businesses trying to maximize returns. Second, because the banks are publicly owned, any profit flows back to the city or state, virtually eliminating financing costs and providing governments with extra revenue at no cost to taxpayers.

“It enables local resources to be applied locally, instead of exporting them to Wall Street,” says Mike Krauss, a PBI member in Philadelphia. “It democratizes our money.”

Legislators, Brown says, commonly object that governments “don’t have the money to lend.” But this misunderstands how banks operate. “We’re not lending the revenues, just putting them in a bank.” That is, the deposits themselves—in this case tax revenues—are not what banks loan out. Instead, banks create new money by extending credit. Deposits simply balance a bank’s books. Public banks, then, expand the local money supply available for economic development. And while PBI has yet to successfully charter a bank, there’s an existing model in the unlikeliest of places: North Dakota.

During the Progressive Era, a political organization of prairie populists known as the Nonpartisan League took control of the state government. In 1919, they established the Bank of North Dakota. It has no branches, no ATMs, and one main depositor: the state, its sole owner. From that deposit base, BND makes loans for economic development, including a student loan program.

BND also partners with local private banks across the state on loans that would normally be too big for them to handle. These loans support infrastructure, agriculture and small businesses. Community banks have thrived in North Dakota as a result; there are more per capita than in any other state, and with higher lending totals. During the financial crisis, not a single North Dakota bank failed.

BND loans are far more affordable than those from private investors. BND’s Infrastructure Loan Fund, for example, finances projects at just two percent interest; municipal bonds can have rates roughly four times as high. And according to its 2015 annual report, the most recent available, BND had earned record profits for 12 straight years (reaching $130 million in 2015), during both the Great Recession and the state’s more recent downturn from the collapse in oil prices. A 2014 Wall Street Journal story described BND as more profitable than Goldman Sachs. Over the last decade, hundreds of millions of dollars in BND earnings have been transferred to the state (although the overall social impact is somewhat complicated by the bank’s role in sustaining the Bakken oil boom).

The long march through the legislatures

Brown founded the Public Banking Institute in 2010, after years of evangelizing in articles and books such as The Web of Debt: The Shocking Truth About Our Monetary System and How We Can Break Free. Since then, by Walt McRee’s estimate, around 50 affiliated groups have sprouted up in states, counties and cities from Arizona to New Jersey.

“I’ve been working against the system all my life,” says Susan Harman of Friends of the Public Bank of Oakland. “I think public banking is the most radical thing I’ve ever heard.” Harman, a former teacher and a onetime aide to New York City Mayor John Lindsay, helped get the Oakland City Council to pass a resolution last November directing the city to determine the scope and cost of a feasibility study for a public bank—a tiny yet promising first step.

A feasibility study completed by Santa Fe, N.M., in January 2016 found that a public bank could have a $24 million economic impact on the city in its first seven years. A resolution introduced last October would create a task force to help the city prepare to petition the state for a charter. “It’s the smallest municipality investigating public banking,” says Elaine Sullivan of Banking on New Mexico, who hopes the task force could complete its business plan by the end of the year. “We’re interrupting the status quo.”

In February 2016, the Philadelphia City Council unanimously voted to hold hearings discussing a public bank. Advocates are now working with the city treasurer to find funds to capitalize the bank.

PBI has faced a rougher path in state legislatures. In Washington, state Sen. Bob Hasegawa (D) has introduced a public banking bill for eight straight years. Despite numerous co-sponsors, the bill can’t get out of committee. Efforts in Arizona and Illinois have also gone nowhere. California Gov. Jerry Brown (D) vetoed a feasibility study bill in 2011, arguing the state banking committees could conduct the study; they never did.

One overwhelming force opposes public banking: Wall Street, which warns that public banks put taxpayer dollars at risk. “The bankers have the public so frightened that [public banking] will destroy the economy,” says David Spring of the Washington Public Bank Coalition. “When I talk to legislators, some are opposed to it because ‘it’s for communists and socialists.’ Like there are a lot of socialists in North Dakota!”

In Vermont the financial industry fought a proposed study of public banking, says Gwen Hallsmith, an activist and former city employee of Montpelier. “We don’t have branches of Bank of America or Wells Fargo in Vermont, but they have lobbyists here.” So Hallsmith got the study done herself, through the Gund Institute at the University of Vermont. It found that a state bank would boost gross domestic product 0.64 percent and create 2,500 jobs.

The state eventually passed a “10 percent” program, using 10 percent of its cash reserves to fund local loans, mostly for energy investments like weatherizing homes. Meanwhile, Hallsmith helped push individual towns to pass resolutions in favor of a state bank— around 20 have now done so. Hallsmith says her advocacy came at the expense of her job; the mayor of Montpelier, in whose office she worked, is a bank lobbyist. Hallsmith now coordinates a citizen’s commission for a Bank of Vermont.

Because of state resistance, PBI has encouraged its supporters to go local. And several issues have emerged to assist. For instance, environmental and indigenous activists have demanded that cities move money from the 17 banks that finance the Dakota Access Pipeline. But therein lies another dilemma: Who else can take the money? Community banks and credit unions lack the capacity to manage a city’s entire funds, and larger banks are better equipped to deal with the legal hurdles involved in handling public money. So divesting from one Wall Street bank could just lead to investing in another.

A public bank could solve this problem, either by accepting cities’ deposits or by extending letters of credit to community banks to bolster their ability to take funds. Lawmakers in Seattle have floated a city- or state-owned bank as the best alternative for reinvestment, and Oakland council member Rebecca Kaplan has connected divestment and public banking as well.

Another opportunity arises with marijuana legalization initiatives. Because cannabis remains illegal at the federal level, most private banks are wary of working with licensed pot shops, fearing legal repercussions. This means many of these shops subsist as all-cash businesses. “It’s seriously dangerous; people arrive in armored cars to City Hall to pay taxes with huge bags of money,” says Susan Harman. In Oakland and Santa Rosa, Calif., public banking advocates are partnering with cannabis sellers to offer public banks as an alternative, which would make the businesses safer while giving the banks another source of capital.

While Donald Trump hasn’t formally introduced a long-discussed infrastructure bill, his emphasis on fixing the nation’s crippling public works has also bolstered the case for public banking. Ellen Brown maintains the country could save a trillion dollars on infrastructure costs through public-bank financing. That’s preferable to Trump’s idea of giving tax breaks to public-private partnerships that want big returns.

From the Great Plains to Trenton

“All it’ll take is the first domino to fall,” says Shelley Browning, an activist from Santa Rosa. “Towns and cities will turn in this direction because there’s no other way to turn.” And PBI members think they’ve found an avatar in Phil Murphy, a Democrat and former Goldman Sachs executive leading the polls in New Jersey’s gubernatorial primary this year.

Murphy has made public banking a key part of his platform. “This money belongs to the people of New Jersey,” he said in an economic address last September. “It’s time to bring that money home, so it can build our future, not somebody else’s.”

Derek Roseman, a spokesman for Murphy, tells In These Times that Bank of America holds more than $1 billion in New Jersey deposits, but only made three small business loans in the entire state in 2015. Troubled state pensions could help capitalize a state-owned bank, and would earn more while paying lower fees.

Murphy’s primary opponent, John Wisniewski, chaired the Bernie Sanders campaign in the state, while Murphy raised money for Hillary Clinton. Some believe Murphy is simply using public banking to cover his Wall Street background—and on many issues, Wisniewski’s policy slate is more progressive. But Brown thinks Murphy’s past primed him to recognize public banking’s power: “It’s always the bankers who get it.”

The first new state-owned bank in a century, chartered in the shadow of Wall Street, could shift the landscape. What’s more, blue-state New Jersey and red-state North Dakota agreeing on the same solution would highlight public banking’s biggest asset: transpartisan populist support. “We have Tea Partiers and Occupiers in the same room liking public banking. What does that tell you?” asks PBI’s Mike Krauss.

“Regardless of declared conservative or progressive affiliations,” says state Sen. Hasegawa, “regular folk … almost unanimously grasp the concept.” He is working with Washington’s Tea Partybacked treasurer, Duane Davidson, to advance public banking. “I go to eastern Washington, … they get the whole issue about independence from Wall Street and corporate control.”

In fact, Krauss is himself a Republican. “The biggest thing going on in America, people decided we don’t have any control anymore,” he says. “Whether it’s Bernie’s people or Trump’s people, they’re articulating the same thing but differently. … They want control of their money—and it is their money.”

Award-winning Journalist David Dayen.

Author of “Chain of Title”.

David Dayen: How a Cruel Foreclosure drove a couple to the brink of Death

By David Dayen at Vice

A married couple resorted to self-harm after being physically and psychologically terrorized by Bank of America over their house—until a judge fined the bank $46 million.


“Franz Kafka lives… he works at Bank of America.”

Judge Christopher Klein’s words kick off an incredible ruling in a federal bankruptcy court in California last week, condemning Bank of America for a long nightmare of a foreclosure against a couple named Erik and Renee Sundquist. Klein ordered BofA to pay a whopping $46 million in damages, with the bulk of the money going to consumer attorney organizations and public law schools, in hopes of ensuring these abuses never happen again—or at least making them less likely.

The ruling offers numerous lessons in the aftermath of a foreclosure crisis that destroyed millions of lives. First of all, the judge specifically cited top executives as responsible, not lower-level employees. Second, the sheer size of the fine—for just one foreclosure—is a commentary on the failure of America’s regulatory and law enforcement system to protect homeowners, despite the financial industry’s massive legal exposure.

Here are the horrific facts of the case: the Sundquists purchased a home in Lincoln, California, in 2008, but ran into financial trouble when Erik’s business faltered in the recession. Like so many others, the Sundquists were told by Bank of America’s mortgage servicing unit to deliberately miss three payments to qualify for a loan modification. Despite agonizing over ruining their perfect credit, they did so.

Inspectors contracted by the bank staked out the home, banged on the doors and tailed the family in cars, terrorizing them to keep tabs on the property.

Bank of America promptly lost or deemed inadequate roughly 20 different applications for a loan modification. At the same time, BofA pursued foreclosure, a dubious practice known as “dual-tracking.”

The Sundquists eventually filed bankruptcy in June 2010, triggering an automatic stay, whereby Bank of America couldn’t foreclose until after the case concluded. But BofA sold the house anyway at a trustee sale and ordered eviction. Inspectors contracted by the bank staked out the home, banged on the doors and tailed the family in cars, terrorizing them to keep tabs on the property.

The bank didn’t correct the violation for six months, by which time the Sundquists, spooked by the constant surveillance and belief they would be evicted, moved into a rental property. Bank of America finally rescinded the sale, but that put the Sundquists back on the house’s title, which is to say on the hook for mortgage payments and maintenance fees.

By the time the Sundquists got the keys back to the home in April 2011, they found all furnishings and appliances removed and the trees dead. The homeowner’s association charged them $20,000 for the substandard landscaping. Bank of America refused to take responsibility for the damages; in fact, they were still threatening to foreclose. Interest on the loan accrued at $35,000 a year this whole time, increasing the amount due.

The couple, both world-class athletes (Renee was an Olympic–level ice skater in Italy, Erik an NCAA champion soccer player) were physically and emotionally broken by the ordeal, what Judge Klein termed “a state of battle-fatigued demoralization.” Erik attempted suicide with pills. Renee suffered a stress-related heart attack and was diagnosed with post-traumatic stress disorder. She routinely cut herself with razors as an outlet for her pain. In a journal documenting six years of this nightmare, Renee Sundquist described constant stress. “All I do is cry,” she wrote.

The Sundquists won a case in state court against Bank of America in September 2013, but the violation of the stay, the heart of the wrongful foreclosure claim, had to be decided in federal bankruptcy court. There, the Sundquists found a judge who empathized with the abuse layered upon them.

In a 107-page opinion, Judge Klein found that BofA definitively violated the automatic stay and wrongfully foreclosed on the homeowners. “Throughout, the conduct of Bank of America has been intentional,” Judge Klein wrote.

By law, judges can impose actual and punitive damages in this type of case. Judge Klein ordered $1.074 million to the Sundquists in actual damages, for housing expenses, attorney fees, lost income, damaged property, medical bills, and emotional distress.

For punitive damages, Judge Klein stressed that the award had to be “sufficient to have a deterrent effect on Bank of America,” especially because of the role of top management and corporate culture in the case. The judge cited communications from the office of Bank of America’s CEO, both to the Sundquists and to the Consumer Financial Protection Bureau, the watchdog agency currently under attack by the Trump administration. After the Sundquists petitioned CFPB about the case, Judge Klein wrote that BofA lied to the agency by denying that they ever foreclosed.

“The oppression of the Sundquists cannot be chalked off to rogue employees betraying an upstanding employer,” Judge Klein wrote. “This indicates that the engine is driven by direction from senior management.” He even added that the misconduct of the CEO’s office “strayed across the civil-criminal frontier.”

Continue story here.

David Dayen: How a Cruel Foreclosure Drove a Couple to the Brink of Death


A married couple resorted to self-harm after being physically and psychologically terrorized by Bank of America over their house—until a judge fined the bank $46 million.

“Franz Kafka lives… he works at Bank of America.”

Judge Christopher Klein’s words kick off an incredible ruling in a federal bankruptcy court in California last week, condemning Bank of America for a long nightmare of a foreclosure against a couple named Erik and Renee Sundquist. Klein ordered BofA to pay a whopping $46 million in damages, with the bulk of the money going to consumer attorney organizations and public law schools, in hopes of ensuring these abuses never happen again—or at least making them less likely.

The ruling offers numerous lessons in the aftermath of a foreclosure crisis that destroyed millions of lives. First of all, the judge specifically cited top executives as responsible, not lower-level employees. Second, the sheer size of the fine—for just one foreclosure—is a commentary on the failure of America’s regulatory and law enforcement system to protect homeowners, despite the financial industry’s massive legal exposure.

Here are the horrific facts of the case: the Sundquists purchased a home in Lincoln, California, in 2008, but ran into financial trouble when Erik’s business faltered in the recession. Like so many others, the Sundquists were told by Bank of America’s mortgage servicing unit to deliberately miss three payments to qualify for a loan modification. Despite agonizing over ruining their perfect credit, they did so.

Inspectors contracted by the bank staked out the home, banged on the doors and tailed the family in cars, terrorizing them to keep tabs on the property.

Bank of America promptly lost or deemed inadequate roughly 20 different applications for a loan modification. At the same time, BofA pursued foreclosure, a dubious practice known as “dual-tracking.”

The Sundquists eventually filed bankruptcy in June 2010, triggering an automatic stay, whereby Bank of America couldn’t foreclose until after the case concluded. But BofA sold the house anyway at a trustee sale and ordered eviction. Inspectors contracted by the bank staked out the home, banged on the doors and tailed the family in cars, terrorizing them to keep tabs on the property.

The bank didn’t correct the violation for six months, by which time the Sundquists, spooked by the constant surveillance and belief they would be evicted, moved into a rental property. Bank of America finally rescinded the sale, but that put the Sundquists back on the house’s title, which is to say on the hook for mortgage payments and maintenance fees.

By the time the Sundquists got the keys back to the home in April 2011, they found all furnishings and appliances removed and the trees dead. The homeowner’s association charged them $20,000 for the substandard landscaping. Bank of America refused to take responsibility for the damages; in fact, they were still threatening to foreclose. Interest on the loan accrued at $35,000 a year this whole time, increasing the amount due.

The couple, both world-class athletes (Renee was an Olympic–level ice skater in Italy, Erik an NCAA champion soccer player) were physically and emotionally broken by the ordeal, what Judge Klein termed “a state of battle-fatigued demoralization.” Erik attempted suicide with pills. Renee suffered a stress-related heart attack and was diagnosed with post-traumatic stress disorder. She routinely cut herself with razors as an outlet for her pain. In a journal documenting six years of this nightmare, Renee Sundquist described constant stress. “All I do is cry,” she wrote.

The Sundquists won a case in state court against Bank of America in September 2013, but the violation of the stay, the heart of the wrongful foreclosure claim, had to be decided in federal bankruptcy court. There, the Sundquists found a judge who empathized with the abuse layered upon them.

In a 107-page opinion, Judge Klein found that BofA definitively violated the automatic stay and wrongfully foreclosed on the homeowners. “Throughout, the conduct of Bank of America has been intentional,” Judge Klein wrote.

By law, judges can impose actual and punitive damages in this type of case. Judge Klein ordered $1.074 million to the Sundquists in actual damages, for housing expenses, attorney fees, lost income, damaged property, medical bills, and emotional distress.

For punitive damages, Judge Klein stressed that the award had to be “sufficient to have a deterrent effect on Bank of America,” especially because of the role of top management and corporate culture in the case. The judge cited communications from the office of Bank of America’s CEO, both to the Sundquists and to the Consumer Financial Protection Bureau, the watchdog agency currently under attack by the Trump administration. After the Sundquists petitioned CFPB about the case, Judge Klein wrote that BofA lied to the agency by denying that they ever foreclosed.

“The oppression of the Sundquists cannot be chalked off to rogue employees betraying an upstanding employer,” Judge Klein wrote. “This indicates that the engine is driven by direction from senior management.” He even added that the misconduct of the CEO’s office “strayed across the civil-criminal frontier.”

This unusual candor hints at executive culpability for foreclosure fraud. “The judge signaled something very important here, which every regulator knows,” said Eric Mains, a former FDIC official who left the agency to fight his own foreclosure case. “This kind of corrupt culture can only be maintained with knowing approval from the top executives.”

After a long discussion of how to best punish BofA, Judge Klein decided to award $45 million in punitive damages, but to give them to entities that fight financial abuse, including the National Consumer Law Center, the National Association of Consumer Bankruptcy Attorneys, and five public law schools in the University of California system (UC-Berkeley, Davis, Irvine, Los Angeles, and Hastings Law School). Klein added that the Sundquists would be protected from having to pay their mortgage until BofA pays up the $46 million.

“Certainly this opinion is a shot across the bow for the bank mortgage servicing operations,” said Alan White, a law professor at City University of New York.

In a statement, Bank of America stressed that the Sundquist loan dated back to 2010: “The processes in place at the time were subsequently modified; regrettably our performance in this particular case was unsatisfactory.” The statement from BofA added, “We believe some of the court’s rulings are unprecedented and unsupported, and we plan to appeal.”

But if one bank is ordered to pay $46 million for just one foreclosure, it begs the question of whether the federal government settled on the cheap in its more systemic investigations of America’s largest financial companies after the 2008 crash. “The governmental regulatory system has failed to protect the Sundquists,” Judge Klein wrote, and that goes double for the millions of homeowners who suffered similar fates, yet didn’t contest their cases or find a judge willing to act on their behalf.

The Obama administration responded to the foreclosure crisis by effectively letting banks off the hook with a series of settlements. Government officials have repeatedly touted these actions, even as subsequent scrutiny revealed the headline numbers to be grossly inflated or at least misleading. But if the going rate for mega-bank legal exposure is $46 million per egregious foreclosure, it’s safe to say the feds dropped the ball in a big way. And the judge’s hints of criminal culpability for top executives, not low-level paper-pushers, clarifies the enduring shame of law enforcement for failing to indict a single major executive for financial crisis-related crimes.

“This is not just an indictment of one big bank, but all of them that continue with this kind of illegal conduct with impunity and no measurable governmental oversight to stop them,” Mains said.

Follow David Dayen on Twitter.

David Dayen at The Intercept: Mnuchin Lied About His Bank’s History of Robo-Signing Foreclosure Documents

By David Dayen


Treasury secretary nominee Steven Mnuchin lied in his written responses to the Senate Finance Committee, claiming that “OneWest Bank did not ‘robo-sign’ documents,” when ample evidence proves that they did.

Mnuchin ran OneWest Bank from 2009 to 2015 in a manner so ruthless to mortgage holders that he has been dubbed the “Foreclosure King” by his critics.

The robo-signing scandal involved mortgage companies having their employees falsely sign hundreds of affidavits per week attesting that they had reviewed and verified all the business records associated with a foreclosure — when in fact they never read through the material and just blindly signed off. Those records, in many cases, were prepared improperly, but the foreclosures went ahead anyway because of the fraudulent affidavits.

Treasury Secretary-designate Steven Mnuchin listens while testifying on Capitol Hill in Washington, Thursday, Jan. 19, 2017, at his confirmation hearing before the Senate Finance Committee. Mnuchin built his reputation and his fortune as a savvy Wall Street investor but critics charge that he profited from thousands of home foreclosures as the chief of a sub-prime mortgage lender during the housing collapse. (AP Photo/J. Scott Applewhite)

Mnuchin on the Hill

Scott Applewhite/AP

“Did OneWest ‘robo-sign’ documents relating to foreclosures and evictions?” Sen. Bob Casey, D-Penn., asked Mnuchin as a “question for the record”.Mnuchin replied that “OneWest Bank did not ‘robo-sign’ documents, and as the only bank to successfully complete the Independent Foreclosure Review required by federal banking regulators to investigate allegations of ‘robo-signing,’ I am proud of our institution’s extremely low error rate.”

But even that review – which was not really so “independent,” since the banks hand-picked and paid for their own reviewers – found that nearly 6 percent of the OneWest foreclosures examined were not conducted properly.

And what sparked that review was a 2011 consent order issued by the federal Office of Thrift Supervision, which definitively stated that OneWest filed affidavits in state and federal courts “in which the affiant represented that the assertions in the affidavit were made based on personal knowledge or based on a review by the affiant of the relevant books and records, when, in many cases, they were not.”


This is the very definition of robo-signing. OneWest signed and agreed to the consent order, though it never admitted or denied the activity

However, in a Florida foreclosure case, a OneWest employee plainly admitted to robo-signing. On July 9, 2009 – four months after OneWest took over operations from IndyMac, with Mnuchin as CEO – Erica Johnson-Seck, a vice president with OneWest, gave a deposition in which she admitted to being one of eight employees who signed approximately 750 foreclosure-related documents per week.

“How long do you spend executing each document?” Johnson-Seck was asked. “I have changed my signature considerably,” Johnson-Seck replied. “It’s just an E now. So not more than 30 seconds.”

Johnson-Seck also admitted to not reading the affidavits before signing them, not knowing who inputted the information on the documents, and not being aware of how the records were generated. And she acknowledged not signing in the presence of a notary. This resulted in false affidavits being submitted in court cases that attempted to take borrowers’ homes away.

New York Supreme Court Judge Arthur Schack used the information provided by Johnson-Seck to invalidate OneWest foreclosure cases. He also dismissed a separate foreclosure where Johnson-Seck both assigned a mortgage to Deutsche Bank and executed an affidavit on behalf of Deutsche Bank in the same case.

OneWest continued filing sketchy documents for years, even after Johnson-Seck revealed the robo-signing scheme. According to a Reuters investigation in 2011, OneWest issued “foreclosure documents of questionable validity,” including filing mortgage assignments that establish ownership of the loan months after the foreclosure action, meaning OneWest (by their own evidence) didn’t own the loan at the time they decided to foreclose on the property.

Tara Bradshaw, a spokeswoman for Mnuchin during the transition, said she no longer works on the matter and referred all questions to the Treasury Department. The Treasury Department press office did not respond to a request for comment.

Mnuchin’s definitive – though false — statement about robo-signing stands in contrast to some of his other responses to questions for the record. Those he just ducked.

Responding to Sen. Dean Heller, R-Nev., who asked how many Nevada homes were in OneWest Bank’s portfolio and how many Nevadans suffered foreclosure at the hands of OneWest, Mnuchin replied, “Because I am no longer employed by or affiliated with CIT Group, I do not have access to this information.” CIT purchased OneWest in 2015, and Mnuchin left the bank’s board in December.

That was the eighth time that Heller has asked these questions of Mnuchin, according to Senate testimony.

Mnuchin used the same excuse to decline to give information about nationwide foreclosures or federal investigations into OneWest to Sen. Sherrod Brown, D-Ohio.

Similarly, when Sen. Maria Cantwell, D-Wash., asked Mnuchin if he believes that his former employer Goldman Sachs “acted responsibly and ethically when it bet against the same securities it was selling to its customers,” Mnuchin declined to answer, saying “I left Goldman Sachs nearly fifteen years ago” and was not in a position to comment.

Mnuchin was forced to respond to The Intercept’s publication of a leaked memo alleging that OneWest committed numerous violations of California’s foreclosure processes, including routine backdating of documents to speed up foreclosures. Sen. Casey asked about that, but Mnuchin insisted that “OneWest did not engage in ‘backdating.’” He explained that the bank assumed control of foreclosures initiated under IndyMac, its predecessor, and had a power of attorney to “step into those actions effective as of the date they were initiated.”

But that’s not what the investigators in the California Attorney General’s office alleged in their memo. They claimed that the substitutions of trustee documents in OneWest’s name were not created on the effective date written on the document. They argued that was done deliberately to cover up the lack of a substitution of trustee earlier in the foreclosure process.

David Dayen

David Dayen is a contributor to The Intercept, and also writes for Salon, the Fiscal Times, the New Republic, and more. His first book, Chain of Title, about three ordinary Americans who uncover Wall Street’s foreclosure fraud, will be released in May 2016.

David Dayen via The Intercept: Treasury Pick Steve Mnuchin Denies It, But Victims Describe His Bank as a Foreclosure Machine


Treasury Secretary nominee Steve Mnuchin kicked off his confirmation hearing Thursday with a defiant opening statement, mostly defending his record as CEO of OneWest Bank. He cast himself as a tireless savior for homeowners after scooping up failed lender IndyMac. “It has been said that I ran a ‘foreclosure machine,’” he said. “I ran a loan modification machine.”

But in stark contrast to his fuzzy statistics about attempted loan modifications, the victims of OneWest’s foreclosure practices have been real and ubiquitous.

A TV advertising campaign that’s been running in Nevada, Arizona, and Iowa features Lisa Fraser, a widow who says OneWest “lied to us and took our home” of 25 years, right after her husband’s funeral.

And on Wednesday, four women appeared at a congressional forum organized by Sen. Elizabeth Warren, relaying their stories of abuse at the hands of OneWest. Democrats had hoped to present the homeowners as witnesses at Mnuchin’s confirmation hearing, but were denied by Senate Finance Committee Chair Orrin Hatch.

The women’s stories share a remarkable symmetry to those of nearly a dozen OneWest homeowners reviewed by The Intercept over the past several days. They paint a picture of a bank that did more to trap customers than to help them through their mortgage troubles.

Mnuchin complained to senators that he has “been maligned as taking advantage of others’ hardships in order to earn a buck. Nothing could be further than the truth.”

Treasury Secretary-designate Stephen Mnuchin arrives on Capitol Hill in Washington, Thursday, Jan. 19, 2017, to testify at his confirmation hearing before the Senate Finance Committee. Mnuchin built his reputation and his fortune as a savvy Wall Street investor but critics charge that he profited from thousands of home foreclosures as the chief of a sub-prime mortgage lender during the housing collapse. (AP Photo/J. Scott Applewhite)

Treasury Secretary-designate Stephen Mnuchin arrives on Capitol Hill on Thursday, Jan. 19, 2017, to testify at his confirmation hearing before the Senate Finance Committee.

Photo: J. Scott Applewhite/AP

But the evidence to support that conclusion is considerable.

Heather McCreary of Sparks, Nevada, one of the four individuals in Washington to testify on Wednesday, was laid off from her job as a home health care provider in 2009. She and her family sought a modification from OneWest as they recovered from the lost wages. OneWest did modify the loan, one of the “over 100,000” such modifications Mnuchin touted in his hearing. But after six months of making modified payments, the bank denied McCreary’s personal check, claiming that the payment had to be made by cashier’s check. “I looked at the paperwork, and couldn’t find that on there,” McCreary said. “The Legal Aid person working with us couldn’t find it.”

OneWest told McCreary to re-apply for the modification twice, then cut off all communications and refused to accept payments. “A few months later we had a foreclosure notice taped to the window, with two weeks to get out,” she said. The bank was pursuing foreclosure while negotiating a modification — a practice known as dual tracking that is now illegal.

Tara Inden, an actress from Hollywood, California, couldn’t get a loan modification from OneWest after multiple attempts. Even after finding a co-tenant willing to pay off her amount due, OneWest refused the money and pursued foreclosure. Inden has fended off four different foreclosure attempts, including one instance when she returned home to find a locksmith breaking in to change the locks. “I took a picture of the work order, it said OneWest Bank on it,” Inden said. “I called the police, they said what do you want us to do, that’s the bank.”

Inden remains in the home today. OneWest gave her $13,000 as part of the Independent Foreclosure Review, a process initiated by federal regulators forcing OneWest and other banks to double-check their foreclosure cases for errors. Inden received no explanation for why she received the money, but sees it as a tacit admission that OneWest violated the law in her case.

Tim Davis of Northern Virginia had a mysterious $14,479 charge added to his loan’s escrow balance on multiple occasions, even after a U.S. Bankruptcy Court ordered it removed. “I don’t think that Mr. Mnuchin should be put in a position of government power without further scrutiny,” Davis said in an email.

Donald Hackett of Las Vegas claimed in legal filings that OneWest illegally foreclosed on them without being the true owner of his loan. He ended up losing the case, and the home. “They had to cheat to beat me,” Hackett alleged. “They came in like union busters to try to bust everybody up and scare you, make you afraid.”

While Hackett was unsuccessful, Mnuchin’s bank has been accused by investigators at the California attorney general’s office of “widespread misconduct” in foreclosure operations, with over a thousand violations of state statutes. The state attorney general, now-Sen. Kamala Harris, decided not to prosecute OneWest for the violations.

Teena Colebrook, an office manager from Hawthorne, California, came to prominence as a Trump supporter disgusted by the Mnuchin selection. She lost her home to OneWest in April 2015, after a yearslong battle that began with the loss of renters who shared the property. Colebrook was informed that the only way she could receive help from OneWest was if she fell 90 days behind on her mortgage payments. This was not true: qualifying for the government’s Home Affordable Modification Program, or HAMP, did not require delinquency, only a risk of default.

“They won’t tell you in writing and they’ll claim they never said that,” Colebrook said. She found robo-signed documents in her file, had insurance policies force-placed onto her loan unnecessarily, and kept getting conflicting statements about how much she actually owed. Late fees piled up, like outsized certified mailing costs of $2,000, all appended to her loan. She eventually ran out of appeals. “They wanted my property, wouldn’t accept any tender offers,” Colebrook said. “They stole my equity. That’s why I’m so angry. If [Mnuchin] can’t get one person’s figures right, how can he be in charge of the Treasury?”

Colebrook put together a complaint group on the Internet to share stories with other sufferers of OneWest. She found multiple people who said they were told to miss payments and then shoved into foreclosure. Others said they were put through year-long trial modifications (under HAMP they were only supposed to be three months long) and then denied a permanent modification, with an immediate demand for the difference between the trial payment and original payment, which could stretch into thousands of dollars. Others lost homes held by their families for decades.

These stories are familiar to those who experienced the aftermath of the financial crisis. OneWest was neither special nor unique in its urgency to foreclose and unwillingness to extend help to the broad mass of struggling borrowers. But Mnuchin’s nomination has put the spotlight back on a forgotten scandal of deception.

Wednesday’s unofficial hearing was the first in Congress in several years featuring homeowners. In the hearing room, Heather McCreary sat next to Colleen Ison-Hodroff, an 84-year-old widow from Minneapolis asked by OneWest to pay off the full balance due on her residence a few days after her husband’s funeral. Ison-Hodroff said OneWest could kick her out of her home of 54 years at any time. “Allowing an 84 year-old woman to be foreclosed on is not the American way,” McCreary said.

When OneWest foreclosure victims heard that Mnuchin was chosen to lead the Treasury Department, they were shocked. “When he was nominated, it was like the floor crashed underneath me,” said McCreary. “It brought back everything. His name was on my paperwork.”

Other victims offered similar remarks. “For someone who will be tasked with making sure that the economy is doing all it can for people like me, even when it seems the system is rigged against them, Steve Mnuchin is not that person,” said forum participant Cristina Clifford, who lost her condo in Whittier, California, after also being told by OneWest to fall behind on payments.

“I think the first thing is he belongs in a prison,” said Tara Inden.

The Mnuchin nomination can only be derailed through Republican opposition, which is relatively unlikely. But it has set off a new wave of activism nationwide.

Activists have been camped out at Goldman Sachs’s New York City headquarters since Tuesday, targeting Mnuchin’s former employer of 17 years. In an echo of a protest to save her home in 2011, OneWest customer Rose Mary Gudiel of La Puente, California, led a march in the rain to Mnuchin’s Bel-Air mansion on Wednesday night, placing furniture on his driveway before police dispersed roughly 60 activists. (Mnuchin famously scrubbed his address off the internet after the 2011 protest, saying his family was subjected to “public ire at the banking industry.” But the same organizers found his house again.)

“I put it in the middle of a resurgence of housing justice activism,” said Amy Schur of the Alliance of Californians for Community Empowerment. “Hard-hit communities are organizing across the country like they haven’t in years. Sometimes we might have kept eyes on the powers that be locally, but with the likes of Trump and this cabinet, we have to take this fight nationally as well.”

[David Dayen is live-tweeting the hearing here.]

Top photo: Protesters hold a sign during a demonstration outside of a Goldman Sachs office on Jan. 18, 2017, in Los Angeles. More than two dozen activists and foreclosure victims staged a demonstration outside of a Goldman Sachs office to denounce Steve Mnuchin, President-elect Donald Trump’s Treasury Secretary nominee.

Contact the author:

David Dayendavid.dayen@gmail.com@ddayen


‘They Are Both Profiteers’: Meet The Two Most Repellent Reptiles to Slither into Trump’s Swamp

‘They Are Both Profiteers’: Meet The Two Most Repellent Reptiles to Slither into Trump’s Swamp

Steven Mnuchin and Wilbur Ross will bleed the country dry.

Photo Credit: Screengrab/Democracy Now!

We look at two of Donald Trump’s Cabinet picks: Steven Mnuchin for treasury secretary and Wilbur Ross for commerce secretary. Mnuchin has deep ties on Wall Street, including working as a partner for Goldman Sachs, and his hedge fund played a role in the housing crisis after it scooped up the failing California bank IndyMac in 2008. Trump’s commerce secretary pick, Wilbur Ross, is a billionaire private equity investor who specializes in flipping bankrupt companies for profit, often buying the U.S. companies at low prices and then selling them to overseas investors. He and his companies have sometimes shipped jobs and factories overseas—practices Donald Trump has railed against. We are joined by David Dayen, whose recent article for The Nation is “Wilbur Ross and Steve Mnuchin—Profiteers of the Great Foreclosure Machine—Go to Washington.”


This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: We turn to look in more detail at two of Donald Trump’s Cabinet picks: Steven Mnuchin for treasury secretary and Wilbur Ross for commerce secretary. Mnuchin has deep ties to Wall Street, including working as a partner for Goldman Sachs, where his father also worked. Mnuchin’s hedge fund also played a role in the housing crisis after it scooped up the failing California bank IndyMac in 2008. Under Mnuchin’s ownership, IndyMac foreclosed on 36,000 families, particularly elderly residents trapped in reverse mortgages. Mnuchin was accused of running a foreclosure machine. People protested outside his home. The bank, which was renamed OneWest, was also accused of racially discriminatory lending practices. In 2015, Mnuchin sold the bank for $3.4 billion, $1.8 billion more than he bought it for.

Trump’s commerce secretary pick, Wilbur Ross, is a billionaire private equity investor. Ross specializes in flipping bankrupt companies for profit, often buying the U.S. companies at low prices, then selling them to overseas investors. He and his companies have sometimes shipped jobs and factories overseas, practices Donald Trump has railed against. He, too, had a role in the foreclosure crisis. In 2007, Wilbur Ross bought the second-largest servicer of subprime loans in America, a company called American Home Mortgage Servicing.

To talk more about Mnuchin and Ross, we’re joined by David Dayen, author of the award-winning book Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud. His most recent piece for The Nation, “Wilbur Ross and Steve Mnuchin—Profiteers of the Great Foreclosure Machine—Go to Washington.”

So, talk about the significance of this, David. Talk about who Mnuchin and Ross are.

DAVID DAYEN: Right, so they are both—I call them profiteers because they, like most banks and mortgage servicing companies, just profited from the lack of attention to the foreclosure crisis at the federal level. Mnuchin foreclosed on 36,000 people—in California alone. He foreclosed on much more through OneWest Bank, where he was CEO. And Wilbur Ross, through American Home Mortgage Servicing, which eventually became a company called Ocwen, also did so, and they did so illegally. These were fraudulent foreclosures, where fake documents were used to prop up those foreclosures. There are depositions with individuals from OneWest Bank saying that they spent 30 seconds looking at foreclosure files before signing affidavits that said that they knew everything in that file and reviewed all the business practices. There were forged documents routinely from Wilbur Ross’s American Home Mortgage Servicing. They were done by a third-party company known as DocX, where the CEO of that company actually is in prison right now, went to prison for five years for forging millions of mortgage assignments to be used as evidence in court cases all over the country. So, these were very normal practices, but it’s very ironic that the Obama administration kind of lost track and didn’t pay attention to this crisis that was going on. And now, after Trump’s election, he brings in two people who profited almost the most from that to help run his Cabinet.

AMY GOODMAN: And what does it mean to be head of treasury and commerce? How does that relate to what their history is around the issue of foreclosure?

DAVID DAYEN: Well, certainly, the Treasury Department is a regulatory position now. Steven Mnuchin will be the head of the Financial Stability Oversight Council, which is a superregulator that monitors systemic risk, where there was a lot of systemic risk from the financial crisis and the foreclosure crisis, and he can kind of shut it down. Steven Mnuchin has said that he will seek to privatize Fannie Mae and Freddie Mac, where nine out of 10 mortgages are owned or guaranteed right now. That’s going to be a huge windfall for the hedge funds that bought Fannie and Freddie stock at a low point, at a dollar a share. If that’s spun out and privatized, it would be $30 to $40 a share.

Incidentally, one of the biggest benefactors of that would be John Paulson, who was a business partner to Steven Mnuchin in the OneWest deal. So, you know, through deregulation, through just the lack of attention to these matters, Steven Mnuchin is going to have a lot of control. Wilbur Ross, maybe less so at the Commerce Department, but still you’re talking about Donald Trump’s closest advisers, and it’s very likely they’re going to take their eyes off the ball with respect to the practices of the mortgage industry.

AMY GOODMAN: Well, David Dayen, I want to thank you for being with us, author of the award-winning book Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud. We will link to your piece in The Nation.

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