Holder Wants to Stop Playing Mukasey’s Whack-a-Mole with Financial Fraud

Last June, at a time when it was clear the shitpile was a big fraud but before the perpetrators had destroyed the evidence, Michael Mukasey decided he’d rather play whack-a-mole with financial crime than pursuing it at a national level.

For some reason, Michael Mukasey doesn’t want to investigate and prosecute mortgage fraud using a comprehensive, centralized approach.

Attorney General Michael B. Mukasey rejected on Thursday the idea of creating a national task force to combat the country’s mortgage fraud crisis, calling the problem a localized one akin to “white-collar street crimes.”

Mr. Mukasey made clear that he saw the mortgage fraud problem at the root of the nation’s housing crisis as a serious one. But he said he was confident that the Justice Department’s current approach — using local prosecutors’ offices around the country to oversee separate F.B.I. investigations — was adequate.

Eric Holder doesn’t think that was such a good idea (via TPMM). 

Mr. Holder said the Justice Department is planning a new initiative to bring together federal and state prosecutors in combating financial fraud and white-collar crime.

"We will be working with them to come up with a way to deal with these fraud problems and white-collar problems. The federal government can’t do this alone," Mr. Holder said.

[snip]

One change is likely to involve a task force on financial crime, akin to one that was organized during the Bush administration following the collapse of Enron Corp.

Mr. Holder’s predecessor in the Bush administration, Michael Mukasey, was disinclined generally to set up task forces because he thought they could be inefficient. He studied the idea of a national task force to focus on fraud and the mortgage crisis but decided against it because he said the crisis differed in various parts of the country.

Mr. Holder disagreed on the effectiveness of a national strategy and said an official announcement would be coming soon. "Based on my experience, I know that task forces work," he said, adding that state prosecutors have expertise on financial fraud that could benefit the federal government.

Gosh. What a novel idea. Investigating the "too big to fail" criminals at a level that’s almost as big as the crime.

And perhaps someday we’ll learn why Mukasey was so disinclined to focus federal attention on the shitpile just as it was about to collapse.

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47 replies
  1. ralphbon says:

    But if we’re just talking about investigating the fraudulent mortgages, that doesn’t take us anywhere near the true root of destruction, which wasn’t the shitpile but the casino — ie, the repackaging, securitization, derivatizing, and default swapification of the shitpile.

    Meanwhile, OT — Marcy, have you seen the Conyers report released Thursday that calls for a Special Counsel to investigate Bush criminality? (ht Vyan at the Orange Satan, linking to a Jason Leopold article, linking to the report).

    Special Prosecutor — it ain’t just for DFH petition-signers anymore:

    The Attorney General should appoint a Special Counsel, or expand the scope of the present investigation into CIA tape destruction, to determine whether there were criminal violations committed pursuant to Bush Administration policies that were undertaken under unreviewable war powers, including enhanced interrogation, extraordinary rendition, and warrantless domestic surveillance.

    • phred says:

      Perhaps I misread EW’s post, but I don’t interpret this to mean that Holder only intends to investigate mortgage fraud. This bit, “One change is likely to involve a task force on financial crime” suggests a broader inquiry that would also look at fraudulent practices all the way up the financial chain. If that is the case, then this is a very hopeful sign.

      I highly doubt that Obama is oblivious to the extent of public discontent on the handling of the bank bailout. It seems highly likely to me that as pressure continues to mount they will need a way to change their approach without appearing to be flip floppy. So you start to create some political maneuvering room by looking for fraud in the banks. And when you find it, you can be “shocked shocked!”, and then you can finally tell the banks we have to shut you down, dismantle you, and re-regulate you. And at that point, not even the pinheads at CNBC can wail about “nationalization” and be taken seriously.

      I think this is a very hopeful turn of events. And taken together with the upcoming Warren report that Jane posted on this morning, I am very hopeful indeed.

      • Ishmael says:

        I was hoping that was Holder’s tack on the Stevens prosecutorial misconduct decision – create some breathing room on the right and then proceed to resolve the other egregious abuses.

        • phred says:

          Yep. I haven’t been happy with Holder to date, but I’m wondering now if we are seeing subtle signs of an impending shift in direction. I sincerely hope so, but I retain the right to continue bitching until there is substantive proof of it ; )

      • ralphbon says:

        I hope you’re right, but it does seem that the liars’ loans Black was discussing on Moyers are the only low-hanging fruit, prosecution-wise. Thanks to our compromised legislators and Clinton and Bush administration boosters (Summers top among them), the casino was largely legal. And if you’re selling a CDS based on bogus AAA ratings for which you are not directly responsible, how readily prosecutable are you?

      • readerOfTeaLeaves says:

        This bit, “One change is likely to involve a task force on financial crime” suggests a broader inquiry that would also look at fraudulent practices all the way up the financial chain. If that is the case, then this is a very hopeful sign.

        I sincerely hope that you are correct.

  2. Ishmael says:

    From Bill Moyers’ interview of Bill Black, the S&L & Keating 5 investigator, on Friday:

    ‘WILLIAM K. BLACK: The FBI publicly warned, in September 2004 that there was an epidemic of mortgage fraud, that if it was allowed to continue it would produce a crisis at least as large as the Savings and Loan debacle. And that they were going to make sure that they didn’t let that happen. So what goes wrong? After 9/11, the attacks, the Justice Department transfers 500 white-collar specialists in the FBI to national terrorism. Well, we can all understand that. But then, the Bush administration refused to replace the missing 500 agents. So even today, again, as you say, this crisis is 1000 times worse, perhaps, certainly 100 times worse, than the Savings and Loan crisis. There are one-fifth as many FBI agents as worked the Savings and Loan crisis.”

    http://www.pbs.org/moyers/jour…..ript1.html

    • phred says:

      Thanks for citing that Ishmael. When I read EW’s post, I wondered if part of the reason Holder is looking for help is because he remains seriously understaffed in his white collar crime unit. Replacing that many lawyers is not something that can be done overnight.

  3. BoxTurtle says:

    Investigating is good. But remember, a naked CDS is not currently a crime. Neither is self insurance via an offshore subsidiary that does not maintain proper reserves.

    The problem is that we’ve changed the laws to allow such things. We need to change them back. I don’t see that coming from this task force.

    If this had occured during BushCo, I’d assume a few very public prosecutions of small fry while the whales continued unmolested. Dunno what Holder will do, he hasn’t impressed me much.

    Boxturtle (Obstruction of Justice charges against former BushCo lawyers would impress me)

    • phred says:

      The instrument itself may not be illegal, but if you are selling them fraudulently then that’s a different matter entirely. From what I’ve been reading at TPM, I think the Feds are in fact investing whether Cassano and his cohorts were lying to prospective buyers of the potential risk of their investment.

      Just as an example, I have been party to two class action lawsuits (involving junk bonds sold in the 1980s by First Investors and misrepresentation of funds sold by Putnam in the 1990s). I lost my shirt both times, because I was lied to by the people who got me into these funds (and to be fair to them, I suspect they were lied to by the companies themselves). The instruments themselves weren’t illegal, but it turns out that they way they were sold sure was. The class won a settlement in both instances, although the damages didn’t even amount to a single penny (it was a tiny tiny fraction of a penny) on the dollar.

      Now that my retirement savings have been wiped out for a third time by a much larger fraudulent system, I am prepared to walk away from all the market-based options for my future retirement savings. After being fleeced 3 times, and listening to the government scold me for years about how I need to take greater control of my future retirement, I’m starting to think the mattress is looking pretty damn good. And I suspect Wall Street and Uncle Sam will be most put out that I’m refusing to play in their corrupt little reindeer games any longer.

      This is really the larger issue Obama has to worry about. All of us small outside ordinary investors who have been lectured forever about how we will do better if we take responsibility for our own investments no longer have any reason at all to believe that to be true. The insiders are stealing the money we have worked long hours to earn. And in the end, not only have I repeatedly lost my retirement savings, but I keep hearing how the government is about to welch out on their end of the bargain with respect to social security and medicare. For all of the discussions about this crisis, I think too little attention is being paid to this end of the problem. I would rather put money in FDIC insured savings accounts at this point then to give one more penny to Wall Street. This is the real reason the government needs to come down hard on the banks, and in the end, I think they will have to.

      • Ishmael says:

        My sincere sympathies for your losses. 15 years of practice that involved a great deal of mortgage, banking and finance work meant an exposure to all kinds of scam artists. Again, from the Moyers interview:

        “BILL MOYERS: Is it possible that these complex instruments were deliberately created so swindlers could exploit them?

        WILLIAM K. BLACK: Oh, absolutely. This stuff, the exotic stuff that you’re talking about was created out of things like liars’ loans, that were known to be extraordinarily bad. And now it was getting triple-A ratings. Now a triple-A rating is supposed to mean there is zero credit risk. So you take something that not only has significant, it has crushing risk. That’s why it’s toxic. And you create this fiction that it has zero risk. That itself, of course, is a fraudulent exercise. And again, there was nobody looking, during the Bush years. So finally, only a year ago, we started to have a Congressional investigation of some of these rating agencies, and it’s scandalous what came out. What we know now is that the rating agencies never looked at a single loan file. When they finally did look, after the markets had completely collapsed, they found, and I’m quoting Fitch, the smallest of the rating agencies, “the results were disconcerting, in that there was the appearance of fraud in nearly every file we examined.”

      • BoxTurtle says:

        The instrument itself may not be illegal, but if you are selling them fraudulently then that’s a different matter entirely.

        Agreed. But you have to prove it was fraud, not stupidity or greed.

        Is it fraud or simply poor evaulation if someone is allowed a mortgage for more than the value of their home? If the same fellow overvalues every home he appraises, is he a fraudster or simply someone with a different opinion?

        Is it fraud if you sell a CDS naming GM’s debt and say it WILL pay if GM defaults while the issuing company without your knowledge is shifting the insurance to an undercaptialized division in another country? If so, who comitted the fraud, given that everybody acted within law?

        And always remember, you must convince a jury. These transactions and instruments are INTENTIONALLY complex, designed to hide their true risks even from seasoned financial professionals. And you have to explain that to 12 people chosen randomly from drivers license rolls.

        It’ll take time and lots of smart people to makes cases against the worst offenders. Holder’s task force is more likely to be successful than Mukasey’s whack a mole, but both are simply fingers in the dike if we don’t fix the rules.

        Boxturtle (You can get away with more evil if you do it legally)

        • JohnJ says:

          And you have to explain that to 12 people chosen randomly from drivers license rolls.

          Interesting that I had a long conversation with an acquaintance about how the jury system was irreparably broken due to the way that juries are selected. I later found out he was a former judge who now argues cases before the state Supreme Court.

          In my field a friend of mine was a witness in a case that the company he worked for lost. A guy dropped a wrench across the live primary incoming power lines to a factory where they were installing a new transformer. The wrench was vaporized which incinerated the two workers. Their side brought in a fake expert witness that convinced the jury that it was the unconnected transformer’s fault. Any one that took high school basic electricity could tell you that is BS.

          They managed to find “12 people chosen randomly from drivers license rolls” that couldn’t even understand that.

          The pool they are chosen from may be random, but the final 12 are anything but.

          • bmaz says:

            There are always horror stories here and there; always will be. There are with any system. But I have been around trial courts and juries etc. heavily for the last 25 years and, by and large, it works amazingly well. Also not that 12 jurors are usually associated with criminal cases, not civil, although some jurisdictions do use 12 for civil as well. Why would you blame this decision on the jury as opposed to the other party’s lawyer that clearly didn’t get a good enough expert himself and didn’t do a good enough job of countering the BS?

            There are tens of thousands of juries sitting on trials every day throughout the US that do the right thing but people blindly focus on the aberrations without considering this.

          • freepatriot says:

            The pool they are chosen from may be random, but the final 12 are anything but

            when you boil it down to the final point, you’re dealing with twelve people who ain’t smart enough to figure out a way to get out of jury duty

            (duckin & runnin)

      • skdadl says:

        Big hugs to phred.

        And a big smile for this:

        I’m refusing to play in their corrupt little reindeer games any longer.

        I’d love to hear someone toss a line that good directly at one of the big deciders. A little old lady pensioner here once pulled the rug out from under then-PM Mulroney’s plan to de-index old-age pensions by saying to him, on-camera: “You lied to us … Goodbye Charlie Brown.” People loved it — if you can say something went viral in the old days, that line did. Mulroney reversed course within a week, and when the Liberals came to power a few years later, their finance minister went to visit that same little old lady, just to make sure she understood his new plan for pensions.

        • phred says:

          Thanks for the hugs, always appreciated : ) But in the grand scheme of things, no need to fret about me, we’re doing just fine and I’ve got plenty of time before retirement (assuming I manage to stay employed that long ; ) Still, I think my personal tale of frustration is instructive. An ordinary person plays by the rules and keeps getting screwed by dishonest insiders. I’m a slow learner, but I catch on eventually. So the question becomes, how many other people are like me and ready to tell Wall Street to piss off? The government better start to worry about the answer to that question…

          • Loo Hoo. says:

            I moved my 403-B money into my state retirement system after heavy losses. I bought “air time”. I’ve had much better luck with real estate investments in Çentral America.

      • bobschacht says:

        Now that my retirement savings have been wiped out for a third time by a much larger fraudulent system, I am prepared to walk away from all the market-based options for my future retirement savings.

        Phred,
        I hope this does not mean that you took your remaining savings out of stock or equity mutual funds. If so, you would be selling off when your losses will be greatest. I have funds like that, but I’m leaving them in the market, betting that the market will recover in a few years, and my retirement nest egg will rebound. Its a tough choice, and obviously depends on how much worse things will get. I have little confidence in Geithner or Summers, but Obama knows how much is riding on a market recovery.

        Good luck, and hugs!

        Bob in HI

          • phred says:

            Yep, and I plan to cash in big on those hubcaps… just you wait and see ; )

            And [email protected], not to worry, there is no point in selling now, I quite agree with you there. That said, I don’t see the point in putting more good money in after bad, not so long as the system remains corrupt.

            • selise says:

              last week fasb bowed to pressure from congress (see barney frank) to further weaken mark-to-market rules. as far as i’m concerned the equities market (and maybe the bond market) has lost all touch with reality. as far as betting goes, the rules are clearer in las vegas. what direction the markets take depends on political intervention and not real productivity. maybe it didn’t before, but now i don’t know what there is except smoke and mirrors.

              not to say the market won’t go up. only that i think it’s a game, and we don’t get told the rules.

              • phred says:

                Exactly right (and I too, noticed the FASB’s move last week). I haven’t seen anything yet to convince me that there is an end to the manipulative insider wheeling dealing going on. This to me is what is most reminiscent of the Depression. Insider manipulation of the stock market bankrupted everyone on the outside who thought the information they were getting was on the up and up. This is why the government had to step in and guarantee ordinary deposits — because the banks were so utterly untrustworthy people did even trust them with their savings accounts (much less investing in the market). From my point of view, the big banks are every bit as untrustworthy now as they were then.

                • selise says:

                  maybe it’s just that i’m trying to pay attention now, but it sure looks like the manipulation is increasing, not decreasing. did you see that bowsher quit? (pardon the diary whore)

                  • phred says:

                    Thanks for the reminder, I meant to read that earlier, but I’ve been a bit pressed for time today. It’s certainly not a good sign is it?

      • readerOfTeaLeaves says:

        This is really the larger issue Obama has to worry about. All of us small outside ordinary investors who have been lectured forever about how we will do better if we take responsibility for our own investments no longer have any reason at all to believe that to be true.

        Yup. And since I’m the kind of chump that pays the IRS, rather than sends my money out to tax havens, this year is particularly frustrating.

        Invest?
        My instinct is to laugh and shrug off such a stupid idea.

        But I do worry about municipal bonds, which I’d always thought were the safest thing around.

  4. chrisc says:

    I’d love for the DOJ to have to explain why Thomas Kontogiannis was treated as a national hero instead of a mortgage fraudster. The FBI knew he was fraudstering and they knew ignored it, although it is difficult to know what was in the sealed indictment that was replaced after Carol Lam was fired. Kontogiannis had secret hearings and sealed documents and a team of special agents giving him permission to travel abroad even after the judge had taken his passport.

    Kontogiannis is now in prison but only because his nephew went public with his uncle’s fraudstering. The bank TommyK bought for his daughter – a chartered bank in Texas- has gone under and was taken over by the feds. Buying up a chartered bank should have been a big warning sign to the feds. Why did they intentionally ignore it all?

  5. CTMET says:

    OT but I’m astounded that all the UM fans I know are rooting for the Spartans. The State of Michigan needs a win.

    • emptywheel says:

      Oh boy, you’re not kidding. About 7 miles from my house (and therefore about 10 miles from the shrines to wolverines) there was a billboard up this week that said, “And then there were 5. Go Spartans!!” Unfortunately, I’m not sure whether I’ll have time to see whether they’ve done something since last night.

      And lots of green flags hanging around the neighborhood.

  6. bobschacht says:

    EW–
    Thanks for this.
    But did the end of your blog get cut off? The last sentence I see is this one:

    And perhaps someday we’ll learn why Mukasey was so disinclined to focus federal attention on the shitpile just as it was about to collapse.

    That’s a logical ending, but my screen shows what appears to be the tops of quote marks just below that, above the bar that has the “Spotlight” link on it.

    Bob in HI

      • freepatriot says:

        some fookin security page jes tol me that dis is an attack site

        wass up wid dat

        is it a good ghost

        or a bad ghost

        an what kind a SICK web site hires a fookin ghost in da foist place

        /brooklynese

        (I’m goin incognito, just in case the security page was right)

        seriously, my security system just warned me that the site is using suspect software, anybody know about that

        • Loo Hoo. says:

          I’ve been getting that message too. Sounds like someone’s making some money on it because it sounds so dire.

          • BoxTurtle says:

            I suspect somebody has hacked the ad server, as opposed to the FDL itself. Not everybody is getting it, because not everybody gets the evil ad(s).

            Boxturtle (It’s the reason Lexis banned weatherbug from inside the firewall)

        • PJEvans says:

          Nah, that’s the ads. i get that too, usually when the cursor slides off the scroll bar.

  7. freepatriot says:

    an since half of the final two is wearin spartan green, and the other half is wearin the wrong shade of blue, I’m bettin that we don’t see another trash talkin thread for a while …

    so I’m gonna drop some trash here

    remember when the “Talkin heads” said Obama would be tested by some major foreign poicy crisis in the first few months of his term ???

    too bad those talkin heads didn’t know the test was gonna come from somebody who is only slightly more competent than the repuglitards.

    North korea’s missile crashed in the pacific

    some crisis

    but the missile did have a longer flight path than booby jindal’s political career on the national stage …

  8. bobschacht says:

    Well, as long as trash talk has been opened, don’t forget the Women’s Final Four, on view today. As sometimes happens, I think that the real championship will be played in the semi-final with undefeated UConn playing Stanford. IMHO Stanford has the best chance of beating UConn. In the other semifinal, Oklahoma, led by Bubba Paris’s twin daughters, takes on cinderella Louisville, which should be no contest. Center Courtney Paris has stated in public that if Oklahoma doesn’t win the championship, she’s going to give all her scholarship money back to the University. She should get to the finals, but I think either UConn or Stanford have the strength and diversity to block Courtney from the championship she is seeking.

    Bob in HI

  9. Leen says:

    Holder sounds as if he may actually stand by his repeated statement “no one is above the law”

    Mukasey may have not wanted to investigate because too many of the thugs who created the shitpile were/are pals or run in the same circles

  10. Leen says:

    I was always amazed that Senator Schumer recommended Mukasey to the Bush administration. What was up with that?

    On February 17, 2009, it was announced that Judge Mukasey will become a partner at the international law firm of Debevoise & Plimpton.

  11. ezdidit says:

    When the violations of law through denial of enforcement are truly known, there will be very few in the previous administration who will go unnoticed.

    “Control fraud” was planned and executed at the highest levels of our government – at the SEC, FDIC, OTS, CFTC – and on both sides of the aisle, and Democrats – those who were elected in 2006 to strike out against concerted negligence – did nothing. Above all else, they are still supporting and facilitating fraud on a monumental scale.

    I hold Pelosi and Reid accountable for this assault, and no less culpable than our previous Congressional fraudsters.

  12. wavpeac says:

    I have little knowledge about banking at the credit default swap level. However, as a little guy with a toxic mortgage who has investigated countless reports of the same illegal behavior against countless others who innocently lost their homes to illegal accounting practices…I can tell you that these companies were fearlessly violating laws. I can tell you that many lawyers did not want to take them on…despite flagrant violations of TILA and RESPA laws as well as out and out accounting fraud.

    I can tell you that the FDIC was so overwhelmed that countless people lost homes and gave up before the FDIC ever even made first contact. Black spoke more about the fraud in the loans that forced foreclosures in front of the ag banking and finance committee. On Moyers he was more focused on the fraud that occurred between banks rather than the fraud between home buyer and mortgage company. However, he has written quite a bit on the topic.

    Here’s my biggest concern…one I see as a “sign of the times”, GMAC is still violating TILA and RESPA laws in regard to my loan. They are being handed bail out money and have changed NOTHING in their response to my mortgage. They still have my payments inaccurately applied..AND They are advertising mortgages and “restructuring” loans like crazy. They fought like hell against cram down legislation and have fought anything that might interfere with the fees or that might cause a look at the books. In the meantime…the behavior toward the consumers of these loans fearlessly continues. I keep seeing complaint after complaint on the internet that tells me that these behaviors are continuing despite the focus on the finance industry. For some reason the gov’t plan has made little or no change in the behavior of these banks and the servicing of these loans.

    To me that says that this problem is completely unresolved and that we still have not gotten to the root of the problem. I feel that Black is the only one heading down the road to truth and validity…and that without validity…without a bottom line…how can we solve the crises?

    I think Krugman was absolutely right that Geithner and Obama have been simply rearranging the deck chairs. We have to see the books, we have to face the fraud on many levels, and we must make decisions that will save the whole global economy. I am pretty sure that the solution is not going to be a continuation of the practices that put us here.

    There is a multi-leveled problem here. One is macro and one is micro. On the micro level the shit is still hitting the fan…somebody has to quit pooping on the people.

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