A Fighting Chance (55 page)

“foam the runway” for them:
For more discussion of this meeting, including a discussion of Secretary Geithner’s “foam the runway” comment, see Neil Barofsky,
Bailout
, 150–58.

long-term economic growth:
For example, COP noted: “The Panel remains concerned regarding the long-term sustainability of HAMP modifications. High, persistent unemployment continues to present problems for many borrowers. HAMP modifications leave borrowers with continuing high levels of negative equity, and even after receiving a modification, half of HAMP borrowers are still paying 63 percent of pre-tax income towards debt.” COP report, December 2010, 385. “The Panel first expressed concerns that HAMP was not designed to address the root causes of the housing crisis in March 2009. In subsequent reports the Panel has raised serious concerns about Treasury’s efforts to address these problems, noting that HAMP has failed to address foreclosures caused by factors such as unemployment and negative equity.” COP report, December 2010, 236–37; “The finding that [Home Owners’ Loan Corporation] loans were more likely to end in foreclosure if the borrower had little or no equity has important implications for HAMP. It suggests that borrowers with less equity or negative equity will be more likely to redefault on their modified loans, and thereby underscores the importance of principal reductions to the program’s long-term success.” COP report, December 2010, 348. “Homeowners with unaffordable mortgages were not the only group hurt by the financial crisis. Millions of homeowners who didn’t have mortgages or who had affordable mortgages saw the value of their home plummet, and this was devastating for those who were going to use the equity in their home to finance their retirement.… For all of these people, relief will only come once the economy starts growing again. That growth will only occur once the housing market has stabilized, and that stability will not develop until people move out of homes with mortgages they cannot afford and into housing they can afford. So to the extent that HAMP simply kicks the foreclosure can down the road, it ends up hurting all of the people who are desperate for the economy to start growing again so that their lives can return to normal.” COP report, December 2010, 450; “Since any intermediate to long-term resolution of the housing crisis must reside substantially with the private sector lenders and investors who hold the mortgage notes and liens, instead of spending an additional $30 billion on a government-sponsored foreclosure mitigation effort, we believe Treasury would be best served by strongly encouraging these participants to engage in good faith, market-based negotiations with their distressed borrowers. In our opinion, this is the best way to bring stability to the housing market so that the economy can start growing again.” COP report, December 2010, 451.

FDIC chair Sheila Bair raised the issue repeatedly:
For example, Sheila Blair proposed making FDIC bailout funds for Citibank conditional on forcing Citi to participate in a foreclosure prevention program. Charles Duhigg, “Fighting Foreclosures, F.D.I.C. Chief Draws Fire,”
New York Times
, December 10, 2008.

wrote op-eds and gave speeches:
For example, Les Christie, “FDIC Chief: Intervene on Foreclosures,”
CNNMoney
, December 2, 2008. See also Gretchen Morgenson, “Why Treasury Needs a Plan B for Mortgages,”
New York Times
, December 5, 2009.

See also Art Levine, “As Treasury Department Stumbles, Liberals Push Tougher Measures to Stem Foreclosures,”
Truthout
, November 30, 2009.

to greater depths:
Over time, the Republicans named six different men to the Congressional Oversight Panel: Congressman Jeb Hensarling and Senator Judd Gregg, followed by former senator John Sununu, former SEC commissioner Paul Atkins, Mark McWatters, and Dr. Ken Troske. Later, when I resigned to take over the job of setting up the new consumer agency in September 2010, Senator Ted Kaufman took over and added his energy to the subsequent COP investigations and reports. Senator Kaufman was a longtime advisor to Joe Biden, and he had been appointed to take over Biden’s Senate seat when Biden was elected vice president. He testified on behalf of the panel, and he oversaw the final report, wrapping up COP’s work.

16 out of 23 were bipartisan:
The Congressional Oversight Panel built up support from many Democrats as well as a number of Republicans in Congress for its efforts to hold Treasury accountable. For example, Republican senator Olympia Snowe introduced a bill to provide COP with subpoena authority in April 2009, and she criticized Treasury for withholding key information from its overseers.
http://www.gpo.gov/fdsyspkg/CREC-2009-04-20/html/CREC-2009-04-20-pt1-PgS4448.htm
. Republican senator Chuck Grassley was also a strong supporter of COP’s work. See, for example, his statement from July 21, 2010:
http://www.finance.senate.gov/imo/media/doc/072110CG.pdf
.

as did the CEO of Ally Bank:
Testimony of Citibank CEO Vikram Pandit from March 4, 2010, is available at
http://cybercemetery.unt.edu/archive/cop/20110401231848/http://cop.senate.gov/hearings/library/hearing-030410-citi.cfm
. Testimony of Michael Carpenter, CEO of GMAC/Ally, from February 25, 2010, is available at
http://cybercemetery.unt.edu/archive/cop/20110401231727/http://cop.senate.gov/hearings/library/hearing-022510-gmac.cfm
. COP also heard testimony from SVP from Chrysler and Treasurer from General Motors (
http://cybercemetery.unt.edu/archive/cop/20110401231815/http://cop.senate.gov/hearings/library/hearing-072709-detroithearing.cfm
), as well as the heads of a number of small banks.

focused entirely on the AIG bailout:
“The AIG Rescue, Its Impact on Markets, and the Government’s Exit Strategy,” COP report, June 10, 2010.

COP also heard testimony from Robert Willumstad, former chairman and CEO of AIG, on May 26, 2010, available at
http://cybercemetery.unt.edu/archive/cop/20110401232000/http://cop.senate.gov/hearings/library/hearing-052610-aig.cfm
. The AIG officials were quick to point out that nearly all of the business practices of the insurance giant were conservative and well regulated and that only one tiny portion of the company nearly brought it down. But I always heard that differently: Risk-taking at huge financial institutions could be hidden away from the regulators and the shareholders, but, at the same time, be so dangerous that it could blow up both the company and the entire economy.

New York’s then attorney general Eliot Spitzer:
During his tenure as attorney general, Eliot Spitzer was at the forefront of prosecuting white-collar crime, securities fraud, and Internet fraud, and he was willing to tangle with Wall Street institutions. He had sniffed out trouble at AIG years before the company collapsed. In March 2005, AIG’s board forced Greenberg to resign from his post as CEO and chairman, in part under the shadow of an investigation by Spitzer. In May 2005, Spitzer filed a civil complaint against AIG, Greenberg, and former CFO Howard Smith, alleging fraud. In 2013, Hank Greenberg filed a civil lawsuit against Eliot Spitzer for defamation. Greenberg claimed that Spitzer had engaged in a “long-standing malicious campaign,” involving allegedly false accusations against Greenberg on multiple occasions in various media, “to discredit … Greenberg and damage [his] reputation and career.” Chris Dolmetsch, “Ex-AIG Chief Greenberg Sues Eliot Spitzer for Defamation,” Bloomberg News, July 15, 2013. Spitzer called the suit “ridiculous, frivolous and stupid,” Yoav Gonen, “Exclusive: No, You’re ‘Stupid!’ Spitzer Blasts ‘Ridiculous’ Suit from Former Wall Street Foe Hank Greenberg,”
New York Post,
August 9, 2013.

thousand executives were indicted:
Savings and loans were financial institutions that accepted deposits and financed home mortgages and car loans. In the early ’80s, the S&Ls were given broader ability to do more kinds of lending activities—but without as much regulatory oversight. The S&Ls loaded up on real estate loans, and when interest rates climbed, they got caught short with money already committed on home mortgages and not enough deposits, and many faced insolvency. Because they were lightly regulated, some of them turned to various forms of creative bookkeeping or thinly disguised Ponzi schemes. Nearly 750 of the 3,200 S&Ls failed. The scandal was huge, entangling political figures and Wall Street titans.

In the wake of the S&L crisis, regulators referred more than 1,100 cases to prosecutors for indictment, resulting in 839 convictions of bank officials for financial fraud. This is in sharp contrast to the 2008 financial crisis, which has produced hardly any major criminal convictions of individual executives.

Kitty Calavita and Henry N. Pontell, “The State and White-Collar Crime,”
Law and Society Review
28 (1994): 297, 302 (citing DOJ statistics). See this excellent graphic summary: “Two Financial Crises Compared: The Savings and Loan Debacle and the Mortgage Mess,”
New York Times,
April 13, 2011,
http://www.nytimes.com/interactive/2011/04/14/business/20110414-prosecute.html?ref=business
. In its related article, the
New York Times
notes: “Leading up to the financial crisis, many officials said in interviews, regulators failed in their crucial duty to compile the information that traditionally has helped build criminal cases. In effect, the same dynamic that helped enable the crisis—weak regulation—also made it harder to pursue fraud in its aftermath.” Gretchen Morgenson and Louise Story, “In Financial Crisis, No Prosecutions of Top Figures,”
New York Times,
April 14, 2011. See also Jed Rakoff, “The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?”
The New York Review of Books
, January 9, 2014. Rakoff argues that the legal foundation was not difficult but that changes in government attitudes have made corporate accountability a lower priority.

pretty boring job:
Before going to the FDIC, Bair was Dean’s Professor of Financial Regulatory Policy at the Isenberg School of Management at the University of Massachusetts—Amherst, and she had a background in the Treasury Department, the Commodity Future Trading Commission, and the New York Stock Exchange. She had worked for Senator Robert Dole as research director when he was Senate majority leader in the 1980s. She was an outspoken advocate for sensible rules and safer markets.

only one had a woman CEO:
In 2011 and 2012, of the twenty commercial banks listed in the Fortune 500, only one had a female CEO (KeyCorp’s Beth Mooney). By 2010, there were no female CEOs of top commercial banks. See:
http://money.cnn.com/magazines/fortune/fortune500/2010/industries/30/index.html
;
http://money.cnn.com/galleries/2010/fortune/1004/gallery.fortune500_women_ceos.fortune/15.html
; Laura Petrecca, “Number of Female ‘Fortune’ 500 CEOs at Record High,”
USA Today
, October 26, 2011. Colleen Leahey, “Update: Fortune 500 Women CEOs Hits a Record 20,” Postcards (blog)
CNNMoney
, July 18, 2012.

more than three hundred small banks and credit unions had failed:
By September 2010, about 276 small and medium-sized banks had failed, along with sixty-six credit unions. See
http://graphicsweb.wsj.com/documents/Failed-US-Banks.html
;
http://online.wsj.com/article/SB10001424052748703499604575512254063682236.html
.

pay down underwater mortgages:
“Since the financial crisis began in September 2008, there have been approximately 4.5 million completed foreclosures across the country.” CoreLogic, “Core Logic Reports U.S. Foreclosure Inventory Down 33 percent Nationally from a Year Ago,” Yahoo! Finance, October 8, 2013. “In late 2009, during the worst of the housing market’s meltdown, 26% of all borrowers were underwater.” “By the end of June [2013], 7.1 million, or 14.5%, of mortgage borrowers remained underwater on their loans.” Les Christie, “2.5 Million Mortgage Borrowers No Longer Underwater
,
”
CNNMoney
, September 10, 2013.

well grounded in both law and economic policy:
See “An Update on TARP Support for the Domestic Automotive Industry,” COP report, January 13, 2011. For example of news coverage, see Andy Kroll, “Auto Bailouts: A Success Story?,”
Mother Jones
, January 13, 2011. COP wrote that “unless they could raise billions of dollars in new financing, they faced collapse—a potentially crippling blow to the American economy that Treasury [at that time] estimated would eliminate nearly 1.1 million jobs.”

4 | What $1 Million a Day Can Buy

to burst into flames, the agency would put a stop to it:
The CPSC recall system works to ensure speedy recalls of faulty products. The manufacturer has a responsibility to report any potential danger within twenty-four hours of discovering it. At that point, the CPSC begins an investigation into the danger posed. In the meantime, the manufacturer has the option to “fast track” the recall process by initiating a voluntary recall. If the manufacturer chooses to fast track, it gains voluntary recall status and avoids the stigma of facing a forced recall from the CPSC. Jennifer P. Toney,
Brief Overview of the US Consumer-Product Recall System—Old and New
,
WeMakeItSafer.com
, September 2, 2008,
http://wemakeitsafer.com/blog/2008/09/brief-overview-of-the-us-consumer-product-recall-system-old-and-new/
.