Right when Wall Street reformers led by progressive champions both inside and outside of Congress seemed to have gained some momentum, we got another sobering reminder of just how deeply the too-big-to-fail behemoths have sunk their talons into our democracy.
This time, it is Julian Castro, Secretary of Department of Housing and Urban Development (HUD) – who may be positioning himself for a nomination to be the next Democratic vice president – providing the massive assist to criminal bankers (emphasis mine):
Citigroup and JPMorgan Chase appeared to score a significant victory Tuesday after the Department of Housing and Urban Development suggested it won't punish lenders for major crimes committed by their corporate parents.
The announcement concerns a requirement that lenders in HUD's mortgage insurance program certify they haven't been convicted of violating federal antitrust laws or other serious crimes. Citi and JPMorgan in May pleaded guilty to felony charges that they broke federal antitrust laws for their traders’ participation in a years-long scheme to manipulate currency markets for profit. Both companies own banks that make mortgages that are later insured by the HUD-overseen Federal Housing Administration.
But on Tuesday, Secretary Julián Castro's housing agency proposed modifying the required certification in a way that would apply only to HUD-registered lenders. The lenders' parent companies wouldn't be on the hook, thus seemingly enabling Citi and JPMorgan's HUD-registered units to continue certifying that they haven't pleaded guilty to federal antitrust charges.
What makes this all the more mind-boggling is that the ambitious Secretary Castro is wading into a fight that pits the progressive wing of the Democratic party against increasingly defensive Wall Street elites: the issue of what do after banks get caught breaking the law.
We all know that too-big-to-fail has become too-big to-jail. When banks got caught
rigging currency markets,
manipulating global benchmark interest rates,
engaging in fraud, or committing a host of wrongdoings that results in the meltdown of our entire economy,
Eric Holder’s Department of Justice took the kid-gloves approach. Which surely had nothing to do with
preserving his cushy job at white collar law firm Covington-Burling.
But beyond jailing individual bankers, the law says that Wall Street firms should lose their special privileges when they get caught breaking the law. The Securities and Exchange Commission (SEC) grants some banks “trusted issuer” status, allowing those companies to work with less scrutiny. It deems others trusted investment advisers. The Department of Labor (DOL) does the same thing, allowing some companies the privilege of managing Americans’ retirement accounts. All these perks mean big bucks for big banks – provided they stay on their best behavior.
That is the theory, at least. In practice, the SEC routinely grants waivers allowing banks to keep their privileges despite breaking the law. In some cases, commissioners don’t even get a vote. The DOL does the same thing, often without a public hearing. The HUD action is of a similar theme: Changing the rules afterwards so that banks that broke the law don’t have to face any financial repercussions. Castro is well aware that this is bad policy: HUD was forced to water down the change under pressure.
The surprising thing is that someone like Secretary Castro is picking Wall Street even as other bank allies are coming under fire for this waiver practice. More than 115,000 CREDO members have called on President Obama to replace SEC Chair Mary Jo White, in part due to her support of waivers. Thousands have made phone calls to the White House. Nearly 100,000 more have called on President Obama to break Wall Street’s grip on the SEC by nominating commissioners like Kara Stein, who has dared to defy White’s wishes and fight waiver claims. Almost 140,000 have joined Senator Warren’s call for the DOL to hold public hearing before issuing bank waivers.
People are paying attention. The White House reportedly dropped plans to nominate a corporate lawyer to the SEC to dilute Stein’s influence. And just this week, Sec. Clinton announced support for legislation to rein in the revolving door between Wall Street and government that produces bad policy like repeated waivers for wrongdoing (emphasis mine):
Clinton had to make a choice because she was cornered by the golden parachute payments her top aides received from their former Wall Street firms when she served as secretary of state. Progressive groups allied with Warren used this as a hook to demand Clinton’s position. Warren herself kicked this off by publicly challenging all presidential candidates to support the Baldwin legislation in July. Clinton’s main challengers for the nomination already endorsed the bill.
Going after the golden parachutes Rubinites have enjoyed could have a chilling effect on who decides to enter government, and will change incentives around accepting jobs on both Wall Street and in Washington. That could change the mix around personnel in the next Democratic White House.
Which is what makes Secretary Castro’s decision here so hard to understand. Maybe he thinks the incentives haven’t really changed, that Wall Street will win the fight in the long run. Or maybe he is hoping no one is paying attention.
Thanks to all the folks at Daily Kos who have been teaming up with CREDO to campaign on a number of these issues. If you all have questions please fire them up in this thread. We will be monitoring the comment threads throughout the day.