It must've been like old home week when the old gang of Wall Street and Washington insiders finalized a couple more cushy settlements last week.
Everybody knew the drill: Ignore the potential criminal charges and agree on settlement figures they think the public will swallow -- figures that are big enough to sound impressive but far smaller than the banks' ill-gotten gains. They've done this dozens of times before.
But there was an empty chair at the negotiating table.
Bank of America was there, as it has been so many times before. So were the other too-big-to-fail banks. Representatives from the Attorney General's office were undoubtedly there, too. The Attorney General was a high-priced Wall Street attorney.
The banks' "independent" reviewers were there, too, or at least their reports were. Those reports said that there were very few problems with the banks' transactions. That should've have raised some red flags around the negotiating table: An audit in San Francisco found that 84 percent of foreclosures were performed illegally, while another in North Carolina found "singular irregularities" in roughly three-quarters of the mortgages reviewed.
So it shouldn't have been such a surprise when an as-yet unpublished GAO report showed that these rosy reviews were disastrously flawed.
But then, the insiders had it wired. The reviewers included Promontory Financial Group, whose CEO was Comptroller of the Currency under President Bill Clinton. Then he became a senior attorney at Wall Street defense firm Covington & Burling. Small world: The Attorney General of the United States worked at Covington & Burling too.
Promontory and the other reviewers have an underlying conflict of interest: they're reviewing their own client base. That's the same conflict of interest that corrupted the for-profit "ratings agencies," leading them to rate their clients' toxic mortgage-backed securities as "AAA."
Promontory was also the firm that said "well over 99.9 percent" of the loans issued by Standard Chartered bank complied with the law and only $14 million of them were illegal. Then the bank admitted that $250 billion of its deals, not $14 million, were illegal. That's 17,000 times as much illegality as Promontory found in its "review." (17857.142 as much, to be precise, but who's counting?)
Promontory kept the foreclosure gig anyway, with no objection from Washington's regulators or law enforcement officials.
But then, who around that table would question Promontory? We know them, they probably thought. We've always known them.
Promontory and the other "independent" reviewers collected $1.5 billion in fees for worthless work, from a settlement that was supposed to help the occupant of that empty chair.
But of course the chair was empty. The occupant's invitation was never sent out. It never is.
The Securities and Exchange Commission has attended many such meetings -- meetings in which senior bankers bind their shareholders to billions in fines and restitution, sometimes as penalty for fraud against those very same shareholders. (The banks also have a knack for covering their obligations with money from investors they've already defrauded, including working people's pension funds.) The SEC's senior attorney always has a seat at the table, either literally or figuratively, whenever a big bank settlement is negotiated.
A new person was appointed to that position just today. The SEC's new chief counsel held a senior regulatory position under President Clinton, too. But if you think he went to work for Covington & Burling after leaving public service like his colleague did, you're wrong.
He worked for Arnold & Porter.