New York Attorney General Eric Schneiderman was too busy running for office during the first two years of the Obama presidency to really pay much attention.
“Obama ran on this visionary platform, and then something happened, between the time I started campaigning and the time I finished campaigning,” he recalled in an interview in the spacious, sparsely furnished office he won last year, around the corner from the New York Stock Exchange. “But it certainly looked different in December of last year than in June of ‘09.”
By that time, Schneiderman, a trim, impatient liberal, was preparing to be sworn in to a jobEliot Spitzer turned into the terror of Wall Street. And he was almost perfectly placed - and almost perfectly suited by temperament and ideology - to be one of the ringleaders of a nascent, post-Obama left, a kind of liberal tea party.
A New Yorker who represented the Manhattan’s Upper West Side, writes for The Nation, and has spent a decade fighting his party’s moderates, Schneiderman found himself in the position of being one of the few public officials who could try to erase an act that was the key root cause of early progressive disappointment with Obama: his relatively gentle handling of Wall Street in the wake of the 2008 economic crisis.
Just months after he took office, Schneiderman reversed the position of his predecessor - current Gov. Andrew Cuomo - and rang the alarm on a settlement being negotiated by 50 state attorneys-general he saw as too lenient toward the big banks.
There are sharp disputes over theory and facts in the bank settlement talks, and the reality can be hard to tease out from unreleased letters between the banks and the states and off-the-record, talks. As Schneiderman tells it, he became alarmed soon after taking office at what he saw as a failure do demand more internal bank documents, and at suggestions that the banks would be able to settle not just narrow issues around the handling of foreclosures, but broad questions about the securitization of sub-prime loans that underlay the 2008 crisis.
“I was concerned about the scope of the investigation that had been conducted, and I was concerned about what kind of release the banks wanted,” he said. “I wasn’t going to release claims that hadn’t been investigated.”
Miller says the AGs and federal agencies have copious files on the housing crisis, and bridled in particular at Schneiderman’s claim that the settlement could ever have included a release from claims involving securitization or other broad issues.
“He’s essentially made that up,” he said of Schneiderman. “The release will center on robosigning and servicing and issues that are closely related to servicing. It’s not going to be a broad release.”
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Schneiderman argues that a deeper investigation would give the AGs more leverage for a more sweeping settlement, and that this is the last, best chance to get at issues at the heart of the troubled American economy.
“I think a more creative, robust settlement would be a good thing for this economy, and I think a thorough investigation that airs this out is critical for restoring public confidence,” he said.
Schneiderman doesn’t appear likely to back down, and he has deeply unsettled the fragile coalition of attorneys general, with several others joining him to press – demagogically, in Miller’s view – for a narrow release. Spitzer – who regularly calls to advise Schneiderman to follow an activist path – praised him to POLITICO for “continuing the notion that the New York Attorney General is the most effective outspoken voice in an environment where the federal regulatory agencies still haven’t flexed their muscles in a meaningful way.”
Schneiderman, like Obama, comes from the low-drama school of political presentation. He doesn't get red-in-the-face mad. He doesn't seduce. He's earnest and self-effacing and pedagogical. But unlike the president, he has a steady refusal to back down and a ready willingness to fight. He is the antihero that boiling mad progressives hope can manacle and perp-walk those responsible for the financial crisis.
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As if responding on cue to that taunt, the New York Post reported two days later that one of Schneiderman's staff attorneys had been moonlighting as a dominatrix for hire under the name Alisha Sparks. In her day job, she had negotiated deals with errant bankers, by night she was allegedly taking money to whip submissive men into states of bliss. Schneiderman promptly put her on unpaid leave on the basis of the charge that she had broken the rule against outside employment. His press secretary assured me that Sparks hadn't come anywhere near the current ongoing investigation. But financial bloggers immediately smelled a rat and suggested the outing was just the beginning of a coordinated dirty war on Schneiderman's office as he turns up the heat with bank subpoenas.
Schneiderman said his office is "digging into" earlier phases of the mortgage-backed securities era. "Origination, the pooling of loans by the banks, the securitization, sale," he said, and activities after 2004, when the housing bubble started filling with air, and the numbers of mortgages dropped. "That's when things started to shift and you can see this whole process of -- making money of these securitizations was so profitable, that it didn't stop when it should have stopped."Around the same time, he noted, investors began scrutinizing MBS more carefully, and diverting money into the more complex but also troubled collateralized debt obligations. As everyone knows in hindsight, the quality of mortgages deteriorated, the quality of securities deteriorated, and it all collapsed. "We are looking at what caused that to happen and what people were doing and what people knew," he said.
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