David Dayen at the Intercept: The Repeal of Dodd-Frank is a Wishlist for Deregulation and Big Bank Monopolies


The Treasury Department’s first report recommending changes to the financial regulatory system wildly differs from the plan to dismantle Dodd-Frank that House Republicans passed — and the Trump administration endorsed — just last week. In fact, the report attacks the central mechanism in the House GOP’s bill, even while paying lip service to considering it.

That doesn’t make it benign, however. The Treasury report, compiled with the assistance of 244 different banking industry groups, often cites or lifts directly from bank lobbyist briefing papers. It identifies numerous ways that regulators could go around Congress and significantly undermine the already weakened rules in Dodd-Frank. It’s a wish list for deregulation — but one that could actually get done.

The report was mandated by a February 3 executive order, where President Trump identified core principles for regulating finance. Treasury was supposed to report by June 3 on conforming all financial laws and policies to those core principles. Last month Treasury admitted they couldn’t get such a review done on time, and would instead do it in stages. This report, publicly released nine days after the deadline, only covers banks and credit unions.

But in between that time, the House passed the CHOICE Act, bank lobbyist fantasy legislation that would eliminate most of Dodd-Frank’s core rules. The “choice” in the CHOICE Act, the bill’s signature element, allows banks to opt out of most enhanced regulatory requirements if they maintain a ratio of liquid assets to overall debt — known as the “leverage ratio” — of 10 percent. Every House Republican but one voted for the CHOICE Act.

This put Treasury in a bind, having to pass judgment on the legislation preferred by its party regulars. And in a couple places, they nod to the CHOICE Act, saying that “Treasury supports an off-ramp exemption … for any bank that elects to maintain a sufficiently high level of capital.” But this was almost certainly added in at the last minute. Because elsewhere in the document, Treasury completely contradicts and even savages the types of changes made in the CHOICE Act.

For example, the report asserts that “continual ratcheting up of capital requirements is not a costless means of making the banking system safer,” reflecting the banking industry’s desire to reduce, not increase, capital ratios like leverage. The more debt a bank can play with, the more money they can earn, so banks don’t want to be constrained by high leverage ratios. Treasury has their backs. In that paragraph, at least.

Furthermore, Treasury writes, “a capital regime that is exclusively dependent upon a leverage ratio” — in other words, the one being advocated by House Republicans — “could have the unintended outcome of encouraging risk-taking by banking organizations.” That’s because, under the GOP plan, all debt counts the same toward the ratio, so if banks want to make higher returns, they need to make riskier bets on the debt they take on. The report suggests, instead, a “risk-weighted” system, so as not to “discourage critical banking functions.”

There’s a lot of debate over this point — some experts find risk-weighting overly complex and easily gamed — but the point is that Treasury, while mouthing support for the CHOICE Act’s leverage ratio-dependent off-ramp, is attacking the entire concept of a leverage ratio. Though the Trump administration endorsed the CHOICE Act just last week, one of its most important financial regulatory agencies cut it to ribbons.

Treasury diverges with the House on other parts too. The House GOP wants to eliminate the Volcker rule, a mini-Glass-Steagall preventing banks that take deposits from engaging in risky “proprietary” trading on their own accounts. But Treasury “supports in principle the Volcker rule’s limitations on proprietary trading and does not recommend its repeal.” Both the House GOP and Treasury savage the Consumer Financial Protection Bureau (CFPB), but Treasury pulls back from repealing the agency’s critical ability to police unfair, deceptive and abusive acts and practices — it only says that that authority should be “more clearly delineated.”

Of course, Treasury and House Republicans share a wrongheaded view of financial regulation and its effect on the economy. That’s because both take their cues from the same sources. In an appendix, Treasury lists the organizations and individuals who provided input to them for the report. Sen. Sherrod Brown’s office ran the numbers, finding that Treasury consulted with 14 consumer advocates and 244 banking industry groups, a ratio of around 17-to-1.

You can see this influence in several places. The report goes on a long tangent about reducing regulatory requirements on boards of directors that is lifted from a report by The Clearing House, a major bank lobbyist. The section on CFPB cites the Heritage Foundation four times, the Republican staff of the House Financial Services Committee twice, Cato Institute fellow and Antonin Scalia Law School professor Todd Zywicki twice, a lobbyist for the American Bankers Association, conservative Congressman Patrick McHenry, and corporate law firm Ballard Spahr, which represents numerous financial institutions.

Just the authors of the report guaranteed its tilt in favor of Wall Street. Mnuchin was CEO and later chairman of “foreclosure machine” OneWest Bank. Craig Phillips, a Treasury aide, spent the housing bubble years creating fraudulent mortgage securities for Morgan Stanley.

That sets the stage for an orgy of spin and bad-faith arguing. Treasury claims that community banks and credit unions are being strangled by Dodd-Frank regulations, while citing an unbroken trajectory of small bank closures going back to 1984, 26 years before Dodd-Frank’s introduction. The report opposes regulatory fragmentation and overlap and calls for streamlining, but goes after the one Dodd-Frank action that streamlined a fragmentary regulatory framework, the CFPB, as holding too much authority. It blames regulations for low bank growth, not the slow recovery and lack of opportunities to profit. It laments that private mortgage-backed securities are well below the level from 2005-2007, as if the housing bubble should be seen as something to shoot for again.

This leads to a series of recommendations that regulators could accomplish on their own, without waiting for Congress to reach consensus. “A sensible rebalancing of regulatory principles is warranted in light of the significant improvement in the strength of the financial system and the economy,” the report argues, in a literal recounting of how the regulatory pendulum swings toward rolling back rules when people forget crises.

Treasury wants to coordinate bank supervision and enforcement actions spread across multiple regulators, reducing turf wars but also shrinking legal liability for banks. To show what it’s really after here, it wants to cut the FDIC out of the assessment process for living wills, the road maps banks create to unwind themselves in a crisis; the FDIC has been much more stringent on living wills than its counterpart, the Federal Reserve.

The report also calls for eliminating multiple burdens on small banks and credit unions, raising the exemption thresholds for stress tests, capital and liquidity rules, and supervision. But that tailoring doesn’t stop at small banks; even institutions with over $50 billion in assets would likely get relief.

Treasury wants to make stress tests and supervision “more transparent,” which is code for allowing banks to know when examiners will arrive and how to game the process. It also wants to reduce the frequency, with stress tests and living will plans every two years instead of annually. It wants to add multiple exemptions to nearly all capital rules, and would blow enough holes in the Volcker rule (including allowing proprietary trading up to $1 billion) that its support for the idea in principle would not extend to practice. It wants all regulators to engage in cost-benefit analysis in rulemaking, a way to bog the process down in bureaucracy — and to set up targets for lawsuits after the rules are written. It wants to roll back mortgage rules put in for borrower protection after a crisis that resulted in millions of foreclosures. There’s even a reference to targeting the Community Reinvestment Act, the law that makes sure banks lend in low-income communities, the mythical demon many on the right have taken to blaming for the entire financial crisis.

On the CFPB, Treasury recommends making the director removable at will by the president or making the agency a multi-member commission, and putting its funding structure through the appropriations process — all arguments Republicans and bank lobbyists made unsuccessfully during debate over the agency’s creation. But Congress would need to act there; in its place, Treasury supports actions a new director could take unilaterally, like favoring “cease-and-desist” notices over sanctions, making the consumer complaint database secret, and eliminating the agency’s authority to supervise financial institutions.

There’s basically something for every bank of every size here, with enough exemptions, reductions, and referrals back to the lowest common denominator to enable the industry to run wild. And most of it could get done behind closed doors, without a public vote on C-SPAN. “The Trump administration could unilaterally introduce major additional risks to our financial system,” said Americans for Financial Reform Policy Director Marcus Stanley in a statement.

It’s true that fulfilling this industry wish list would take time; regulators would have to traverse the laborious regulatory process to undo the rules, often with multiple agencies having to sign off. Plus, Trump hasn’t appointed key regulators needed to carry this out. But the industry has taken that path before to much success. Dodd-Frank already is a shell of what was envisioned, after insistent lobbying through the legislative and then the rule-making process. The banks will be happy to run the gauntlet again.

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When Crime Pays: Bankers Behind Financial Crisis were Promoted, not Jailed



The Bankers Behind the Financial Crisis Actually Got Promoted
David Dayen

Millions lost their homes and jobs, and not only did the bankers not go to jail, most of them got new and better gigs, according to a new study.

By now it’s well known that no senior bank executives went to jail for the fraudulent activities that spurred the financial crisis. But a new study shows many of the senior bankers most closely tied to pre-crisis fraud didn’t suffer one bit in the aftermath. They mostly kept their jobs, enjoying the same kinds of opportunities and promotions as their colleagues.

Worst of all, the most plausible explanation the researchers came up with for why senior management didn’t fire the people who blew up the economy is that they didn’t want to admit their own failure as bosses. And if nobody on Wall Street is willing to see the problem, and the Trump administration is stocked with bankers and corporate cheerleaders, you can bet fraud will continue to shift into other products, harming consumers and investors while executives look the other way.

The study comes from John Griffin and Samuel Kruger of the University of Texas-Austin, and Gonzalo Maturana of Emory University. They tracked 715 individuals involved in issuing residential mortgage-backed securities (RMBS) from the key housing bubble years of 2004 to 2006, including the senior managers who actually signed off on the deals.

RMBS were the building blocks of the crisis, bundles of toxic loans passed on to investors who were not told about their poor quality. Since the crash, major banks that issued RMBS have paid over $300 billion in government penalties, at least implicitly acknowledging they fucked up.

With settlements and deferred prosecution agreements, federal law enforcement tried to influence corporate culture so banks would discourage bad behavior and punish those responsible within their own ranks. But until now, nobody had studied whether the large civil fines actually did lead to internal discipline. So the researchers compared the careers of RMBS bankers after the crisis to other bank employees whose work was relatively free of fraud.

“We find no evidence that senior RMBS bankers at top banks suffered from lower job retention, fewer promotions, or worse job opportunities at other firms compared to their counterparts,” Griffin, Kruger, and Maturana write.

By 2016, according to the study, 85 percent of RMBS bankers remained in the financial industry, and 63 percent received a promotion in job title, a similar ratio to non-RMBS colleagues. They were also able to move freely to join competitors, with Bank of America, JPMorgan Chase, and Citigroup “particularly aggressive” in hiring RMBS bankers. The dynamic was true for every major underwriter. There was simply no evidence of any large-scale punishment.

Employees at smaller firms were hit marginally harder after the crisis. But there’s an easy explanation for that: The market for residential mortgage-backed securities disappeared after the crisis. While bigger banks had the ability to fold RMBS bankers into their larger operations, smaller firms couldn’t.

The study doesn’t just lay out this lack of consequences, but tries to explain the reasons why. The evidence contradicts the idea that the most culpable senior managers or those who caused the biggest penalties were held accountable, or that discipline was merely delayed until after public knowledge of fraud, or that employees were kept at their companies so they wouldn’t turn on their employers in future litigation.

The researchers concluded that one main explanation is that upper management “is concerned that large-scale discipline would implicitly acknowledge widespread wrongdoing and lack of oversight.” In other words, if the executives fired too many bankers for fraud, they would point the finger back at their own loss of control, and risk their own job.

We don’t necessarily see such fear with smaller-scale bank crimes. But, Griffin, Kruger, and Maturana write, “An important difference is that RMBS fraud was widespread.” While executives can cultivate a zero-tolerance reputation through disciplining small-time frauds, they’re less willing to do so when their own lack of awareness or oversight would come into question. So they accepted self-serving explanations that the crisis resulted from mass hysteria, that nobody was truly “responsible,” and moved the employees seamlessly into other parts of their business.

In other words, these bankers were too big to fail—too entrenched to get in real trouble.

This totally alters the perception of whether Wall Street is safer now than it was before 2008. If the response to industry-wide fraud was to pretend it didn’t exist, of course you would expect more fraud to occur in the future. And that’s exactly what seems to be happening. Banks have started to run screaming from the subprime auto-loan market, after spiking defaults raised questions about the same deceptions foisted on auto borrowers that we saw with mortgage borrowers a decade ago. The long post-crisis rap sheet, from rigging foreign exchange rates to saddling customers with fake accounts, suggests the same triumph of short-term profits over ethics. And these are just the abuses we know about today.

This all stems from the failure to hold individuals directly accountable. As the researchers conclude, “these employment outcomes send a message to current and future finance professionals that there is little, if any, price to pay for participating in fraudulent and abusive practices.” If you can help generate the worst meltdown since the Great Depression—arguably helping set the stage for a populist demagogue to take the presidency—and keep your job, why would you care about the implications of your next great swindle?

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David Dayen: HAMP Is Hurting Liberalism


by David Dayen/Shadowproof.com

I wanted to circle back to this point I made on our foreclosure panel that I really do think expresses both the frustration and the danger I and some other commentators are feeling about the situation. Simply put, HAMP is hurting liberalism. It’s putting a face of bureaucratic incompetence on a program designed to help people. It’s making the lives of its participants worse while promising to make it better. It’s adding to their indebtedness and failing to reduce their principal.

Of course, we know that it’s not a liberal program in any way, with its maddening structure as a public-private partnership where the lender doesn’t have to make any changes to the mortgage unless they determine it in their best interest to do so. And that design was a conscious choice, not the result of legislative compromise. I have to laugh at that sliver of the liberal commentariat who constantly excuses the President and the Administration for having to make painful choices given the Congress they have. The President, you see, isn’t that powerful, and must work within those legislative constraints. But none of this is true with respect to HAMP. The Administration designed this entirely on their own, using money already appropriated. And they designed it terribly.

In fact, they lied right from the beginning, according to Sen. Jeff Merkley, who was also on the panel. He was told that the White House would devote $50-$100 billion in TARP money to homeowners and that they would fight for cramdown (what he would rather call lifeline bankruptcy) when it came up in Congress. These were the conditions under which Merkley voted to release the second tranche of the TARP money. And neither of these two things really came to pass. The White House stood mute as cramdown failed, and though HAMP is supposed to have $75 billion in backup, they’ve spent less than one-half of one percent of it.

Without the threat of a bankruptcy judge modifying the mortgage as a hammer on the side of homeowners to get lenders to comply, the HAMP design totally failed. It was no longer in the financial interest of the lenders to do anything, and so millions of people come into a system and get really nothing out of it. They end up more indebted and just float along, propping up the banks who don’t want to acknowledge the bad loans still on their books. This was the Administration’s design, specifically Gene Sperling’s design, according to reports. And as I said on the panel, he should be fired for the damage he’s causing. Obama is famous for saying he only cares about what works. Well, this isn’t working.

The more important damage is to those getting no relief on their mortgages, falling victim to predatory lending for the second time, first from the loan officers and now from the government. But on another level, it’s only confirming what Ronald Reagan famously said, that the most dangerous words in America are “I’m from the government and I’m here to help.” That’s true when a neoliberal, extend-and-pretend scheme designed more to save the banks from reality than help people gets implemented. Those people getting foreclosed or losing everything they’ve got can point the finger at one thing, that government didn’t provide a safety net for their struggles. As Elizabeth Warren said on the panel, in the 1930s we had a belief that government could step in and help us with our problems. And that has faded. It faded over the last thirty years with a coordinated demonization of government and it’s fading now because the group in the White House has a different worldview, one oriented toward the banks over the people. And so how can you tell the guy in this story to vote for Democrats ever again? (cont’d.)

At the foreclosure panel I went to, HuffPo’s Ryan Grim, who had been interviewing people around town, told the story of a 50something guy who was going to lose a house he’d put $100K down on. A lot of the Tales Of Foreclosure Hell have focused on people who bought houses with little money down and who therefore in some sense didn’t lose much, but there are a lot of people who did lose/will lose their life savings over this.

I get the occasional angry email because I’m not hopey changey enough, but right now I’m angry at the administration over HAMP. It was their baby, it didn’t require Congressional action of any kind, and when it was introduced the usual suspects said it was unlikely to help people. More than that, it’s actually hurting people, extracting payments during the extend and pretend period before finally chucking people out.

Ironically, that guy did say he’d vote for Harry Reid over Sharron Angle. But over time, he knows that the government did not step in to help when his work dried up and everything he worked so hard to create went away. And millions of people join him in that belief. And so the idea of government as a backstop for those facing troubled times, as a great equalizer between the average people and the seats of power, just crumbles.

I was talking to Jack Conway, the Senate candidate from Kentucky, and he said that the biggest issues from constituents on the campaign trail are spending and jobs. I asked if he explains that the two are contradictory, and he explained that people don’t see it that way, that they’ve concluded that more public spending will not create jobs but just go to the banks on Wall Street. I don’t know if the Administration understands how pernicious this game they’re playing is. It could last for a generation.

This program is not just a terrible deal for struggles homeowners – it’s a terrible confirmation of government not working. It needs to stop and those responsible need to be fired, before it consumes the entire progressive project in its wake.

David Dayen Repost: Inside the Abortive FBI Investigation of Illegal Foreclosure in Florida

Low-wage workers posed as bank presidents and signed bogus documents that kicked people out of their homes. Illustration by Dola Sun
Flashback  to May 2016.
Inside the Abortive FBI Investigation of Illegal Foreclosure in Florida
David Dayen

The massive probe threatened to implicate the biggest banks in America, but sent just one woman to prison.

Six years ago, FBI agents in Jacksonville, Florida, wrote a memo to their bosses in Washington, DC, that could have unraveled the largest consumer fraud in American history. It went to the heart of the shady mortgage industry that precipitated the financial crisis, and the case promised to involve nearly every major bank in the country, honing in on the despicable practice of using bogus documents to illegally kick people out of their homes.

But despite impaneling a grand jury, calling in dozens of agents and forensic examiners, doing 75 interviews, issuing hundreds of subpoenas, and reviewing millions of documents, the criminal investigation resulted in just one conviction. And that convict—Lorraine Brown, CEO of the third-party company DocX that facilitated the fraud scheme—was sent to prison for duping the banks.

Thanks to a Freedom of Information Act request, VICE has obtained some 600 pages of documents from the Jacksonville FBI field office showing how agents conducted a sprawling investigation. (The Jacksonville case is also featured in my new book, Chain of Title.) The documents suggest the feds gained a detailed understanding of how and why the mortgage industry enlisted third-party companies to create false documents they presented to courts, as detailed in the 2012 National Mortgage Settlement, for which the big banks paid billions in civil fines. The banks’ conduct is described in the settlement documents as “unlawful,” and the Jacksonville FBI had it nailed almost two years earlier.

In these case files, you can see the seeds of an alternative history, one where dedicated law enforcement officials take on some of the country’s most powerful financial institutions with criminal prosecutions.

So why didn’t they?

“Given everything I see here, you’d have thought there would be many more convictions,” said Timothy Crino, a now-retired FBI forensic accountant who reviewed case file documents. “If I was the case agent, I would be devastated.”

At the center of the FBI investigation were the documents required to turn ordinary mortgages into mortgage-backed securities (MBS). During the housing bubble, banks bought up mortgages and packaged thousands of them at a time into MBS; this was known as securitization. The mortgages were transferred through a series of intermediaries into a trust, and the trust paid out investors with the revenue stream from homeowners’ monthly payments.

In the end, of course, an upswing in the number of homeowner defaults led the MBS market to collapse disastrously, nearly taking down the worldwide financial system along with it. But there was another problem. In order to legally foreclose on homeowners, the financial institutions doing the foreclosing must produce documents proving the mortgages were properly transferred from their originators through intermediaries and on to the trusts, detailing every step along that chain.

“If evidence collected shows intent to defraud investors by the real estate trusts, this matter has the potential to be a top ten Corporate Fraud case.” —FBI Criminal Investigative Division memo, June 2010

This is common sense: If you accuse someone of stealing your car, you have to establish that you actually owned it in the first place.

This chain of ownership was at the heart of the FBI investigation, according to a “request for resource enhancement” sent on May 25, 2010, from the Jacksonville office to Sharon Ormsby, then chief of the FBI Financial Crimes Section in Washington. (Ormsby no longer works for the bureau, and an attempt to contact her through the Society of Retired Special Agents of the FBI was unsuccessful.)

“The fraud in this matter was the result of negligence in the process of creating Mortgage Backed Securities (MBS),” the memo reads.

The Jacksonville FBI agents cite three reasons why the banks didn’t properly transfer the mortgages. First, the sheer volume—millions of loans—would have made it too time-consuming to file each transfer in county courts in advance. Second, it would have been too costly, as each transfer triggers a recording fee of somewhere between $35 to $50. And finally, “during a booming market, the trusts did not recognize the need to secure the loans,” because they didn’t believe it would ever be called into question in the courts.

The Jacksonville FBI memo claims the trusts committed fraud by reporting to the Securities and Exchange Commission (SEC), the credit rating agencies, and investors that they had clear title to the properties when they actually didn’t. And agents present evidence that mortgage-servicing companies and their law firms hired third-party outfits to falsify the mortgage documents needed to foreclose after the fact.

Among those companies was DocX in Alpharetta, Georgia, which provided “default services” for mortgage-servicing companies and their law firms; when a loan went into default, they came to DocX for assistance. Because the company was a subsidiary of Jacksonville-based Lender Processing Services (LPS), the primary default services provider in the United States, the Jacksonville FBI office had jurisdiction over the case.

It used to be fun to work at DocX, one employee said in an FBI interview. Now, it was more like a “sweat shop.”

“LPS and other default services created false and fraudulent documents which appeared to support their foreclosure positions,” the memo reads. “LPS and the associated foreclosure mills utilized these false and fictitious docs in Courts across the nation to foreclose on homeowners.”

It wasn’t even that difficult to discover the falsehoods when you actually looked at the documents. Lynn Szymoniak, a West Palm Beach attorney who specialized in white-collar insurance fraud, fell into foreclosure in July 2008, and got sued by the trustee of her mortgage, Deutsche Bank. But when she finally received her mortgage assignment, it was dated October 17, 2008, three months after Deutsche Bank filed for foreclosure. So at the time of the foreclosure filing, Deutsche Bank didn’t legally own the loan over which it sued her.

Adding to the chaos, one of the so-called witnesses on Szymoniak’s mortgage assignment, Korell Harp, was in state prison in Oklahoma at the time he supposedly signed the document. (Ironically, Harp was in prison for identity theft, even as his own identity was being stolen for use in foreclosure documentation.) The copy of the promissory note was a hastily executed cut-and-paste job, fabricated after the fact. A woman named Linda Green signed the mortgage assignment in Szymoniak’s case in her capacity as the vice president of American Home Mortgage Servicing Inc.; she also signed as the vice president of at least 20 other financial institutions, according to public records Szymoniak compiled. And Green’s signatures all featured different handwriting, meaning they weren’t just fabricated, but forged.

It was Szymoniak, based on weeks of public records searches, who wrote the first official fraud report to the US attorney’s office in Jacksonville. She had several friends in that office, prosecutors she’d partnered with on insurance fraud cases. So she sent a complaint to Assistant US Attorney Mark Devereaux and FBI Special Agent Doug Matthews, who managed mortgage fraud cases. The result was the Jacksonville grand jury investigation.

Szymoniak filed her own whistleblower lawsuits detailing foreclosure fraud and eventually won $95 million for the government under the False Claims Act. For bringing the case to the government’s attention, she received a share of that award, totaling $18 million.

The banks had foreclosed on exactly the wrong person.

FBI agents visited people across America who endured illegal foreclosure after the financial crash. Illustration by Dola Sun

According to dozens of interviews conducted by the FBI, DocX originally created lien releases, signifying when mortgages got paid off. But as the housing bubble collapsed and trustees suddenly needed evidence for their foreclosure cases, the business model shifted to pumping out mortgage assignments. Temporary and low-wage workers hired by DocX were now posing as bank vice presidents, working long hours signing documents at two long tables.

It used to be fun to work at DocX, one employee said in an FBI interview. Now it was more like a “sweat shop.”

The documents coming out of DocX were sloppy at best. Several mortgage assignments were filed with courthouses that listed the recipient of the mortgage as “BOGUS ASSIGNEE.” This was apparently a placeholder on a DocX template assignment that employees habitually forgot to change. At other times, employees appear to have forgotten to change the date, executing assignments effective “9/9/9999.”

“When I joined the bureau, white-collar crime was the number one priority in the country.” —David Gomez, former FBI agent

In the Jacksonville FBI files, DocX employees said that they were constantly pushed to process more documents. Eventually, the company hit on a concept called “surrogate signing.” Only one individual was identified on corporate resolutions as the officer authorized to sign on clients’ behalf, but under surrogate signing, other employees at DocX would sign for that authorized individual. Employees would sign as many as 2,100 documents per day, and each surrogate signer would double the workflow. In early 2009, DocX management hung a banner in the office proudly displaying its successful document production to superiors visiting from LPS.

It read: “Two Million Assignments.”

The employees don’t appear to have ever seen any official documents authorizing them to sign on behalf of financial institutions where they did not actually work. Indeed, when the Jacksonville FBI office subpoenaed them, agents found that the “corporate resolutions do not give DocX/LPS employees the authority to sign on behalf of the institution.”

But while many people working at DocX believed the scheme to be fraudulent, according to the memo, none of them questioned the practice for fear of losing their jobs. They were reassured repeatedly that everything was legitimate. Some managers apparently told employees to keep quiet for “the good of the company.” Even the managers professed that they were trying to meet LPS demands and accomplish an impossible task of completing millions of mortgage assignments.

One manager stated in an FBI interview that if she “was guilty of anything, she was guilty of being ignorant.”

LPS management in Jacksonville broke up the surrogate-signing party in November 2009, after a foreclosure defense attorney began questioning their practices. Executives at LPS fired Brown, founder and CEO of DocX, claiming she began surrogate signing without their knowledge. But DocX continued to sign on behalf of corporate officers at defunct companies for months afterward, according to the memo. And because the trusts had to receive mortgage assignments within 90 days of their establishment and not years later, the document production itself was fraudulent, the Jacksonville FBI alleged, whether the signatures were forged or not.

(LPS, now known as Black Knight Financial Services after a series of corporate mergers, did not respond to a request for comment for this story.)

Between February and May 2010, Jacksonville FBI agents met with state and federal officials, including members of the SEC, Federal Deposit Insurance Corporation (FDIC), and Florida’s Department of Financial Services. They issued hundreds of subpoenas and prepared to seize more than $100 million in assets in the case. On May 17, they met with officials from the FBI’s Economic Crimes Unit, which is responsible for overseeing financial fraud investigations in the field like Jacksonville’s, to discuss the case and explain what they needed.

A week later, Jacksonville agents made the formal request for help to FBI headquarters in Washington.

“Jacksonville is a small field office with a White Collar Crime Squad of nine agents,” the memo reads, explaining that six of the nine were committed to other cases. “In short, Jacksonville does not have the necessary resources to begin addressing this matter.”

Jacksonville wanted the Economic Crimes Unit to activate the “Corporate Fly Team,” a group of experienced agents with backgrounds in white-collar crime who travel to work on big cases. The extra bodies would help conduct interviews with officials at loan servicers, foreclosure law firms, trustees, and document custodians around the country. In addition, Jacksonville’s office wanted an investigative team of 12 agents and two forensic accountants. Six agents and one forensic accountant would come from FBI headquarters, the Florida Department of Financial Services and the IRS would supply a few agents, and Jacksonville would provide the rest, including the second accountant. The agents from headquarters would have a 90-day “temporary duty” (TDY) assignment. After that, Jacksonville wanted to augment their “Funded Staffing Level” (FSL) with eight additional white-collar crime agents “to permanently address this matter.” Jacksonville also wanted to rent an offsite facility for the storage and review of documents.

“It’s a typical bureau request,” retired FBI agent Timothy Crino told me. “You ask for everything you can possibly ask for and hope you get half of it.”

And they did get about half, at least at first. The Criminal Investigative Division (CID)—the FBI’s single biggest department—replied to the Jacksonville request on June 24. “If evidence collected shows intent to defraud investors by the real estate trusts, this matter has the potential to be a top ten Corporate Fraud case,” the reply reads. CID agreed to pony up the Corporate Fraud Response Team for assistance with interviews, and offered two TDY Forensic Accountants for at least 90 days. They requested a detailed estimate for the off-site facility, and expressed a preference for obtaining records in digital format to reduce storage needs. But CID did not agree to the additional agents or FSL request “until a further evaluation of the case is completed.”

Shuffling around resources and prioritizing investigations is always tricky and involves layers of FBI office politics. “The guy running the Jacksonville desk must sell it to the unit chief,” said David Gomez, a retired FBI agent with the Center for Cyber and Homeland Security at George Washington University. “The unit chief is fighting with other unit chiefs to sell it to the section chief.” And after 9/11, the FBI shifted attention to fighting terrorism, making the funds and bodies dedicated to financial crime even more scarce. “When I joined the bureau [in 1984], white-collar crime was the number one priority in the country,” Gomez added. “Now people come in expecting and wanting to work on terrorism.”

But proper resources can make or break a case. “If you don’t get everything you want, you have to pick your battles,” said former Agent Crino. “You can’t work the whole thing, can’t go after the biggest targets.”

In this case, that would mean not going up the chain, from the companies like DocX that created the false mortgage assignments to the trustees and mortgage-servicing companies who were their clients. That chain could have implicated some of America’s biggest and most powerful banks and bankers; the practice was systemic, as Jacksonville agents recognized. But a small FBI office can only do so much.

Before the end of the 90-day temporary agent assignment in Jacksonville, stories about foreclosure fraud began appearing in the news. “Robo-signers” who signed thousands of documents with no understanding of their contents were exposed through depositions placed on the internet. GMAC Mortgage, JPMorgan Chase, and eventually every major mortgage servicer in the country paused their foreclosure operations, because they were shown to be illegitimate.

The Jacksonville FBI office made a second request for resources on January 20, 2011. Agents said the local US attorney was considering indicting unidentified members of LPS for their role in the fraud, and also “identified Deutsche Bank as a subject trustee… who provided services in the conspiracy and made material misrepresentations to the SEC and the investing public.” (Deutsche Bank spokesman Oksana Poltavets declined to comment on the case.) The FBI in Jacksonville also said the US attorney there had the commitment of the main Justice Department in Washington for the case going forward, bolstering the agents’ contention that they needed more resources.

Agents in Jacksonville made a bevy of new asks, from additional use of the Corporate Fly Team to conduct interviews and review 3 million documents—produced by LPS after a subpoena—to help from other field offices for interviews in their own jurisdictions with homeowners evicted based on false documents. Finally, agents in Jacksonville wanted the Minneapolis FBI office to look into another LPS facility in Minnesota to see if employees had created false documents there, as well.

The FBI bosses in DC honored several of these requests. Fly Team members helped review the documents. Field offices pitched in on homeowner interviews. The investigation seemed to be making headway.

And then the trail went cold.

It is still difficult to pinpoint why, given that all the major players won’t comment on the investigation. That includes the FBI’s field office in Jacksonville, the FBI’s Economic Crimes Unit in Washington, and the Justice Department. The last document in the FOIA file is dated June 28, 2012, describing planned travel from Jacksonville to Atlanta to interview “at least six” witnesses.

After that, there’s nothing.

The grand summary of the investigation, which would typically be written up at the end, is not included in the FOIA documents. “It’s just such a huge question mark,” former FBI Agent Crino told me, “how this could have gone so horribly wrong.”

The only person ultimately convicted in the Jacksonville case was Lorraine Brown, who was sentenced in June 2013 to five years in prison after pleading guilty to conspiracy to commit mail and wire fraud. The indictment claimed she directed the document forgery and fabrication scheme “unbeknownst to DocX’s clients.” In other words, according to prosecutors, mortgage servicers contracted Brown to provide evidence, so they could prove standing to foreclose, but didn’t know the resulting evidence was faked.

But the Jacksonville FBI agents stated in their reports that any mortgage documents created after the closure of the trusts would have to have been fabricated. As recently as the January 20, 2011, request for resources, agents wrote, “When the notes were bundled, an assignment of mortgage should have been prepared and filed at the county court level… to ensure clear title in the event of sale and/or foreclosure.” And they explained how and why the trusts failed to do so, necessitating the creation of documents after foreclosure had already begun.

So the charging documents in the Brown case positions the banks as unwitting dupes of the scheme, a reversal from the consistent determination by agents in the field that they were fully aware of and in fact responsible for the situation.

“I thought, Well, this is one friend saying to another friend: ‘This is over,'”—Lynn Szymoniak

In the sentencing phase, the feds turned to county registers, the public officeholders who track and manage mortgage documents, to provide horror stories about DocX. One of them was John O’Brien, county register in Essex County, Massachusetts. He was determined to recoup $1.28 million from Brown to clean up falsified DocX land records filed with his office.

When Assistant US Attorney Mark Devereaux asked him to testify, however, O’Brien recalled the prosecutor insisting the judge wouldn’t accept the claim, because registers—a.k.a. the public—were not victims.

“What do you mean, we’re not a victim?” O’Brien exclaimed. “We’re the ones with all these false documents!”

“No, the bank is the victim,” Devereaux replied, according to O’Brien.

(The US Attorney’s office in Jacksonville, where Devereaux still serves as a prosecutor, declined to comment on the case.)

Lynn Szymoniak, whose complaint triggered the Jacksonville FBI probe, believes that officials at the Justice Department, determined to stage-manage their own resolution to the scandal, stonewalled the agents on the case. She told me about one moment when she sensed the whole thing was rigged, sometime in the middle of 2011, well over a year after the investigation got underway.

Szymoniak had been unofficially assisting the Jacksonville team with research. US attorneys there would ask for 200 examples of a law firm signing mortgage assignments after they filed their foreclosure case, or 30 Linda Green documents in a certain region of the country. Szymoniak spent hours on these projects, feeling like she couldn’t say no. But she wondered why the requests kept coming, even after she went public and appeared on 60 Minutes in April 2011, detailing the false document scheme. “I really thought that in response they would have to file [an indictment],” Szymoniak said. “When they decided to hold tight and it would go away, I realized I had no cards left to play.”

At one point, the assistant US attorney requested a massive set of files. Szymoniak emailed her friend Henry “Tommy” Clark, a detective with the Florida Department of Financial Services’ Division of Insurance Fraud, who also partnered with the FBI on cases. She complained to him that the file request was going to take her 14 hours to assemble. Clark called her within a few minutes and didn’t even say hello.

“Don’t waste your time,” he said.

Clark worked with the Jacksonville FBI field office for a long time, and he saw the agents there as honorable people willing to follow the evidence wherever it led, Szymoniak recalled. So when Clark said, “I’m not working on it anymore, I’ve got a whole lot of other cases where I can file,” he seemed to validate the eerie feeling she had about the case. Their shared recognition was that someone seemed to be preventing Jacksonville from completing the investigation, and the two knew each other well enough to broach that fear in just a few words.

“I thought, Well, this is one friend saying to another friend: ‘This is over,'” she told me.

In a phone conversation, Detective Clark, who has since retired, confirmed that he worked on the FBI case but declined to comment for this story.

The FOIA documents detail an intense investigation in the aftermath of economic disaster, with Jacksonville agents and US attorneys going all-out for the public interest. They spent years running down leads and cultivating information, with the national office in Washington accommodating many of their resource requests. But all that work amounted solely to putting one non-banker in prison.

In February 2012, the Justice Department and 49 state attorneys general reached their civil settlement with the five biggest mortgage servicers over a host of allegations of deceptive and unlawful conduct, including “preparing, executing, notarizing, or presenting false and misleading documents… or otherwise using false or misleading documents as part of the foreclosure process.” The feds boasted that the settlement was for $25 billion, but only $5 billion of that was in hard dollars, with the rest in credits for activities that included bulldozing homes and donating others to charity. Homeowners wrongfully foreclosed on received about $1,480. The Justice Department claimed it reserved the right to criminally prosecute anyone suspected of wrongdoing. That still hasn’t happened.

After Brown’s sentencing, Szymoniak called up one of the FBI investigators and thanked him for at least snagging the one conviction—for proving real crimes were committed by some of the most powerful economic players in America, crimes theoretically punishable with prison time.

There was a long pause.

According to Szymoniak, when the agent finally broke the silence, he said, “I don’t think the taxpayers were very well served.”

David Dayen: How Congress Could Make Steve Bannon’s Wildest Dream Come True

A regulatory freeze on day one delayed every final rule awaiting its effective date. Many got pushed back further by federal agencies after the freeze lifted, including life-saving measures to prevent cancer-causing dust and toxic beryllium in workplaces. Lawmakers used a their power under the Congressional Review Act, which requires only a majority vote, to nullify 13 other rules. And now, the administration is venturing into rolling back regulations already in place, from new food product labeling to a ban on arbitration clauses in nursing home agreements to net neutrality, to name only a few.

But as Wayne Crews of the right-wing Competitive Enterprise Institute recently wrote, “Even with all these actions from the executive branch, there is still one large barrier to regulatory reform that remains: the U.S. Senate.” Only enough senators to break the 60-vote filibuster threshold would realize Steve Bannon’s dream of deconstructing the administrative state permanently.

Last week, that dream nudged closer to reality when Sens. Rob Portman (R-OH) and Heidi Heitkamp (D-ND) reached a bipartisan deal to introduce the Regulatory Accountability Act. Like a number of House bills passed this year, it attacks the agency rulemaking process, inserting additional hurdles to make it harder to get regulations done, and easier for industry to use courts to throw them out. Unlike the House bills, Portman-Heitkamp could actually pass the Senate. “The short version is it would shut down rulemaking,” said Rob Weissman, president of consumer advocacy group Public Citizen.

Before I explain what’s in the bill, you need to understand how enormously difficult it already is for federal agencies to complete a regulation. Take a look at this insane flowchart Public Citizen helpfully constructed, listing the hundreds of requirements facing any agency that wants to do its job. “To be legible it has to be blown up to 6 feet by 8 feet,” Weissman noted.

The Administrative Procedure Act of 1946 created the basic rulemaking structure, but since then, Congress and the executive branch have added tons of restrictions. The Paperwork Reduction Act, the Regulatory Flexibility Act, the Unfunded Mandates Reform Act, the Congressional Review Act, the National Environmental Policy Act, the Federal Advisory Committee Act, three executive orders and two court rulings all play a role. Costs to small businesses, cities, states and affected industries must be analyzed. Public comments must be solicited, read and considered. The centralized executive branch review at the Office of Information and Regulatory Affairs can clog a rulemaking for years. And even after that gauntlet, Congress can disapprove of the rule, or industry could argue in court that one of these endless steps was not followed correctly.

Put it this way: If a Last Man on Earth-style virus methodically began to kill U.S. citizens, and we knew the cause, we’d still have to wait a couple years for a formal rule to counteract it.

People assume that old whipping boy, government bureaucracy, is responsible for this mess. Actually, big business encouraged Congress to create these hurdles, solely to frustrate the regulatory process. At no point did policymakers ever streamline the old rules when they layered on new ones. Rulemaking just became this giant, unwieldy beast, entirely by design, so corporations could continue imperiling workers and consumers, and so agencies would shrink at the very thought of climbing the regulatory mountain. “We have stories of rules we’re worked on for 20 years,” said Weissman, of Public Citizen.

No honest observer could look at this and think that we need another set of cost-benefit analyses. But that’s what Portman-Heitkamp would do, for any rule costing over $100 million or with significant impact on the economy. These cost-benefit analyses, which in recent years have become “cost-cost” since benefits to the public are no longer really accounted for, would need to be completed at every stage of the process — before drafting a proposed rule, after determining its significance, before finishing the proposal and after public comment. After that tsunami of analysis, the agency must choose the “most cost-effective approach” that still accomplishes the goals of the rule (“most cost-effective” should read “least obtrusive on business”).

Incidentally, these cost studies end up mostly using industry data, since such cost detail doesn’t exist elsewhere. So Portman-Heitkamp would force the federal government to effectively let industries decide when it’s viable to regulate them.

In addition, agencies would have to reach out for public comment before a major rule gets proposed. The “best reasonably available” economic, scientific and technical information would need to be acquired, adding another vague but time-consuming legal step. “High-impact” rules would require an administrative hearing, where businesses could challenge the agency directly. And all rules would be automatically reviewed once every 10 years, in case corporations didn’t strike it down the first time.

Portman and Heitkamp claim they’re just putting into statute a process already established through presidential executive orders, as a more moderate counterpoint to extreme efforts by House Republicans. But the purpose of codification is to expand judicial review. “In the off chance an agency decides to regulate despite the endless gauntlet, and if after that the industry is unhappy, they can sue and say the study was wrongly conducted,” said Weissman.

In fact, Portman-Heitkamp would increase the legal standard on federal agencies, subjecting regulations to a “substantial evidence review.” And since it’s mostly the industry’s evidence, they can almost always claim that it was used improperly. Courts have proved sympathetic to industry whining on cost-benefit analyses in the past. The extra volume of requirements here just makes it more likely that a court would find some pretense to throw out a rule.

The bottom line is that Portman-Heitkamp would eat up time and money to produce new rules, making the already onerous agency compliance almost impossible. The duo already has Sen. Joe Manchin (D-WV) as a co-sponsor, and would only need six more Democrats to pass the Senate. With the House extremely likely to follow suit, this would create a brick wall around rulemaking lasting long beyond Trump.

That’s why several liberal groups are pushing Democrats to not collaborate. But the U.S. Chamber of Commerce’s overwhelming support for Portman-Heitkamp will likely lead local business affiliates, whose regulatory concerns are largely about moves at the city and state level, to pressure senators. The local auto dealer or restaurant provides cover for the polluting and worker-harming behemoths that really want rulemaking crippled.

This effort by Portman to set the regulatory process in concrete has flown below the radar of Trump tweets or health care bumbling. But it would have a massive effect, which is why hundreds of lobbyists have pinned their hopes on it (and given big to Portman to make it reality). The goal is nothing less than to prevent the government from ensuring clean air and water, safe workplaces, consumer protection or a host of other aims. Citizens who like any one of those things need to engage on this before it’s too late.

David Dayen: The CFPB Just Sued a Crooked Mortgage Servicer, but Indicted Itself

The lawsuit against Ocwen is welcome, but should have happened four years ago.

David Dayen: A Bank Even a Socialist Could Love

A Bank Even a Socialist Could Love

The fight for public banking is gaining ground in cities and states across the country.

BY David Dayen

“We have Tea Partiers and Occupiers in the same room liking public banking. What does that tell you?”

“Money is a utility that belongs to all of us,” says Walt McRee. McRee is a velvety-voiced former broadcaster now plotting an audacious challenge to the financial system. He’s leading a monthly conference call as chair of the Public Banking Institute (PBI), an educational and advocacy force formed seven years ago to break Wall Street’s stranglehold on state and municipal finance.

“This is one of the biggest eye-openers of my life,” says Rebecca Burke, a New Jersey activist on the call. “Once you see it, you can’t look back.”

This ragtag group—former teachers, small business owners, social workers— wants to charter state and local banks across the country. These banks would leverage tax revenue to make low-interest loans for local public works projects, small businesses, affordable housing and student loans, spurring economic growth while saving people—and the government—money.

At the heart of the public banking concept is a theory about the best way to put America’s abundance of wealth to use. Cities and states typically keep their cash reserves either in Wall Street banks or in low-risk investments. This money tends not to go very far. In California, for example, the Pooled Money Investment Account, an agglomeration of $69.5 billion in state and local revenues, has a modest monthly yield of around three-quarters of a percent.

When state or local governments fund large-scale projects not covered by taxes, they generally either borrow from the bond market at high interest rates or enter into a public-private partnership with investors, who often don’t have community needs at heart.

Wall Street banks have used shady financial instruments to extract billions from unsuspecting localities, helping devastate places like Jefferson County, Ala. Making the wrong bet with debt, like the Kentucky county that built a jail but couldn’t fill it with prisoners, can cripple communities.

Even under the best conditions, municipal bonds—an enormous, $3.8 trillion market—can cost taxpayers. According to Ellen Brown, the intellectual godmother of the public banking movement, debt-based financing often accounts for around half the total cost of an infrastructure project. For example, the eastern span of the San Francisco-Oakland Bay Bridge cost $6.3 billion to build, but paying off the bonds will bring the price tag closer to $13 billion, according to a 2014 report from the California legislature.

Public banks reduce costs in two ways. First, they can offer lower interest rates and fees because they’re not for-profit businesses trying to maximize returns. Second, because the banks are publicly owned, any profit flows back to the city or state, virtually eliminating financing costs and providing governments with extra revenue at no cost to taxpayers.

“It enables local resources to be applied locally, instead of exporting them to Wall Street,” says Mike Krauss, a PBI member in Philadelphia. “It democratizes our money.”

Legislators, Brown says, commonly object that governments “don’t have the money to lend.” But this misunderstands how banks operate. “We’re not lending the revenues, just putting them in a bank.” That is, the deposits themselves—in this case tax revenues—are not what banks loan out. Instead, banks create new money by extending credit. Deposits simply balance a bank’s books. Public banks, then, expand the local money supply available for economic development. And while PBI has yet to successfully charter a bank, there’s an existing model in the unlikeliest of places: North Dakota.

During the Progressive Era, a political organization of prairie populists known as the Nonpartisan League took control of the state government. In 1919, they established the Bank of North Dakota. It has no branches, no ATMs, and one main depositor: the state, its sole owner. From that deposit base, BND makes loans for economic development, including a student loan program.

BND also partners with local private banks across the state on loans that would normally be too big for them to handle. These loans support infrastructure, agriculture and small businesses. Community banks have thrived in North Dakota as a result; there are more per capita than in any other state, and with higher lending totals. During the financial crisis, not a single North Dakota bank failed.

BND loans are far more affordable than those from private investors. BND’s Infrastructure Loan Fund, for example, finances projects at just two percent interest; municipal bonds can have rates roughly four times as high. And according to its 2015 annual report, the most recent available, BND had earned record profits for 12 straight years (reaching $130 million in 2015), during both the Great Recession and the state’s more recent downturn from the collapse in oil prices. A 2014 Wall Street Journal story described BND as more profitable than Goldman Sachs. Over the last decade, hundreds of millions of dollars in BND earnings have been transferred to the state (although the overall social impact is somewhat complicated by the bank’s role in sustaining the Bakken oil boom).

The long march through the legislatures

Brown founded the Public Banking Institute in 2010, after years of evangelizing in articles and books such as The Web of Debt: The Shocking Truth About Our Monetary System and How We Can Break Free. Since then, by Walt McRee’s estimate, around 50 affiliated groups have sprouted up in states, counties and cities from Arizona to New Jersey.

“I’ve been working against the system all my life,” says Susan Harman of Friends of the Public Bank of Oakland. “I think public banking is the most radical thing I’ve ever heard.” Harman, a former teacher and a onetime aide to New York City Mayor John Lindsay, helped get the Oakland City Council to pass a resolution last November directing the city to determine the scope and cost of a feasibility study for a public bank—a tiny yet promising first step.

A feasibility study completed by Santa Fe, N.M., in January 2016 found that a public bank could have a $24 million economic impact on the city in its first seven years. A resolution introduced last October would create a task force to help the city prepare to petition the state for a charter. “It’s the smallest municipality investigating public banking,” says Elaine Sullivan of Banking on New Mexico, who hopes the task force could complete its business plan by the end of the year. “We’re interrupting the status quo.”

In February 2016, the Philadelphia City Council unanimously voted to hold hearings discussing a public bank. Advocates are now working with the city treasurer to find funds to capitalize the bank.

PBI has faced a rougher path in state legislatures. In Washington, state Sen. Bob Hasegawa (D) has introduced a public banking bill for eight straight years. Despite numerous co-sponsors, the bill can’t get out of committee. Efforts in Arizona and Illinois have also gone nowhere. California Gov. Jerry Brown (D) vetoed a feasibility study bill in 2011, arguing the state banking committees could conduct the study; they never did.

One overwhelming force opposes public banking: Wall Street, which warns that public banks put taxpayer dollars at risk. “The bankers have the public so frightened that [public banking] will destroy the economy,” says David Spring of the Washington Public Bank Coalition. “When I talk to legislators, some are opposed to it because ‘it’s for communists and socialists.’ Like there are a lot of socialists in North Dakota!”

In Vermont the financial industry fought a proposed study of public banking, says Gwen Hallsmith, an activist and former city employee of Montpelier. “We don’t have branches of Bank of America or Wells Fargo in Vermont, but they have lobbyists here.” So Hallsmith got the study done herself, through the Gund Institute at the University of Vermont. It found that a state bank would boost gross domestic product 0.64 percent and create 2,500 jobs.

The state eventually passed a “10 percent” program, using 10 percent of its cash reserves to fund local loans, mostly for energy investments like weatherizing homes. Meanwhile, Hallsmith helped push individual towns to pass resolutions in favor of a state bank— around 20 have now done so. Hallsmith says her advocacy came at the expense of her job; the mayor of Montpelier, in whose office she worked, is a bank lobbyist. Hallsmith now coordinates a citizen’s commission for a Bank of Vermont.

Because of state resistance, PBI has encouraged its supporters to go local. And several issues have emerged to assist. For instance, environmental and indigenous activists have demanded that cities move money from the 17 banks that finance the Dakota Access Pipeline. But therein lies another dilemma: Who else can take the money? Community banks and credit unions lack the capacity to manage a city’s entire funds, and larger banks are better equipped to deal with the legal hurdles involved in handling public money. So divesting from one Wall Street bank could just lead to investing in another.

A public bank could solve this problem, either by accepting cities’ deposits or by extending letters of credit to community banks to bolster their ability to take funds. Lawmakers in Seattle have floated a city- or state-owned bank as the best alternative for reinvestment, and Oakland council member Rebecca Kaplan has connected divestment and public banking as well.

Another opportunity arises with marijuana legalization initiatives. Because cannabis remains illegal at the federal level, most private banks are wary of working with licensed pot shops, fearing legal repercussions. This means many of these shops subsist as all-cash businesses. “It’s seriously dangerous; people arrive in armored cars to City Hall to pay taxes with huge bags of money,” says Susan Harman. In Oakland and Santa Rosa, Calif., public banking advocates are partnering with cannabis sellers to offer public banks as an alternative, which would make the businesses safer while giving the banks another source of capital.

While Donald Trump hasn’t formally introduced a long-discussed infrastructure bill, his emphasis on fixing the nation’s crippling public works has also bolstered the case for public banking. Ellen Brown maintains the country could save a trillion dollars on infrastructure costs through public-bank financing. That’s preferable to Trump’s idea of giving tax breaks to public-private partnerships that want big returns.

From the Great Plains to Trenton

“All it’ll take is the first domino to fall,” says Shelley Browning, an activist from Santa Rosa. “Towns and cities will turn in this direction because there’s no other way to turn.” And PBI members think they’ve found an avatar in Phil Murphy, a Democrat and former Goldman Sachs executive leading the polls in New Jersey’s gubernatorial primary this year.

Murphy has made public banking a key part of his platform. “This money belongs to the people of New Jersey,” he said in an economic address last September. “It’s time to bring that money home, so it can build our future, not somebody else’s.”

Derek Roseman, a spokesman for Murphy, tells In These Times that Bank of America holds more than $1 billion in New Jersey deposits, but only made three small business loans in the entire state in 2015. Troubled state pensions could help capitalize a state-owned bank, and would earn more while paying lower fees.

Murphy’s primary opponent, John Wisniewski, chaired the Bernie Sanders campaign in the state, while Murphy raised money for Hillary Clinton. Some believe Murphy is simply using public banking to cover his Wall Street background—and on many issues, Wisniewski’s policy slate is more progressive. But Brown thinks Murphy’s past primed him to recognize public banking’s power: “It’s always the bankers who get it.”

The first new state-owned bank in a century, chartered in the shadow of Wall Street, could shift the landscape. What’s more, blue-state New Jersey and red-state North Dakota agreeing on the same solution would highlight public banking’s biggest asset: transpartisan populist support. “We have Tea Partiers and Occupiers in the same room liking public banking. What does that tell you?” asks PBI’s Mike Krauss.

“Regardless of declared conservative or progressive affiliations,” says state Sen. Hasegawa, “regular folk … almost unanimously grasp the concept.” He is working with Washington’s Tea Partybacked treasurer, Duane Davidson, to advance public banking. “I go to eastern Washington, … they get the whole issue about independence from Wall Street and corporate control.”

In fact, Krauss is himself a Republican. “The biggest thing going on in America, people decided we don’t have any control anymore,” he says. “Whether it’s Bernie’s people or Trump’s people, they’re articulating the same thing but differently. … They want control of their money—and it is their money.”

Award-winning Journalist David Dayen.

Author of “Chain of Title”.

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