Even as Occupy Wall Street protests have turned America’s attention to the economic inequality that has soared as banks have come to dominate our economy, those banks have been quietly working to cut themselves still one more sweet deal. Whether they get away with it may ultimately depend on California Atty. Gen. Kamala D. Harris.
The deal — which the 50 state attorneys general and the Obama administration have been haggling over with our biggest banks for more than a year — would require the banks to pay roughly $25 billion to certain beleaguered or former homeowners, chiefly as compensation for the “robosigning” abuses the banks engaged in as they zealously sought to foreclose on hundreds of thousands of homes. In return, the states would agree not to pursue claims against the banks for whatever fraud and abuse they may have committed in originating dubious mortgages.
This get-out-of-jail-cheap card (the five banks involved in the talks — Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial — can afford the $25 billion) would also let the banks escape liability for misrepresenting those mortgages to the investors on whom they unloaded them.
More than once, Iowa Atty. Gen. Tom Miller, who is the states’ lead negotiator, has proclaimed that agreement is imminent. Yet the deal has still to be sealed, in large part because a handful of attorneys general, initially New York’s Eric Schneiderman and Delaware’s Beau Biden, didn’t believe in letting the banks off the hook quite so arbitrarily. They’re investigating whether the banks’ conduct in originating and peddling these mortgages amounted to criminal fraud. Until Schneiderman and Biden began poking around, the states hadn’t really investigated the banks, which meant that the attorneys general had precious little leverage to extract a better settlement. Nothing quite concentrates the banker’s (or anyone’s) mind like a prosecutor brandishing evidence of fraud.
But the key player in the battle to make the banks pay is Harris. California’s catastrophic recession is due above all to the unpayable debts with which the banks saddled entire regions of the state. Harris recognized this in September, when she announced that, like Schneiderman and Biden, she was pulling out of the negotiations because the banks remained uninvestigated and the waiver they were being offered for their possible misconduct was way too broad. In her letter to Associate U.S. Atty. Gen. Thomas Perrelli and Miller announcing her decision, Harris said the agreement “would allow too few California homeowners to stay in their homes…. After much consideration, I have concluded that this is not the deal California homeowners have been looking for.”
Without California’s participation, of course, the banks would never assent to a deal.
Since then, Harris has come under pressure from the Obama administration to get with the program and agree to a settlement. (Having declined to go after the bankers themselves, administration officials now want some agreement, however inadequate, that they can tout to voters.) But Harris has also come under pressure from a broad coalition of community organizations, unions and liberal groups — the realpolitik adjunct of Occupy Wall Street — not to settle unless the banks come up with much more than they’re offering, or, if that offer isn’t increased, unless the banks are denied the sweeping waiver for crimes they may have committed.
To date, Harris remains steadfast in her resolve not to let the banks skate. Some politics is in play here, not surprisingly. To settle would mean putting at risk the support of the liberal constituencies whose interests she championed as San Francisco’s district attorney. They backed her in her run for attorney general, and she’ll need their support if she runs for governor or U.S. senator later this decade. Lt. Gov. Gavin Newsom, a potential primary opponent if she does run for higher office, has been vocal in his support for the community groups. Newsom has no role in the bank negotiations, but by prominently opposing a settlement, he’s managed to pressure the one public official with the greatest capacity to make, break or reshape a deal.
In this case, Harris’ smart politics is also good policy for California. Positioned at the very center of the fight between Wall Street and the 99%, Harris has come down on the side of the 99%. That speaks well not just of her but of the emerging movement, whose voices she’s heard, to restore some equity to America’s politics and economy.
Harold Meyerson is editor at large of the American Prospect and an op-ed columnist for the Washington Post.