Read With Liberty and Justice for Some Online
Authors: Glenn Greenwald
In November 2010, John Carney of CNBC reported that the lame-duck Congress “may consider measures intended to bolster the legal status of a controversial bank owned electronic mortgage registration system that contains three out of every five mortgages in the country.” That system, known as MERS (Mortgage Electronic Registration Systems), administers mortgages on behalf of the largest banks. It was through MERS that the fraudulent foreclosure network at the heart of the scandal had been created. In the wake of reports that liability for MERS-related reckless foreclosure actions could run into the billions of dollars, Congress began planning—just as it did with telecoms two years earlier—to retroactively legitimize the fraudulent mortgages and immunize the industry. As Carney wrote:
MERS is owned by all the biggest banks, and they certainly do not want it to be sunk by huge fines. Investors in mortgage-backed securities also do not want to see the value of their bonds sink because of doubts about the ownership of the underlying mortgages.
So it looks like the stage may be set for Congress to pass a bill that would limit MERS exposure on the recording fee issue and perhaps retroactively legitimate mortgage transfers conducted through MERS’s private database.
Indeed, politicians had been looking to protect the mortgage industry even before the public and the media became aware of the existence of the scandal, let alone its breadth and depth. More than a month before Carney’s piece, and just before the election recess, Congress had passed a bill designed to make it significantly more difficult for homeowners to challenge banks that improperly approved a foreclosure. That bill, called the Interstate Recognition of Notarizations Act of 2010, would have substantially eased documentation requirements for banks planning to foreclose on people’s homes. Amazingly, the Senate passed this bill without debate of any kind—it did so by unanimous consent—even in the face of growing reports of foreclosures across the country being approved by so-called bank robo-signers, which were both illegal and inherently unreliable. Not until public anger over that bill had become widespread did the White House announce that President Obama would refuse to sign it, though White House aides signaled that he was receptive to the underlying goal of the bill’s sponsors and was open to approving a revised version. Those efforts are still pending.
So the banking industry perpetrates a huge fraud on the American public and its court system, stealing people’s homes in the process, and the first reaction of the Obama administration is to announce that it has no intention of criminally investigating the practice, while the first response of Congress is to draft legislation to retroactively legalize what was done and prevent any lawsuits against the bankers. There, in a nutshell, is proof of how completely unraveled the rule of law in America has become.
In November 2010, as I was writing this chapter, the Nobel Prize–winning economist Joseph Stiglitz argued that the mortgage fraud crisis exemplifies what has happened in America to the concept of equality under the law.
The mortgage debacle in the United States has raised deep questions about “the rule of law,” the universally accepted hallmark of an advanced, civilized society. The rule of law is supposed to protect the weak against the strong, and ensure that everyone is treated fairly. In America in the wake of the sub-prime mortgage crisis, it has done neither.
Part of the rule of law is security of property rights—if you owe money on your house, for example, the bank can’t simply take it away without following the prescribed legal process. But in recent weeks and months, Americans have seen several instances in which individuals have been dispossessed of their houses even when they have no debts….
To some, all of this is reminiscent of what happened in Russia, where the rule of law—bankruptcy legislation in particular—was used as a legal mechanism to replace one group of owners with another. Courts were bought, documents forged, and the process went smoothly.
In America, the venality is at a higher level. It is not particular judges that are bought, but the laws themselves, through campaign contributions and lobbying, in what has come to be called “corruption, American-style.”…
In today’s America, the proud claim of “justice for all” is being replaced by the more modest claim of “justice for those who can afford it.” And the number of people who can afford it is rapidly diminishing.
Surveying both the scandal itself and the eagerness of the political class to protect the wrongdoers, the Seton Hall law professor Frank Pasquale had a similar reaction.
Is the US becoming a third world nation?…We as attorneys can at least insist on a common rule of law for all. And that’s what our legal system has grievously failed to provide during the foreclosure crisis. As the indisputably pro-market [corporate law professor] Jonathan Macey notes, “the banks have created significant legal exposure for themselves ‘by committing fraud upon the courts.’” And yet the first thing our Congress could think to do was to endorse legal cover for them, as eagerly as it retroactively immunized warrantless wiretapping…. If we continue to subordinate the rule of law to the whim of banks, what former IMF Chief Economist Simon Johnson described as the “quiet coup” will be complete.
The reality, as we have seen, is that this ship sailed some time ago.
Stark Contrast with the Past
It has always been an undeniable fact of American political life that the wealthy and powerful enjoy substantial advantages, in the legal and political realms as elsewhere. But American history is replete with examples of elites being held accountable and even severely punished for political and financial crimes far less egregious, and far less destructive, than those that the nation has witnessed over the past decade. Examining some of those incidents highlights how much has changed. While it has always been the case that possessing large amounts of money and power is preferable to having little or none, the principle that all citizens are accountable under law was applied in the past with great force and determination. Throughout the eighteenth, nineteenth, and the early twentieth centuries, even the most influential men in America were kept in check by the legal system; and if the executive or Congress failed to do its part, an adversarial mass media served as a crucial backstop against elite lawlessness.
The prosecution of Tammany Hall and its infamous leader, William “Boss” Tweed, is a classic example of the media and elected officials combining to preserve the rule of law. The 1860s and 1870s were the peak years for Tammany Hall, the Democratic political machine that controlled New York City. As head of the machine, Boss Tweed oversaw a system of spectacular corruption. Tweed and his cronies wielded their control of city contracts to personally enrich themselves to the tune of tens of millions a year—the equivalent of billions in today’s dollars.
Most newspapers in New York were also held within Tweed’s grip. In his 1901 book
The History of Tammany Hall
, the historian Gustavus Myers describes the largesse the Tammany machine famously showered on the press.
One paper at the Capital received, through his efforts, a legislative appropriation of $207,900 for one year’s printing, whereas $10,000 would have overpaid it for the service rendered. The proprietor of an Albany journal which was for many years the Republican organ of the State, made it a practice to submit to Tweed’s personal censorship the most violently abusive articles. On the payment of large sums, sometimes as much as $5,000, Tweed was permitted to make such alterations as he chose.
Unfortunately for Tweed, however, some publications were unwilling to look the other way. Beginning in the late 1860s, the
New York Times
, then a Republican newspaper, began publishing a stream of exposés and editorials highlighting the corruption of Tammany Hall. They were joined by the political cartoonist Thomas Nast, whose popular caricatures in
Harper’s Weekly
lampooned Tweed as a bloated symbol of greed and corruption. Tweed was reportedly so frightened that Nast could turn public opinion against him that he offered the cartoonist a few hundred thousand dollars to cease his attacks, only to be rebuffed.
Responding to evidence of rampant corruption, the Democratic state assemblyman and committed reformer Samuel Tilden bucked the interests of his fellow party members and pursued the prosecution of Tweed, the impeachment of corrupt judges, and the eventual breakup of his own party’s machinery. Such bold action seems unthinkable today, yet Tilden’s attempts to enforce the rule of law did not render him a pariah doomed to spend the rest of his career advocating from the fringe. Indeed, the outcome was quite the opposite: he became a folk hero. Tilden prevailed in having Tweed and his cronies tried and convicted, rode a wave of popular support into the governorship in 1874, and eventually won the presidential election of 1876 (only to have the presidency stolen from him by Rutherford B. Hayes).
Tweed, on the other hand, was destroyed. As recounted in Albert Bigelow Paine’s 1904 biography
Thomas Nast: His Period and His Pictures
, at one point Tweed escaped custody and fled to Spain, only to be recognized due to his resemblance to the cartoon depictions of him in
Harper’s Weekly
and extradited back to America. Redefining poetic justice, Tweed was literally done in by a cartoon and eventually died in prison—powerless, broke, and disgraced.
Besides wielding tremendous political power, Boss Tweed was an immensely wealthy man: one of the largest landowners in New York City, with vast holdings in a wide variety of enterprises. But he was brought down thanks to the efforts of a Republican newspaper, a political cartoonist, and a determined reformer willing to confront the misdeeds of his own political party. One cannot even imagine a modern equivalent of this coalition.
A few decades later, an aggressive new reformer put on Tilden’s mantle: Theodore Roosevelt. After leaving his post as the secretary of the navy to command the “Rough Riders” cavalry regiment during the Spanish-American War, Roosevelt decided to try his hand at electoral politics. He won the governorship of New York in 1898 as a Republican and proceeded to root out corruption in his own party. Roosevelt hated injustice with a passion unrivaled by any of his contemporaries, and he was such a thorn in the side of the New York machine that in 1900, the Republican political boss Thomas Collier Platt maneuvered to place him on the incumbent president William McKinley’s ticket as vice president just to get him out of the way.
Believing that the vice presidency, with its lack of any official function, would neutralize Roosevelt’s aggressive reform agenda, the New York machine encountered some serious bad luck: after only six months in office, Roosevelt ascended to the presidency following McKinley’s assassination. Thus empowered, Roosevelt immediately mounted a vigorous crusade against the nation’s richest and most powerful business elites, leading to his famous nickname of “Trust-Buster.”
The turn of the twentieth century was a high point in the annals of unchecked corporate power: monopolistic corporations were strangling competition, workers were being maimed and killed inside unsafe factories, and dangerously contaminated food products were being distributed to consumers. Roosevelt recognized that business had effectively placed itself above the law, and called for bold action. In his first inaugural address, he demanded rigorous oversight: “Great corporations exist only because they are created and safeguarded by our institutions; and it is therefore our right and our duty to see that they work in harmony with these institutions.”
Roosevelt backed up his aggressive talk with vigorous activity. Despite being a member of the antiregulation Republican Party, he persuaded Congress (over the objections of the business community) to create the Department of Commerce and Labor, and signed into law the Meat Inspection and Pure Food and Drug Acts of 1906. Responding to unfair business practices uncovered by the newly formed Bureau of Corporations, Roosevelt’s attorney general initiated forty-four lawsuits, targeting companies such as Standard Oil and J.P. Morgan for their violations of the previously dormant Sherman Antitrust Act of 1890.
Like the founders, Roosevelt understood that the greatest remedy against corruption is the light of day. In painfully stark contrast to the see-no-evil mentality of today, Roosevelt’s inaugural address outlined the need for public scrutiny of the private sector.
The first essential in determining how to deal with the great industrial combinations is knowledge of the facts—publicity. In the interest of the public, the government should have the right to inspect and examine the workings of the great corporations engaged in interstate business. Publicity is the only sure remedy which we can now invoke. What further remedies are needed in the way of governmental regulation, or taxation, can only be determined after publicity has been obtained, by process of law, and in the course of administration. The first requisite is knowledge, full and complete—knowledge which may be made public to the world.
For Roosevelt, trust-busting was not just about fairness and the spirit of competition; it was equally about justice and the rule of law. In a 1906 speech titled “The Man With the Muck Rake,” he highlighted his disgust with power-abusing elites: “My plea is not for immunity to, but for the most unsparing exposure of, the politician who betrays his trust, of the big business man who makes or spends his fortune in illegitimate or corrupt ways. There should be a resolute effort to hunt every such man out of the position he has disgraced.” Starkly reaffirming his commitment to the principles of the rule of law, Roosevelt remarked: “The eighth commandment reads, ‘Thou shalt not steal.’ It does not read, ‘Thou shalt not steal from the rich man.’ It does not read, ‘Thou shalt not steal from the poor man.’ It reads simply and plainly, ‘Thou shalt not steal.’”