Well, here's the bizarre thing. You're right, now the public looks kindly on those actions. But when I began to bring those cases, people thought I was crazy. There was enormous pushback within the world of politics, where people thought I was cutting my throat politically—these are important institutions politically, socially, in terms of the economy in many areas, certainly in New York City. It was rattling the cage before it was obvious to most people that we had a problem.
But, then and now, these are very hard cases—they're not two-witness ID cases where you get two people to point say "he did it" and you're done. It's not a whodunit. It's a much more complicated task of explaining very difficult transactions, proving intentions and states of mind that are often very subtle and subject to contrary evidence. So nobody should underestimate the difficulty in these cases. Bottom line is, more cases should be brought. I hope more cases will be brought.
The MIT Press
So the attitude you encountered among prosecutors was, "Leave these guys alone and let them do their work?"
Many prosecutors had bought into the ideological perspective that prosecuting these cases was injurious to the marketplace. And that, I think, is a fundamentally wrong perspective. But it was what was there for quite some period of time.
Aren't prosecutions difficult, also, because high-level financial practices are arcane, esoteric, and complex? How can we police industries that require specialized knowledge which outsiders don't fully understand?
I'm not sure I agree with your premise. I think that the vocabulary is arcane. But the underlying impropriety is very simple. People get what conflicts of interest are. People get that telling the public to buy mortgage-back security at the same time you're betting against it, creates a tension that's undeniably wrong. The underlying concepts that have to be proven here are as simple as the concepts underlying fraud cases that have been the bread and butter for prosecutors for decades—even if the particular vocabulary on Wall Street is marginally different. Prosecutors should explain these practices in a straightforward way, and that's what good lawyers know how to do.
Your book reports that, in 2004, you stated subprime loans "are foisted on borrowers who have no realistic ability to repay them and who face the loss of their hard-won home equity when the inevitable default and foreclosure occurs." In what context did you say this?
That was an article in The New Republic, and that was the one sentence where [co-author Andrew] Celli and I really fulminated. The essay was an effort to create a larger intellectual framework for what we were doing [in the Attorney General's office]—the first sort of dim explanation of what became a slightly more complete discussion of what government should be doing in the marketplace. One of the lines of argument was that there are certain core values the government needs to protect: we don't allow child labor, for instance, not because child labor is inefficient—though it is—but because it's wrong, and government needs to enforce it. Another value we argued for is fairness, in terms of discrimination. And another was subprime debt. We had brought a number of subprime cases and there was enormous opposition to them. But we said, "This is what government has got to do."
If you were able to put your finger on the problem in 2004...why was there so much surprise in 2008?
That's a good question—I have no idea. We worked to try to pursue a lot of these subprime lending cases and the FCC and the banks shut us down. That was the case up in the Supreme Court, we didn't end up winning until either 2008 or 2009, I can't remember which—I was out of office by then. There was significant opposition. I don't know what I can tell you—there was just huge conceptual opposition to what we were trying to do.
In your book, you suggest that Wall Street knew the government would bail them out; they knew that the taxpayer troughs would hedge their risky bets. Why is this a fair assertion?
I think you can look at the evidence and say it was all very predictable. When the leaders of the major banks showed up and said cataclysm will result of you don't write us a check, the check was written. There wasn't even much of a negotiation. And let's be very clear: the check had to be written—the question was what were the terms that were attached to it? Not one of us says you should let Goldman, Citi, and Meryl go bankrupt. That would have been a cataclysm—we can't even imagine what might have happened. But there should have been some serious negotiation about what the terms of the bailout would be, who would have to accept responsibility, and what the new financial structure would look like.
What do you make of the fact that the government is urging for deep cuts to social programs, when just two years ago, we gave trillions of dollars to banks? Or when we've recently extended Bush-era tax cuts that predominately help the wealthy?
The Bush tax cuts were wrong when enacted. Those at the upper end of our income strata can and should pay more to support a government that is right now being starved. Does that mean that we shouldn't be reforming Medicare, Medicaid, and Social Security? Of course not. These are not either/or alternatives. We've got to change the structure of our entitlement system. We should fundamentally reform our tax code—those who are at the top can afford to pay a few extra percentage points in order to help pay for the sorts of investments we need to make.
The cuts these days are being required because of unwise tax decisions and misguided priorities. And also the presumption that since we turned on the spigot for Wall Street, and now we've turned it off for education, infrastructure, and environmental protection. Those are unfortunate decisions.
Do you think, considering the crises, we've seen that the no-holds-barred libertarian model of economic policy is going to fall out of fashion?
You know, I would have thought that three years ago. But—kind of remarkably—it seems still to be holding on with great strength. If you look at the Republican side of the House of Representatives, they are voting to repeal critical pieces of Dodd/Frank, et cetera. So clearly, the lesson that I thought would be learned has not been learned.