The man New Yorkers elected as their latest Sheriff of Wall Street seems so much smaller than one expects a man in such an outsize job to be, sitting behind his huge desk flanked by a potted rubber plant on one side and the state flag on the other. Behind him, the behemoth black iron shell of the Freedom Tower — Manhattan real estate’s rough, unfinished rebuke to terrorists — hogs the sky and blocks out the sunset.
Low-key and boyish-looking at 55, New York Attorney General Eric Schneiderman is the American progressive movement’s best and probably last hope for some kind of public retribution against the banksters, some righting of wrongs — rolling of heads — as far as the Great Recession. Yet, he is the anti-Spitzer, in style, if not substance. He has none of Eliot’s dominating physicality, none of the hawk-eyed vigor of the man striding around town with everyone’s high hopes riding on his shoulders, until he fell, quite literally, on his own figurative sword. This reasonable character could not, one hopes, turn out to be Client 10.
Schneiderman, like Obama, comes from the low-drama school of political presentation. He doesn’t get red-in-the-face mad. He doesn’t seduce. He’s earnest and self-effacing and pedagogical. But unlike the president, he has a steady refusal to back down and a ready willingness to fight. He is the antihero that boiling mad progressives hope can manacle and perp-walk those responsible for the financial crisis.
Schneiderman may not disappoint. In an interview with Salon in his office, Schneiderman refused to get specific about criminal or civil, jail time or fines. But he made clear that he has committed time and staff to an investigation with goals that go well beyond extracting $20 billion in exchange for release from prosecution, the deal that his fellow state attorneys general have tossed onto the table down in Washington, and which the Obama administration would like to see him sign.
“The people who caused this crash have to be held accountable and I don’t detect any diminution in the desire of the people of New York for that basic kind of justice to be done,” he said. “Part of this [investigation] is to air this out and expose it so we can make sure it never happens again.”
What everyone wants to know, of course, is can he play to win in the contact sport of Wall Street litigation? If, as he says, his time in the New York Assembly taught him that politics was “a contact sport,” it was football. The Wall Street game is more extreme, Thai boxing, maybe. I asked him if he thought he had what it might take — the starch, the fight and the clean trou with which to wade into battle. I asked, or rather told him, his fight was “dangerous.”
“Well, we’ll find out, won’t we?” he shrugged.
As if responding on cue to that taunt, the New York Post reported two days later that one of Schneiderman’s staff attorneys had been moonlighting as a dominatrix for hire under the name Alisha Sparks. In her day job, she had negotiated deals with errant bankers, by night she was allegedly taking money to whip submissive men into states of bliss. Schneiderman promptly put her on unpaid leave on the basis of the charge that she had broken the rule against outside employment. His press secretary assured me that Sparks hadn’t come anywhere near the current ongoing investigation. But financial bloggers immediately smelled a rat and suggested the outing was just the beginning of a coordinated dirty war on Schneiderman’s office as he turns up the heat with bank subpoenas.
“I think the banks are very scared,” said Tom Adams, a former securities insurer who now writes about the banking industry for nakedcapitalist.com. Adams says he believes Schneiderman has no shortage of hurt and angry former Wall Street players willing to talk to him about what went down.
“To impose accountability seems to be an overarching theme for him, by pursuing this in a way the SEC hasn’t,” Adams went on. “A crisis happened and there were people responsible. I think he has fertile territory in MBS [mortgage backed securities] and CDOs [collateralized debt obligations] and if he actually names individuals and gets meaningful time, that would be significant, more than taking away the jets or the Hamptons homes.”
For all his mildness, Schneiderman disdains the current discourse of Washington.
“One of the things that concerns me right now is this effort to rewrite history, to move us away from the fact that it was bad deregulatory moves and greedy, risky conduct that caused this to happen and that it wasn’t the fault of the teachers and cops and firefighters who now seem to be the targets of this effort to cut spending. The markets didn’t crash because we were paying too much to teachers.”
Nice words to hear from someone with subpoena power on Wall Street. But in June, Iowa Attorney General Tom Miller booted Schneiderman off the 50-state AG’s committee that’s been trying to make its own deal with the banks over mortgage servicing. Miller’s spokesman in Des Moines said Schneiderman’s desire to go after the big fish — the investors and banks — would hurt consumers.
“We are trying to focus on homeowners, not investors,” said Geoff Greenwood of the Iowa AG’s office. “We are focused on foreclosure, servicing. We are not trying to address everything under the sun in connection with our financial crisis and we think that by including securitization we are definitely stalling the case, broadening beyond homeowners and potentially pitting homeowners against investors.”
Schneiderman responds that he’d rather not “get into a tit for tat” over what happened with the Iowa AG, but insisted that their tack is too narrow. So, he’s pursuing a New York-based investigation, which may or may not lead to a separate and better deal, leveraged with depositions and subpoenaed documents revealing facts about the mortgage servicing issues that affect consumers, and also the so-called securitization issues — the mortgage-backed securities and CDOs, investor products that actually led to the economic crash still playing out on the shabby streets and foreclosed homes of Main Street America.
“The sense of public confidence has been eroded so badly,” he says. “People still haven’t gotten over the crash and the bailout … and people are not going to be satisfied until they have a sense that those responsible have been held accountable. This was a man-made catastrophe.”
Schneiderman said his office is “digging into” earlier phases of the mortgage-backed securities era. “Origination, the pooling of loans by the banks, the securitization, sale,” he said, and activities after 2004, when the housing bubble started filling with air, and the numbers of mortgages dropped. “That’s when things started to shift and you can see this whole process of — making money of these securitizations was so profitable, that it didn’t stop when it should have stopped.”
Around the same time, he noted, investors began scrutinizing MBS more carefully, and diverting money into the more complex but also troubled collateralized debt obligations. As everyone knows in hindsight, the quality of mortgages deteriorated, the quality of securities deteriorated, and it all collapsed. “We are looking at what caused that to happen and what people were doing and what people knew,” he said.
The same well-heeled Manhattan stream that spawned Spitzer also produced Schneiderman. He’s a privileged, Jewish native of the Upper West Side, where he still dwells. His dad was a lawyer, he attended the city’s elite Trinity prep school and then Harvard Law. Schneiderman’s trajectory into politics was a little less perfectly aimed, or perhaps a little more perfectly progressive. He seems to have collected all the progressive merit badges. Besides a stint helping out his aunt running an abortion clinic in Washington before Roe v. Wade, when he was 17, he spent a college year in China talking with people there about Vietnam, and worked in a jail in the Berkshires, in western Massachusetts, starting up a drug and alcohol program.
He spent 15 years with a corporate firm and occasionally defended bankers and financiers. But he gravitated toward pro bono work, and eventually decided to run for the New York state Senate. There, he managed to so irritate the Republicans in control that they attempted to gerrymander him out of a job by redrawing his West Side district to include all of Hispanic Washington Heights and Inwood, and almost none of white, Jewish, Upper West Side New York. He won anyway and learned some “political Spanish” along the way. “I know how to say the state budget is not balanced in Spanish,” he said.
New York Public Interest Group lawyer Gene Russianoff worked with Schneiderman when the public action group sued the transit authority over a fare hike, on civil rights grounds, and won. “He was like a gift from the gods,” Russianoff said. “Politically savvy, a great lawyer and really good on his feet. He made things happen, but he’s not your table-banging extemporaneous politician. He’s thoughtful.” Russianoff recalled sharing space at a news conference with him when he was a state senator. Schneiderman leaned over and drily advised, “Answer all the questions: The sponsor has not read the bill.”
Schneiderman deflects comparisons with Spitzer, with whom he is friendly. “Look, I did not expect to get engaged in this more national level. The difference is, Eliot brought cases because he had jurisdiction” — cases that no one in the Bush administration Securities and Exchange Commission or Justice Department would have bothered with at the time. “This is a very different time. This is more politically significant than nationally significant. I think the Indian Point case [a groundbreaking action against nuclear power] was a case of national significance.”
Given that he’s now running a case of national political significance, the question is, can he withstand the heat, as Spitzer and, yes, Anthony Weiner — New Yorkers with similar political, if not other, passions — could not?
“I didn’t get involved in public life because I need a job or some lust for power,” he said. “I liked public policy law and I can always go back to that and if I can’t pursue my long-term vision of what I think is right and what I think is the quintessentially American mission of constantly working toward greater equality and greater justice, then I can go do something else! People think everyone in politics is like Bill Clinton, who was 8 and wanted to be president. That’s certainly not my profile.”
In pursuing his own investigation, Schneiderman has irritated the administration and the bankers, but he hasn’t buckled. He says that to believe there is any other possible way to resolve things is misguided.
“Look, this [the AG's deal] is fraying at the edges. I don’t know at what point this thing actually ends.” He admits pressure from the Obama administration to get on board: “There were sort of calls made to friends,” he said without naming names. “But my take is people who are concerned about this, borrowers, unions whose members’ pension funds got some of the bad paper, they are all very supportive.”
Since Schneiderman left Tom Miller’s pack, he has garnered the support of other AGs. Delaware’s Beau Biden (in whose state, like New York, most of the trusts were registered), Massachusetts’ Martha Coakley, Minnesota’s Lisa Swanson and Kentucky’s Jack Conway have indicated they support his tack of investigate first, negotiate later.
“He’s taking on the administration, which wants to put everything behind us without doing any work,” said Tom Adams. “The administration wants to impose best practices going forward and put everything else behind. What do you expect? The Obama chief of staff is from Chase Bank.”
Schneiderman doesn’t share progressive discontent with Obama, though. “I think that he is doing the best he can with a party on the other side that will do things that are really bad for the country just to beat him. We haven’t seen this kind of politics in my lifetime. It’s the kind of thing you expect in less developed countries.”