New York Attorney General Eric Schneiderman is throwing his weight around Wall Street and Washington. Shortly after taking office last year, the state’s top prosecutor launched a hunt on the Street for evidence that mortgage-backed securities were fraudulently packaged and sold in ways that fueled the 2008 financial crisis. He is suing some of the nation’s largest banks—Bank of America, JPMorgan Chase, and Wells Fargo—for improper foreclosures. This year, Schneiderman’s threat to walk away from a nationwide, $25 billion robo-signing settlement led President Obama to give him a key role on a Justice Department task force investigating mortgage fraud. Edited excerpts from his interview with National Journal follow.
NJ Two of your recent predecessors who went on to become governors, Eliot Spitzer and Andrew Cuomo, were famous for going after the financial industry. Are you following in their footsteps?
SCHNEIDERMAN I don’t really view it that way. One of the things that I became aware of when I was campaigning around the state is that people have really lost confidence in the financial-services sector. They felt as though we went from being a nation of savers to being a nation of investors and then woke up to find that we were in a rigged casino. It is tremendously important to restore that trust. Part of the way for rebuilding that is for people to have confidence that possible misconduct is being scrutinized, and if there are civil and criminal liabilities they are enforced with one set of rules for everyone.
NJ What should the public expect?
SCHNEIDERMAN There may be some things that happened that were illegal, and if that’s the case, the law has to be enforced no matter how big someone’s position is or high up in the power structure they are. If there are some things that were legal that shouldn’t have been, then getting the facts out might be helpful in the process of writing these rules prospectively. There are a lot of folks out there who believe this was not just market forces at work. That’s going to get completely aired out.
NJ What’s your assessment of the Obama administration’s record on holding Wall Street accountable?
SCHNEIDERMAN Since I’ve gotten engaged, there has been an increasing intensity in the desire to see this stuff aired and to pursue these investigations, and I’m very pleased that the president has followed through by creating the working group and committing more resources. HUD Secretary Shaun Donovan is someone who does take these issues very seriously and wants to come up with creative ways to provide relief.
NJ Talking about accountability, there has been a lot of criticism of Congress and the regulators. What is your evaluation of their response?
SCHNEIDERMAN It’s more of a mixed bag. In my view, there were some regulatory mistakes. Some of the folks in Congress did a very good job. Senator Carl Levin’s Permanent Subcommittee on Investigations did an excellent job, and we’ve gotten information from them about things they looked into.
NJ How concerned should we be about future crises? Do we have adequate protections in place?
SCHNEIDERMAN There are further reforms that could be undertaken. One of the reasons we are going through this process is to get the facts out there clearly so no one can rewrite history. A lot of what we have heard in the last couple of years is, “Oh, well, deregulation was not a problem,” or the refusal to regulate derivatives was not a factor, or the fact that they changed the risk rating for mortgage-backed securities so banks had to set aside less capital. These were all issues that are worthy of scrutiny. There were lessons learned, and we have to make sure the lessons are not distorted to push a political agenda that is based more on ideology than on facts.
NJ How much of what fueled the crisis was actually illegal versus reckless?
SCHNEIDERMAN Even folks looking at the same set of facts would probably estimate those things differently. That’s why it’s important to get the whole story out. There was some reckless deregulation that led up to it, that made things legal that should have been illegal, but also there was probably some degree of misconduct, and that is obviously the focus of our ongoing work. The misconduct took place in an atmosphere of pooling and selling as many mortgage-backed securities as they could.
NJ Many people speculate that the president created the mortgage-investigation working group to win your support for the robo-signing settlement. How did you land a lead role in this joint investigation?
SCHNEIDERMAN I objected to the initial settlement of the foreclosure-abuse issues (robo-signing and other things) because I was concerned that too little attention was being paid to the issue of what kind of releases would be granted to the banks. I wanted to make sure we didn’t release claims that had not been fully investigated. So it was really the fact that the releases were narrowed; that’s what enabled me to sign on to the settlement, but that’s what also enabled the president to set up this working group and dedicate these resources to doing these investigations. So it was really a parallel matter.
This article appears in the June 16, 2012, edition of National Journal Magazine.