TBR News July 25, 2017

Jul 25 2017

The Voice of the White House

Washington, D.C., July 25, 2017: “There are three serious issues looming over the American political scene that no one wants to talk about.

The first is the MERS mortgage scandal, as the result of which 70 million Americans will never get clear title to their homes.

The second is the student loan scandal and the third is the steadily rising sea levels that will displace millions of Americans

These are very serious issues that the sitting government does not want to address because, like the matter of rising sea levels on the east coast (and gulf as well) they can do nothing about them.

“Not on my watch!” is their mantra.

When, not if, these three pending matters erupt so that the general public becomes fully aware of them, there will be serious problems.

I refer you to the matter of the Queen’s necklace in France for a comparison.”

Table of Contents

  • Are America’s Wars Just and Moral?
  • The Temple Mount: A clash of cultures
  • The Great Majority of Jews Today Have No Historical or Ethnic Relationship to Palestine
  • Student loan borrowers, herded into default, face a relentless collector: the U.S.
  • Meet the woman JPMorgan Chase paid one of the largest fines in American history to keep from talking


From the FAS Project on Government Secrecy

Volume 2017, Issue No. 55

July 24, 2017


By its actions and its refusals to act, the Trump Administration is changing the profile of the United States in global affairs.

Whether demonstrating disdain for longtime allies, disrupting diplomatic relationships and international agreements, or cultivating ties with authoritarian figures in Russia and elsewhere, President Trump seems to be radically altering the character and meaning of American foreign policy. But to what end?

A new report from the Congressional Research Service tries to sort through the situation, and to advise Congress on its options under the circumstances.

For the last 70 years, the U.S. has sought “to promote and defend the open international order that the United States, with the support of its allies, created in the years after World War II,” according to CRS. That may no longer be the case.

But exactly how the direction of U.S. policy is changing, whether it should change, and what it should change to are all subject to dispute. The new CRS report, by specialists Ronald O’Rourke and Michael Moodie, presents the fundamental policy questions on a fairly abstract level, without mentioning Putin, Merkel, Duterte, or other leaders with whom the Trump Administration has acted to modify U.S. relations.

See U.S. Role in the World: Background and Issues for Congress, July 12, 2017.

Scorning multilateral trade agreements, the Trump Administration risks diminishing the U.S. role in setting the rules for international trade, another new CRS publication said. A pending Free Trade Agreement between the European Union and Japan could also work to the disadvantage of U.S. firms by “increas[ing] the relative price of U.S. goods and services exports to both the EU and Japan, lowering their competitiveness in key U.S. markets.” See The Proposed EU-Japan FTA and Implications for U.S. Trade Policy, CRS Insight, July 14, 2017.

Other new and updated reports from the Congressional Research Service include the following.

Foreign Affairs Overseas Contingency Operations (OCO) Funding: Background and Current Status, CRS In Focus, July 19, 2017

Reform of U.S. International Taxation: Alternatives, updated July 21, 2017

Accounting and Auditing Regulatory Structure: U.S. and International, July 19, 2017

Economic Impact of Infrastructure Investment, July 18, 2017

Pending ACA Legal Challenges Remain as Congress Pursues Health Care Reform, CRS Legal Sidebar, updated July 13, 2017:

The Nuclear Ban Treaty: An Overview, CRS Insight, July 10, 2017

Are America’s Wars Just and Moral?

July 25, 2017

by Patrick J. Buchanan


“One knowledgeable official estimates that the CIA-backed fighters may have killed or wounded 100,000 Syrian soldiers and their allies,” writes columnist David Ignatius.

Given that Syria’s prewar population was not 10 percent of ours, this is the equivalent of a million dead and wounded Americans. What justifies America’s participation in this slaughter?

Columnist Eric Margolis summarizes the successes of the six-year civil war to overthrow President Bashar Assad.

“The result of the western-engendered carnage in Syria was horrendous: at least 475,000 dead, 5 million Syrian refugees driven into exile in neighboring states (Turkey alone hosts three million), and another 6 million internally displaced. … 11 million Syrians … driven from their homes into wretched living conditions and near famine.

“Two of Syria’s greatest and oldest cities, Damascus and Aleppo, have been pounded into ruins. Jihadist massacres and Russian and American air strikes have ravaged once beautiful, relatively prosperous Syria. Its ancient Christian peoples are fleeing for their lives before US and Saudi takfiri religious fanatics.”

Realizing the futility of U.S. policy, President Trump is cutting aid to the rebels. And the War Party is beside itself. Says The Wall Street Journal:

“The only way to reach an acceptable diplomatic solution is if Iran and Russia feel they are paying too high a price for their Syria sojourn. This means more support for Mr. Assad’s enemies, not cutting them off without notice. And it means building up a Middle East coalition willing to fight Islamic State and resist Iran. The U.S. should also consider enforcing ‘safe zones’ in Syria for anti-Assad forces.”

Yet, fighting ISIS and al-Qaida in Syria, while bleeding the Assad-Iran-Russia-Hezbollah victors, is a formula for endless war and unending terrors visited upon the Syrian people.

What injury did the Assad regime, in power for half a century and having never attacked us, inflict to justify what we have helped to do to that country?

Is this war moral by our own standards?

We overthrew Saddam Hussein in 2003 and Moammar Gadhafi in 2012. Yet, the fighting, killing and dying in both countries have not ceased. Estimates of the Iraq civilian and military dead run into the hundreds of thousands.

Still, the worst humanitarian disaster may be unfolding in Yemen.

After the Houthis overthrew the Saudi-backed regime and took over the country, the Saudis in 2015 persuaded the United States to support its air strikes, invasion and blockade.

By January 2016, the U.N. estimated a Yemeni civilian death toll of 10,000, with 40,000 wounded. However, the blockade of Yemen, which imports 90 percent of its food, has caused a crisis of malnutrition and impending famine that threatens millions of the poorest people in the Arab world with starvation.

No matter how objectionable we found these dictators, what vital interests of ours were so imperiled by the continued rule of Saddam, Assad, Gadhafi and the Houthis that they would justify what we have done to the peoples of those countries?

“They make a desert and call it peace,” Calgacus said of the Romans he fought in the first century. Will that be our epitaph?

Among the principles for a just war, it must be waged as a last resort, to address a wrong suffered, and by a legitimate authority. Deaths of civilians are justified only if they are unavoidable victims of a deliberate attack on a military target.

The wars in Syria, Libya and Yemen were never authorized by Congress. The civilian dead, wounded and uprooted in Syria, and the malnourished millions in Yemen, represent a moral cost that seems far beyond any proportional moral gain from those conflicts.

In which of the countries we have attacked or invaded in this century — Afghanistan, Iraq, Syria, Libya, Yemen — are the people better off than they were before we came?

And we wonder why they hate us.

“Those to whom evil is done/Do evil in return,” wrote W. H. Auden in “September 1, 1939.” As the peoples of Syria and the other broken and bleeding countries of the Middle East flee to Europe and America, will not some come with revenge on their minds and hatred in their hearts?

Meanwhile, as the Americans bomb across the Middle East, China rises. She began the century with a GDP smaller than Italy’s and now has an economy that rivals our own.

She has become the world’s first manufacturing power, laid claim to the islands of the East and South China seas, and told America to keep her warships out of the Taiwan Strait.

Xi Jinping has launched a “One Belt, One Road” policy to finance trade ports and depots alongside the military and naval bases being established in Central and South Asia.

Meanwhile, the Americans, $20 trillion in debt, running $800 billion trade deficits, unable to fix their health care system, reform their tax code, or fund an infrastructure program, prepare to fight new Middle East war.

Whom the Gods would destroy…


The Temple Mount: A clash of cultures

Israel has removed metal detectors from the Temple Mount site in Jerusalem. The death toll in the crisis continues to grow as the conflict takes on an increasingly religious dimension that could be difficult to control.

July 25, 2017

by Kersten Knipp


Israel’s security cabinet early on Tuesday decided to remove metal detectors at the entrance to a sensitive Jerusalem holy site, after the new security measures unleashed a deadly round of unrest.

A statement from Prime Minister Benjamin Netanyahu’s office said it would replace the metal detectors with “a security inspection based on advanced technologies and other means.”

It was unclear when the metal detectors would be removed or what advanced technologies were being planned.  Local media reported earlier that the government was considering facial recognition cameras at the entrance to the holy site, known to Jews as the Temple Mount and as Haram al-Sharif (Noble Sanctuary) to Muslims.

A rock and a hard place?

If cameras with facial recognition were installed, the idea goes, it would be possible to dismantle the metal detectors put in place by the Israeli security authorities in the foreseeable future. By doing so, the conflict, which has already claimed several lives, could possibly be defused.

The installation of the metal detectors has put the government in a quandary. “If Israel removes the metal detectors, it will be seen as caving into Palestinian pressure, and even worse, to terror,” wrote Judy Maltz, of the Israeli newspaper Haaretz. The Palestinians, on the other hand, refuse to go through the machines out of principle. In other words: Neither side is giving in. All those involved, according to Maltz, are looking for a way to save face.

Religious provocation

However, using facial recognition cameras in lieu of metal detectors could address some concerns among Palestinians: they do not seem as intimidating or imposing as being forced to walk through metal detectors. Palestinians are regularly subjected to such treatment at countless checkpoints and border crossings. They are viewed as instruments of Israeli occupation.

“What is happening is the beginning of the judaization of the Al-Aqsa Mosque, which has been planned since the founding of Israel in 1948,” wrote the popular Palestinian newspaper Al-Quds. For this reason the newspaper sees a connection between the current incidents and the visit to the Temple Mount by former Israeli prime minister Ariel Sharon in September 2000 – a move viewed by many Palestinians as a religious provocation.

Israeli journalist Shlomi Eldar highlighted another religious aspect of the latest crisis. “Sheikh Raed Salah, the leader of the northern branch of the Islamic Movement in Israel, is directly involved in the incitement” of the terrorist attack against the two policemen on the Temple Mount, Eldar wrote in online news outlet Al Monitor. The three Arab Israeli attackers were killed by security forces.

Salah, an Israeli citizen of Palestinian origin, is accused of cracking down on his opponents in his hometown of Umm al-Fahm, where he has held the post of mayor several times. One anonymous resident of Umm al-Fahm told Al Monitor’s Eldar that ever since the attack on the Temple Mount, “there is a sense of terror here toward anyone who speaks critically of the Islamic Movement.”

Witnesses said that the three attackers had regularly prayed in the mosque there, where Salah called for the “defense” of the Al-Aqsa mosque.

Political dimension

Israel’s minister for public security, Gilad Erdan, has refuted the notion that the installation of metal detectors at the Temple Mount has religious undertones. The metal detectors have “nothing sacred” about them, he argued on Israeli radio, “but at a moment when the police don’t have another effective alternative to prevent a repeat of incidents as occurred on the Temple Mount, the metal detectors will not be removed.”

The Palestinian newspaper Al-Ayam, published in Ramallah, argued that the crisis is not religious, but rather political. “Metal detectors are not the core of the problem,” the newspaper wrote. “It is rather that Israel is trying to persuade the world that this is a pure religious conflict. The danger is that the political dimension of the conflict is undermined – and with it also the rights of Palestinians to self-determination and independence and above all to form a state of their own.”

Reactions from abroad

The crisis has led to an uproar in other parts of the world. The chairman of the Arab League, Ahmed Abul Gheit, accused Israel of playing “with fire” by installing metal detectors. And Turkish President Recep Tayyip Erdogan described the measures as insulting to the Islamic world.


The Great Majority of Jews Today Have No Historical or Ethnic Relationship to Palestine

by Issa Nakhleh  LL.B

The Jews of today are composed of the Ashkenazi and the Sephardi Jews. The Sephardi Jews are the Oriental Jews wo are descendants of the Jews who left Palestine during the Christian era and migrated to neighboring Arab countries., North Africa and Spain. Some of the Oriental Jews were also converts to Judaism, such as some Berbers of North Africa who were converted to Judaism. The Tunisian Jews, Albert Memmi, a Professor of Sociology at the Sorbonne in Paris, has expressed doubt as “to whether his own ancestors in the Saraha had any historic connection to Palestine. Perhaps, he suggested, they were just Berbers converted to Judaism, since according to his information, “most North African Jews are simply Berber nomads who have accepted Judaism.”

Arthur Koestler maintains that there were many Jewish converts outside of Palestine with no biblical family roots:

‘Witness to the proselytizing zeal of the Jews of earlier times are the black-skinned Falasha of Abyssinia, the Chinese Jews of Kai-Feng who look like Chinese, the Yemenite Jews with the dark olive complexion, the Jewish Berber tribes of the Sahara who look like Tauregs, and so on, down to our prime example, the Khazars.’

The Ashkenazi Jews who lived in Russian and Central Eastern Europe and later on migrated to Western and Southern Europe, are of Khazar origin and were converted to Judaism in the 9th century A.S. The Khazar Jews have no ethnic or historical connection with Palestine. The Ahakenazi Jews who migrated to Palestine during the British mandate and who committed the crime of genocide against the Palestinian people are descendants of the Khazars. The Jewish Encyclopedia refers to the Khazars and their conversion to Judaism:

“A people of Turkish origin whose life and history are interwoven with the very beginnings of the history of the Jews of Russia. The kingdom of the Khazars was firmly established in most of South Russia long before the foundation of the Russian monarchy by the Varangians(855)…Driven onward by the nomadic tribes of the steppes and by their own desire for plunder and revenge, they made frequent invasions into Armenia…

In the second half of the sixth century the Khazar move westward. They established themselves in the territory bounded by the Sea of Azov, the Don and the lower Volga, the Caspian Sea, and the northern Caucasus…In 679 the Khazars subjugated the Bulgars and extended their sway further west between the Don and the Dnieper, as far as the the head-waters of Donetsk….It was probably about that time that the Khaghan (Bulan) of the Khazars and his grandees, together with a large number of his heathen people, embraced the Jewish religion…

It was one of the successors of Bulan, named Obadiah, who regenerated the kingdom and strengthened the Jewish religion. He invited Jewish scholars to settle in his dominions, and founded synagogues and schools, The people were instructed in the Bible, Mishnah, and Talmud…

From the work Kitab al-Buldan written about the ninth century, it appears as if all the Khazars were Jews and that they had been converted to Judaism only a short time before that book was written….It may be assumed that in the ninth century many Khazar heathens became Jews, owing to the religious zeal of King Obadia,. “Such a conversion in great masses says Chwolson (Izvyestia o  Khazaraka, p 58), ” may have been the reason for the embassy of the Christians from the land of the Khazars to the Byzantine emperor Michael…

The Jewish population in the entire domain of the Khazars, in the period between the seenth and tenth centuries, must have been considerable…

The Russians invaded the trans-Caucasian country in 944…This seems to have been the beginning of the downfall of the Khazar kingdom…The Russian prince Sviatoslav made war upon the Khazars (c.974) the Russians conquered all the Khazarian territory east of the Sea of Azov. Only the Crimean territory of the Khazars remained in their possession until 1016, when they were dispossessed by a joint expedition of Russians and Byzanatines…Many were sent as prisoners of was to Kiev, where a Khazar community had long existed…Some went to Hungary, but the great mass of the people remained in their native country. Many members of the Khazrian royal family emigrated to Spain…

Professor Graetz describes the Khazar kingdom as follows:

“The heathen king of a barbarian people, living in the north,m together with all his court, adopted the Jewish religion…Their kings, who bore the title of Khakhan or Khaghan, had led these warlike sons of the steppe from victory to victory…

It is possible that the circumstances under which the Khazars embraced Judaism have been embellished by legend, but the fact itself is too definitely proved on all sides to allow any doubt as to its reality. Besides Bulan, the nobles of his kingdom, numbering nearly four thousand,m adopted the Jewish religion. Little by little it made its way among the people, so that most of the inhabitants of the towns of the H=Khazar kingdom were Jews…At first the Judaism of the Khazars must have been rather superficial, and could have had but a little influence on their mind and manners…

A successor of Bulan, who bore the Hebrew name of Obadiah, was the first to make serious efforts to further the Jewish religion. He invited Jewish sages to settle in his dominions, rewarded them royally, founded synagogues and schools, caused instruction to be given to himself and his people in the Bible and the Talmud, and introduced a divine service modeled on that of the ancient communities…After Obadiah came a along series of Jewish Khaghans, for according to a fundamental law of the state only Jewish rulers were permitted to ascent the throne…”

According to Dr. A.A. Poliak, Professor of Medieval Jewish History at Tel Aviv University, the descendants of the Khazars-“those who stayed where they were, those who emigrated to the United States and to other countries, and those who went ti Israel– constitute now the large majority of world Jewry.”

The physiological differences between the Ashkenazim, who are mainly of Turkic Khazar origin, the the Sephardim, who are mainly of Semitic Palestinian origin, has been confirmed by scientific evidence:

“By, and large, the Sephardim are dolichocephalic (long-headed), the Ashkenazim brachycephalic (broad-headed)…The statistics relating to other physical features also speak against racial unity…The hardest evidence to date come from classification by blood groups.”The thirteenth Tribe by Arthur Koestler pps. 232-233

Thus both historical and physiological evidence negate any historical claims to being of Palestinian origin to the European Jews in Israel and to the majority of Jews in the world.


Student loan borrowers, herded into default, face a relentless collector: the U.S.

The Education Department and its loan servicers, many of them accused of steering debtors away from affordable repayment plans, are clawing back billions of dollars by going after wages, tax refunds and even Social Security benefits.

July 25, 2017

by Michelle Conlin


PHILADELPHIA – Lakisha Johnson figured all she needed was her 2016 tax refund to get her and her daughter out of a homeless shelter and back into a place of their own.

The U.S. Department of Education had other plans.

Johnson, a home health aide, and 12-year-old Aijiah were forced to move out of their West Philadelphia apartment just before Thanksgiving last year, after the landlord jacked up the rent from $675 to $875. Soon, they were living on a bunk bed in the shelter a few blocks from Aijiah’s school. The girl was petrified that a classmate would see her using the secured entrance of the crowded, noisy shelter.

With the $13 an hour she earns caring for her elderly charges, Johnson planned to stay at the shelter — or with anyone who would let the two sleep on a floor, a couch or a spare mattress — until April. In past years, that’s when she received her federal Earned Income Credit tax refund.

The check never came.

On the phone, an Internal Revenue Service agent told her the Department of Education (DOE) was “holding back” the $8,220 refund to recoup some of her student loan debt. It would probably do the same next year, the agent told her, to recover the rest of the nearly $17,000 she owed.

Johnson was confused. The two student loans she took out in 2006 in hopes of becoming a medical assistant amounted to only $6,625. Whenever she fell behind on her payments, she would be enrolled in one of the forbearance plans promoted in a continuous stream of emails she received from Navient Corp, the largest loan servicer working under contract for the DOE. An Oct. 4, 2011, email, for example, stated: “You may be able to qualify for a deferment or forbearance, which can postpone your loan payments and keep your loan from going into default.”

She was learning only now that those plans, while allowing her to stall payments, didn’t stop her debt from ballooning as interest and fees piled up. And she was now in default, prompting the DOE to move to collect.

That was only the half of it. Until contacted by Reuters, Johnson didn’t realize that she could have avoided the entire ordeal by enrolling in one of the government’s income-based repayment plans — an option she said Navient never discussed with her. Most of these plans allow for monthly payments as low as zero and forgive any remaining debt after 20 years.

“I didn’t think it was going to double up or stack up, or cause me to lose the money I had worked for this whole time,” she says. “This is a big hit. They’ve put me in a deep situation.”

It’s a situation Johnson shares with many of the 8 million borrowers in the United States who are in default on a combined $137.4 billion in government-held or government-backed student loans.

Today, 11 percent of the $1.325 trillion of federal student loans outstanding is severely delinquent or in default, higher than the mortgage default rate at the peak of the foreclosure crisis in 2010, according to data from the Federal Reserve Bank of New York.

Some of these debtors are deadbeats, of course, unwilling to make payments they can afford. But many are borrowers of limited means who ended up in default unnecessarily, after Navient and the DOE’s other servicers steered them away from affordable repayment plans and into options that reduce the servicers’ costs, according to state and federal investigators and regulators, consumer advocates and a growing number of lawsuits and complaints filed against loan servicers.

The defaulted borrowers then become targets of the DOE’s debt collectors. These firms, some of them owned by the loan servicers, wield the federal government’s broad powers to garnish the wages of borrowers, as well as parents and grandparents who co-signed the loans. When wages are insufficient to garnish, the DOE can have the Treasury Department withhold tax refunds and reduce Social Security payments.

Since the summer of 2015, student loan servicers and private debt collectors have garnished about $3 billion in wages, a Reuters review of federal data shows. And last year, the DOE’s collections through “Treasury offsets” — tax refund seizures and Social Security benefit reductions — totaled $2.6 billion, up from $2.2 billion in 2015. Since 2009, the government has used the tools at its disposal to claw back at least $15.2 billion.


Default, which usually occurs when a borrower hasn’t made a payment for 270 days or more, can make it only harder for a debtor to regain financial stability. It can trash credit scores, scaring off potential employers. It can disqualify debtors for auto loans, apartment rentals, utilities and even cellphone contracts. In about 20 states, student loan borrowers who default can lose their driver’s and professional licenses.

“We treat struggling student loan borrowers the same as deadbeat parents and tax cheats,” said Seth Frotman, the student loan ombudsman of the federal Consumer Financial Protection Bureau (CFPB). “Even gambling addicts have more protections.”

Since 2011, tens of thousands of borrowers and co-signers have filed complaints against Navient with the CFPB and other government and regulatory agencies.

In January, the CFPB filed a lawsuit against Navient in Pennsylvania federal court, alleging that the company systematically cheated customers by not fully informing them of their repayment options and instead guided them into forbearance or deferment programs that benefited the company. Setting up an income-based repayment plan requires paperwork and person-to-person interactions that are more costly for the servicer than forbearance, which typically requires only a phone call.

The same month, state attorneys general in Washington and Illinois filed similar lawsuits against the company.

The CFPB said it found that by putting 1.5 million borrowers in consecutive forbearances, Navient added $4 billion to outstanding student loan debt.

Part of the problem is that the “the DOE is doing business with (the loan servicers) as partners, not as overseers,” said Rohit Chopra, a former official with the DOE and the CFPB who is now a senior fellow with the Consumer Federation of America, an association of consumer watchdog groups.

Education Department Press Secretary Liz Hill agreed that the current student loan system is “a mess” and that “income driven repayment plans are confusing.” She added that the department is working to enhance its “oversight capacity.”

Responding to the CFPB lawsuit, Navient, in a court submission that made headlines, said: “There is no expectation that the servicer will act in the interest of the consumer.” The company’s job, it said, was to collect payments.

Navient Chief Executive Officer Jack Remondi, in an interview with Reuters, disputed the allegations. He said borrowers serviced by Navient are 31 percent less likely to default than borrowers serviced by others. Of those who default, he said, 90 percent never respond to “any attempts” to reach them to discuss repayment options. Publicly listed Navient was spun off in 2014 from the loan-servicing arm of Sallie Mae, a major provider of federal student loans until the Obama administration made the DOE the sole originator of such loans.

Remondi blamed rising student loan defaults on “the front end of the process,” such as the government policy of lending to borrowers regardless of their credit standing and without consideration of “whether the investment they are making is reasonable.”

Navient, which services more than $300 billion in federal and private student loans, attracts the most attention among loan servicers. But according to CFPB reports and documents, the widespread problems borrowers encounter involve all of the largest student loan servicers.

“There is no expectation that the servicer will act in the interest of the consumer.”

Navient Corp’s response to a CFPB lawsuit accusing it of not fully informing borrowers of their repayment options

In May, a CFPB data analysis found that from 2012 through 2015, ninety percent of the highest-risk student loan borrowers were not enrolled in any of the government’s affordable repayment plans by the borrowers’ loan servicers.

“There is an uncanny resemblance between the foreclosure crisis and our student default dilemma,” said Chopra, the Consumer Federation senior fellow.

He and others said that in both instances, loan servicers did not act in the best interest of borrowers, directing them into more expensive payment options, providing them with misleading information and mishandling paperwork — all with the aim of driving up borrowers’ costs and the servicers’ own income.

Consumer advocates complain that the administration of President Donald Trump is making things harder for student borrowers. For example, it has eliminated a 2015 Obama administration guideline that prevented debt collectors from charging high interest rates — some as high as 16 percent — on borrowers in default who quickly resume payments.

DOE Press Secretary Hall countered that Education Secretary Betsy DeVos is taking actions “which will lead to significant reductions in the usage of forbearances, while also allowing borrowers to more effectively manage their debt.” Among those actions: reducing to one from five the number of income-based repayment plans and changing the fee schedule to give servicers an incentive to place borrowers in income-driven plans.

In May, DeVos announced that the department will replace the nine student loan servicers it now uses with a single contractor. Under the new contract, the servicer will no longer be required to provide borrowers with a breakdown of repayment options, but it will have to apply payments in a way that “automatically maximizes the benefit of each overpayment and underpayment for the borrower.”

Among the three finalists to obtain the single-servicer contract: Navient. The company’s shares have rallied 14 percent since DeVos’s announcement.


One day in 2015, Brandon Palmer sat down in his room at his grandmother’s house in Hoover, Alabama, and typed in a Google search: “how many people are suicidal over their student loans?”

About a third of distressed borrowers, he figured as he pored over hundreds of their narratives on the website Student Debt Crisis, a nonprofit advocacy group.

Palmer borrowed $49,533.71 to get an associate’s degree in computer design at Virginia College in Mobile, Alabama. Seven years and hundreds of resumes and inquiries later, he hasn’t been able to get a job in the field. He earns $11 an hour working at electronics store Best Buy, and gets a little extra as a reservist in the Alabama National Guard, to try to meet his monthly student loan payments of more than $600.

It isn’t always enough. The 27-year-old concedes that his loans have bounced in and out of delinquency and default. He has called Great Lakes Higher Education Corp, a Madison, Wisconsin, nonprofit student loan servicer, to help him work out an affordable repayment plan. He said the servicer has never told him he is eligible for any kind of income-based relief and only ever asks him how much he can pay.

“If another nation were to say, ‘Hey, come here, and become a citizen, and we will waive your student loans,’ do you know how fast I would get on that plane?” Palmer said.

Great Lakes did not respond to requests for comment. In February, a borrower filed suit against Great Lakes in federal court in East St. Louis, Illinois, alleging that the servicer steered borrowers away from affordable repayment plans and into costlier options. The plaintiff’s lawyers are seeking class-action status. Great Lakes filed a motion to dismiss.

Palmer’s predicament reflects how the changing economics of higher education have placed many borrowers in a tightening financial vise.

In the 1980s, the U.S. government started to privatize the administration and collection of federally backed student debt. Back then, the sums borrowed were small. Defaults were rare, and they were treated harshly under federal collection guidelines.

The guidelines remain largely untouched, though much else has changed. In 1990, less than half of high-school graduates went on to college. They paid an average annual tuition of $9,340 at a private, four-year college. Today, more than 70 percent of high-school grads go to college, paying an average annual private-school tuition of $35,000.

Graduates of the Class of 2016 owe an average of $37,000 each in student loans. Total student loans outstanding  — the $1.325 trillion in federally backed loans, and $115 billion more in private loans — is second only to home mortgages among categories of consumer debt and the major reason Americans’ household debt is now at a record high, surpassing levels during the worst of the Great Recession.

The thinking among policy officials was that graduates would be able to land premium jobs that would enable them to pay off their loans. But as tuition inflation soared, earnings for college graduates stagnated. Many graduates, like Palmer with his computer design degree, simply can’t find work in their chosen field. “They won’t hire you for entry level unless you have experience,” Palmer said.


When borrowers lose the struggle to keep up on their payments, the DOE’s loan servicers don’t hesitate to go after them.

Theresa Colasuonno, a 64-year-old registered nurse in Brooklyn, New York, borrowed $240,000 in the 1990s to send her two children, one of them a Fulbright scholar, to college. For two decades, she made payments, shaving the balance down to $47,000.

Then, in 2015, Colasuonno’s disabled husband suffered a series of heart attacks and was in and out of intensive care. Colasuonno took unpaid leave to care for him. Medical bills, and unopened mail, piled up. “My head wasn’t all on top of everything,” she said.

That October, back at work, she opened a letter from her loan servicer, the Pennsylvania Higher Education Assistance Agency (PHEAA), stating that it would begin garnishing her wages unless it heard from her by Nov. 21, 2015. She filled out all the paperwork and sent it back to the company. A PHEAA employee acknowledged receipt of the parcel with a company stamp on Nov. 2, 2015, postal records reviewed by Reuters show.

The servicer told Colasuonno it never received anything and refused to acknowledge the mailing. In February 2016, PHEAA began taking $1,100 a month from her paycheck. With late fees and penalties, her debt outstanding has grown to more than $60,000.

PHEAA told her that the only way to escape the garnishment was to pay an additional $1,800 a month for five months — an amount that would swallow more than half her paycheck.

“I don’t expect anything for nothing,” Colasuonno said. “But they are making it impossible.”

Colasuonno’s plan to retire next year and spend more time with her dying husband is on hold: PHEAA has told her it would take 15 percent of her Social Security benefits, too.

PHEAA spokesman Keith New said the agency would not comment on Colasuonno’s situation because she had sought legal counsel. He also said the Education Department had asked the agency to refer press inquiries about servicing federal student loans to the department. But in an email to Reuters, the DOE said it “does not speak on behalf of PHEAA. Therefore, the questions addressed for them should be responded to by them.”

In June, the Massachusetts attorney general told PHEAA that it was under investigation for “consumer protection” issues related to federally backed student loans.

Colasuonno and others in her situation don’t have recourse to personal bankruptcy to get out of their fix. Because of the many ways the government provides for repayment, student loans — unlike credit card bills, home mortgages, or even gambling debts — can’t be discharged in personal bankruptcy. The only way to get rid of the debt is to pay it off, or die.

At the same time, the DOE’s debt collectors aren’t subject to some of the federal rules designed to protect consumers from aggressive collection tactics, such as robo-calling borrowers’ employers. They don’t even need a court order or a judge’s signature to reach into bank accounts to claw back funds.

The number of Americans who have had their wages or Social Security benefits garnished or their tax refunds seized jumped 71 percent in the five years ended September 2015, according to the Government Accountability Office. In fiscal 2015 alone, the federal government garnished the Social Security checks of 173,000 borrowers, up from 36,000 in 2002.

“The DOE should be working with students to make sure they are getting the benefit of the programs Congress created, and they simply aren’t,” said Noah Zinner, an Oakland, California, consumer attorney. Among his clients is a wheelchair-bound 70-year-old who is fighting a cut in his disability check to collect his student loan debt.


Johnson, the homeless home health aide, worked as a janitor, a hair salon assistant, a used-car salesperson, an office assistant and a sales associate at a Wet Seal clothing store before signing up for classes at Katharine Gibbs School in 2006. Her goal was to get an associate’s degree that would lead to steady work as a medical assistant.

Once in, Johnson heard frequent complaints from other students that the for-profit school didn’t help them find jobs and that it was in financial difficulty. She decided to quit. The next year, the school closed its doors.

By 2011, Navient, then called Sallie Mae, was regularly sending her emails offering her deferment or forbearance. The emails came with an application for “request for forbearance” attached, including an automatic electronic debit authorization form. She continued to receive similar emails in 2012 and 2013.

The company said it called and sent letters to Johnson to inform her of affordable income-based repayment plans. Navient supplied Reuters with copies of four letters, one of which, for example, says in bold print at the beginning: “Protect your credit rating and avoid default” by “making a payment.” Toward the bottom, in fine print, the letter says: “You may be eligible for reduced payments through a different payment plan, such as graduated repaying, income-based repayment or extended repayment.”

Johnson said she didn’t know about the letters until Reuters showed the copies to her. She said they were sent to an obsolete address where she hadn’t lived for years.

In late 2013, Johnson signed paperwork with a new servicer, PHEAA, whose representative on the phone told her that what she was signing would result in forgiveness of her loan if she made just one more $5 payment. Johnson did not read the fine print; she had actually signed an agreement to consolidate her loans, with an income-contingent repayment plan.

After that, she said, she never heard from the servicer again, and assumed that all was well — until that day in April, months after she had already moved out of her apartment and into a shelter to escape rising rent, when the Internal Revenue Service agent told her that her tax refund had been withheld.

A lawyer at a legal-services nonprofit wrote a letter for her to the DOE, asking that the tax refund be released under the department’s policy on hardship claims. In its rejection letter, the DOE said that “extreme financial hardship occurs when a borrower is facing eviction or foreclosure.”

Johnson is still trying to scrounge up the first and last months’ rent, plus security deposit, she needs to lease a new place, though landlords are likely to balk after seeing the default on her credit report. To save money, she didn’t send Aijiah to camp or classes this summer. She has also nixed Aijiah’s favorite treat: the $4.19 cheesecake smoothies from the Wawa convenience store.

On a few nights, Johnson has dug into her savings to spend $69 for a motel room. There, she and her daughter take hot showers, blast the air conditioning and pretend that they are “normal.”


Meet the woman JPMorgan Chase paid one of the largest fines in American history to keep from talking

November 6, 2014

by Matt Taibbi

Rolling Stone

She tried to stay quiet, she really did. But after eight years of keeping a heavy secret, the day came when Alayne Fleischmann couldn’t take it anymore.

“It was like watching an old lady get mugged on the street,” she says. “I thought, ‘I can’t sit by any longer.'”

Fleischmann is a tall, thin, quick-witted securities lawyer in her late thirties, with long blond hair, pale-blue eyes and an infectious sense of humor that has survived some very tough times. She’s had to struggle to find work despite some striking skills and qualifications, a common symptom of a not-so-common condition called being a whistle-blower.

Fleischmann is the central witness in one of the biggest cases of white-collar crime in American history, possessing secrets that JPMorgan Chase CEO Jamie Dimon late last year paid $9 billion (not $13 billion as regularly reported – more on that later) to keep the public from hearing.

Back in 2006, as a deal manager at the gigantic bank, Fleischmann first witnessed, then tried to stop, what she describes as “massive criminal securities fraud” in the bank’s mortgage operations.

Thanks to a confidentiality agreement, she’s kept her mouth shut since then. “My closest family and friends don’t know what I’ve been living with,” she says. “Even my brother will only find out for the first time when he sees this interview.”

Six years after the crisis that cratered the global economy, it’s not exactly news that the country’s biggest banks stole on a grand scale. That’s why the more important part of Fleischmann’s story is in the pains Chase and the Justice Department took to silence her.

She was blocked at every turn: by asleep-on-the-job regulators like the Securities and Exchange Commission, by a court system that allowed Chase to use its billions to bury her evidence, and, finally, by officials like outgoing Attorney General Eric Holder, the chief architect of the crazily elaborate government policy of surrender, secrecy and cover-up. “Every time I had a chance to talk, something always got in the way,” Fleischmann says.

This past year she watched as Holder’s Justice Department struck a series of historic settlement deals with Chase, Citigroup and Bank of America. The root bargain in these deals was cash for secrecy. The banks paid big fines, without trials or even judges – only secret negotiations that typically ended with the public shown nothing but vague, quasi-official papers called “statements of facts,” which were conveniently devoid of anything like actual facts.

And now, with Holder about to leave office and his Justice Department reportedly wrapping up its final settlements, the state is effectively putting the finishing touches on what will amount to a sweeping, industrywide effort to bury the facts of a whole generation of Wall Street corruption. “I could be sued into bankruptcy,” she says. “I could lose my license to practice law. I could lose everything. But if we don’t start speaking up, then this really is all we’re going to get: the biggest financial cover-up in history.”

Alayne Fleischmann grew up in Terrace, British Columbia, a snowbound valley town just a brisk 18-hour drive north of Vancouver. She excelled at school from a young age, making her way to Cornell Law School and then to Wall Street. Her decision to go into finance surprised those closest to her, as she had always had more idealistic ambitions. “I helped lead a group that wrote briefs to the Human Rights Chamber for those affected by ethnic cleansing in Bosnia-Herzegovina,” she says. “My whole life prior to moving into securities law was human rights work.”

But she had student loans to pay off, and so when Wall Street came knocking, that was that. But it wasn’t like she was dragged into high finance kicking and screaming. She found she had a genuine passion for securities law and felt strongly she was doing a good thing. “There was nothing shady about the field back then,” she says. “It was very respectable.”

In 2006, after a few years at a white-shoe law firm, Fleischmann ended up at Chase. The mortgage market was white-hot. Banks like Chase, Bank of America and Citigroup were furiously buying up huge pools of home loans and repackaging them as mortgage securities. Like soybeans in processed food, these synthesized financial products wound up in everything, whether you knew it or not: your state’s pension fund, another state’s workers’ compensation fund, maybe even the portfolio of the insurance company you were counting on to support your family if you got hit by a bus.

As a transaction manager, Fleischmann functioned as a kind of quality-control officer. Her main job was to help make sure the bank didn’t buy spoiled merchandise before it got tossed into the meat grinder and sold out the other end.

A few months into her tenure, Fleischmann would later testify in a DOJ deposition, the bank hired a new manager for diligence, the group in charge of reviewing and clearing loans. Fleischmann quickly ran into a problem with this manager, technically one of her superiors. She says he told her and other employees to stop sending him e-mails. The department, it seemed, was wary of putting anything in writing when it came to its mortgage deals.

“”I could lose everything. But if we don’t start speaking up, we’re going to get the biggest financial cover-up in history.” “If you sent him an e-mail, he would actually come out and yell at you,” she recalls. “The whole point of having a compliance and diligence group is to have policies that are set out clearly in writing. So to have exactly the opposite of that – that was very worrisome.” One former high-ranking federal prosecutor said that if he were taking a criminal case to trial, the information about this e-mail policy would be crucial. “I would begin and end my opening statement with that,” he says. “It shows these people knew what they were doing and were trying not to get caught.”

In late 2006, not long after the “no e-mail” policy was implemented, Fleischmann and her group were asked to evaluate a packet of home loans from a mortgage originator called GreenPoint that was collectively worth about $900 million. Almost immediately, Fleischmann and some of the diligence managers who worked alongside her began to notice serious problems with this particular package of loans.

For one thing, the dates on many of them were suspiciously old. Normally, banks tried to turn loans into securities at warp speed. The idea was to go from a homeowner signing on the dotted line to an investor buying that loan in a pool of securities within two to three months. Thus it was a huge red flag to see Chase buying loans that were already seven or eight months old.

What this meant was that many of the loans in the GreenPoint deal had either been previously rejected by Chase or another bank, or were what are known as “early payment defaults.” EPDs are loans that have already been sold to another bank and have been returned after the borrowers missed multiple payments. That’s why the dates on them were so old.

In other words, this was the very bottom of the mortgage barrel. They were like used cars that had been towed back to the lot after throwing a rod. The industry had its own term for this sort of loan product: scratch and dent. As Chase later admitted, it not only ended up reselling hundreds of millions of dollars worth of those crappy loans to investors, it also sold them in a mortgage pool marketed as being above subprime, a type of loan called “Alt-A.” Putting scratch-and-dent loans in an Alt-A security is a little like putting a fresh coat of paint on a bunch of junkyard wrecks and selling them as new cars. “Everything that I thought was bad at the time,” Fleischmann says, “turned out to be a million times worse.” (Chase declined to comment for this article.)

When Fleischmann and her team reviewed random samples of the loans, they found that around 40 percent of them were based on overstated incomes – an astronomically high defect rate for any pool of mortgages; Chase’s normal tolerance for error was five percent. One mortgage in particular that sticks out in Fleischmann’s mind involved a manicurist who claimed to have an annual income of $117,000. Fleischmann figured that even working seven days a week, this woman would have needed to work 488 days a year to make that much. “And that’s with no overhead,” Fleischmann says. “It wasn’t possible.”

But when she and others raised objections to the toxic loans, something odd started happening. The number-crunchers who had been complaining about the loans suddenly began changing their reports. The process she describes is strikingly similar to the way police obtain false confessions: The interrogator verbally abuses the target until he starts producing the desired answers. “What happened,” Fleischmann says, “is the head diligence manager started yelling at his team, berating them, making them do reports over and over, keeping them late at night.” Then the loans started clearing.

As late as December 11th, 2006, diligence managers had marked a full 33 percent of one loan sample as “stated income unreasonable for profession,” meaning that it was nearly inevitable that there would be a high number of defaults. Several high-ranking executives were copied on this report.

Then, on December 15th, a Chase sales executive held a lengthy meeting with reps from GreenPoint and the diligence team to examine the remaining loans in the pool. When they got to the manicurist, Fleischmann remembers, one of the diligence guys finally caved under the pressure from the sales executive. “He had his hands up and just said, ‘OK,’ and he cleared it,” says Fleischmann, adding that he was shaking his head “no” even as he was saying yes. Soon afterward, the error rate in the pool had magically dropped below 10 percent – a threshold that itself had just been doubled to clear the way for this deal.

After that meeting, Fleischmann testified, she approached a managing director named Greg Boester and pleaded with him to reconsider. She says she told Boester that the bank could not sell the high-risk loans as low-risk securities without committing fraud. “You can’t securitize these loans without special disclosure about what’s wrong with them,” Fleischmann told him, “and if you make that disclosure, no one will buy them.”

A former Olympic ski jumper, Boester was such an important executive at Chase that when he later defected to the Chicago-based hedge fund Citadel, Dimon cut off trading with Citadel in retaliation. Boester eventually returned to Chase and is still there today despite his role in this affair.

This moment illustrates the most basic element of the case against Chase: The bank knowingly peddled products stuffed with scratch-and-dent loans to investors without disclosing the obvious defects with the underlying loans.

Years later, in its settlement with the Justice Department, Chase would admit that this conversation between Fleischmann and Boester took place (though neither was named; it was simply described as “an employee . . . told . . . a managing director”) and that her warning was ignored when the bank sold those loans off to investors.

A few weeks later, in early 2007, she sent a long letter to another managing director, William Buell. In the letter, she warned Buell of the consequences of reselling these bad loans as securities and gave detailed descriptions of breakdowns in Chase’s diligence process.

Fleischmann assumed this letter, which Chase lawyers would later jokingly nickname “The Howler” after the screaming missive from the Harry Potter books, would be enough to force the bank to stop selling the bad loans. “It used to be if you wrote a memo, they had to stop, because now there’s proof that they knew what they were doing,” she says. “But when the Justice Department doesn’t do anything, that stops being a deterrent. I just didn’t know that at the time.”

In February 2008, less than two years after joining the bank, Fleischmann was quietly dismissed in a round of layoffs. A few months later, proof would appear that her bosses knew all along that the boom-era mortgage market was rotten. That September, as the market was crashing, Dimon boasted in a ball-washing Fortune article titled “Jamie Dimon’s SWAT Team” that he knew well before the meltdown that the subprime market was toast. “We concluded that underwriting standards were deteriorating across the industry.” The story tells of Dimon ordering Boester’s boss, William King, to dump the bank’s subprime holdings in October 2006. “Billy,” Dimon says, “we need to sell a lot of our positions. . . . This stuff could go up in smoke!”

In other words, two full months before the bank rammed through the dirty GreenPoint deal over Fleischmann’s objections, Chase’s CEO was aware that loans like this were too dangerous for Chase itself to own. (Though Dimon was talking about subprime loans and GreenPoint was technically an Alt-A pool, the Fortune story shows that upper management had serious concerns about industry-wide underwriting problems.)

“The ordinary citizen who is the target of a government investigation cannot pick up the phone, call the prosecutor and have his case dropped. But Dimon did just that.In January 2010, when Dimon testified before the Financial Crisis Inquiry Commission, he told investigators the exact opposite story, portraying the poor Chase leadership as having been duped, just like the rest of us. “In mortgage underwriting,” he said, “somehow we just missed, you know, that home prices don’t go up forever.”

When Fleischmann found out about all of this years later, she was shocked. Her confidentiality agreement at Chase didn’t bar her from reporting a crime, but the problem was that she couldn’t prove that Chase had committed a crime without knowing whether those bad loans had been sold.

As it turned out, of course, Chase was selling those rotten dog-meat loans all over the place. How bad were they? A single lawsuit by a single angry litigant gives some insight. In 2011, Chase was sued over massive losses suffered by a group of credit unions. One of them had invested $135 million in one of the bank’s mortgage–backed securities. About 40 percent of the loans in that deal came from the GreenPoint pool.

The lawsuit alleged that in just the first year, the security suffered $51 million in losses, nearly 50 times what had been projected. It’s hard to say how much of that was due to the GreenPoint loans. But this was just one security, one year, and the losses were in the tens of millions. And Chase did deal after deal with the same methodology. So did most of the other banks. It’s theft on a scale that blows the mind.

In the spring of 2012, Fleischmann, who’d moved back to Canada after leaving Chase, was working at a law firm in Calgary when the phone rang. It was an investigator from the States. “Hi, I’m from the SEC,” he said. “You weren’t expecting to hear from me, were you?”

A few months earlier, President Obama, giving in to pressure from the Occupy movement and other reformers, had formed the Residential Mortgage-Backed Securities Working Group. At least superficially, this was a serious show of force against banks like Chase. The group would operate like a kind of regulatory Justice League, combining the superpowers of investigators from the SEC, the FBI, the IRS, HUD and a host of other federal agencies. It included noted anti-corruption- investigator and New York Attorney General Eric Schneiderman, which gave many observers reason to hope that finally something would be done about the crimes that led to the crash. That makes the fact that the bank would skate with negligible cash fines an even more extra-ordinary accomplishment.

By the time the working group was set up, most of the applicable statutes of limitations had either expired or were about to expire. “A conspiratorial way of looking at it would be to say the state waited far too long to look at these cases and is now taking its sweet time investigating, while the last statutes of limitations run out,” says famed prosecutor and former New York Attorney General Eliot Spitzer.

It soon became clear that the SEC wasn’t so much investigating Chase’s behavior as just checking boxes. Fleischmann received no follow-up phone calls, even though she told the investigator that she was willing to tell the SEC everything she knew about the systemic fraud at Chase. Instead, the SEC focused on a single transaction involving a mortgage company called WMC. “I kept trying to talk to them about GreenPoint,” Fleischmann says, “but they just wanted to talk about that other deal.”

The following year, the SEC would fine Chase $297 million for misrepresentations in the WMC deal. On the surface, it looked like a hefty punishment. In reality, it was a classic example of the piecemeal, cherry-picking style of justice that characterized the post-crisis era. “The kid-gloves approach that the DOJ and the SEC take with Wall Street is as inexplicable as it is indefensible,” says Dennis Kelleher of the financial reform group Better Markets, which would later file suit challenging the Chase settlement. “They typically charge only one offense when there are dozens. It would be like charging a serial murderer with a single assault and giving them probation.”

Soon Fleischmann’s hopes were raised again. In late 2012 and early 2013, she had a pair of interviews with civil litigators from the U.S. attorney’s office in the Eastern District of California, based in Sacramento.

One of the ongoing myths about the financial crisis is that the government is outmatched by the legal talent representing the banks. But Fleischmann was impressed by the lead attorney in her case, a litigator named Richard Elias. “He sounded like he had been a securities lawyer for 10 years,” she says. “This actually looked like his idea of fun – like he couldn’t wait to run with this case.”

She gave Elias and his team detailed information about everything she’d seen: the edict against e-mails, the sabotaging of the diligence process, the bullying, the written warnings that were ignored, all of it. She assumed that it wouldn’t be long before the bank was hauled into court.

Instead, the government decided to help Chase bury the evidence. It began when Holder’s office scheduled a press conference for the morning of September 24th, 2013, to announce sweeping civil-fraud charges against the bank, all laid out in a detailed complaint drafted by the U.S. attorney’s Sacramento office. But that morning the presser was suddenly canceled, and no complaint was filed. According to later news reports, Dimon had personally called Associate Attorney General Tony West, the third-ranking official in the Justice Department, and asked to reopen negotiations to settle the case out of court.

It goes without saying that the ordinary citizen who is the target of a government investigation cannot simply pick up the phone, call up the prosecutor in charge of his case and have a legal proceeding canceled. But Dimon did just that. “And he didn’t just call the prosecutor, he called the prosecutor’s boss,” Fleischmann says. According to The New York Times, after Dimon had already offered $3 billion to settle the case and was turned down, he went to Holder’s office and upped the offer, but apparently not by enough.

A few days later, Fleischmann, who had by then moved back to Vancouver and was looking for work, was at a mall when she saw a Wall Street Journal headline on her iPhone: JPMorgan Insider Helps U.S. in Probe. The story said that the government had a key witness, a female employee willing to provide damaging testimony about Chase’s mortgage operations. Fleischmann was stunned. Until that moment, she had no idea that she was a major part of the government’s case against Chase. And worse, nobody had bothered to warn her that she was about to be effectively outed in the newspapers. “The stress started to build after I saw that news,” she says. “Especially as I waited to see if my name would come out and I watched my job possibilities evaporate.”

Fleischmann later realized that the government wasn’t interested in having her testify against Chase in court or any other public forum. Instead, the Justice Department’s political wing, led by Holder, appeared to be using her, and her evidence, as a bargaining chip to extract more hush money from Dimon. It worked. Within weeks, Dimon had upped his offer to roughly $9 billion.

In late November, the two sides agreed on a settlement deal that covered a variety of misbehaviors, including the fraud that Fleischmann witnessed as well as similar episodes at Washington Mutual and Bear Stearns, two companies that Chase had acquired during the crisis (with federal bailout aid). The newspapers and the Justice Department described the deal as a “$13 billion settlement,” hailing it as the biggest white-collar regulatory settlement in American history. The deal released Chase from civil liability. And, in what was described by The New York Times as a “major victory for the government,” it left open the possibility that the Justice Department could pursue a further criminal investigation against the bank.

But the idea that Holder had cracked down on Chase was a carefully contrived fiction, one that has survived to this day. For starters, $4 billion of the settlement was largely an accounting falsehood, a chunk of bogus “consumer relief” added to make the payoff look bigger. What the public never grasped about these consumer–relief deals is that the “relief” is often not paid by the bank, which mostly just services the loans, but by the bank’s other victims, i.e., the investors in their bad mortgage securities.

Moreover, in this case, a fine-print addendum indicated that this consumer relief would be allowed only if said investors agreed to it – or if it would have been granted anyway under existing arrangements. This often comes down to either forgiving a small portion of a loan or giving homeowners a little extra time to pay up in full. “It’s not real,” says Fleischmann. “They structured it so that the homeowners only get relief if they would have gotten it anyway.” She pauses. “If a loan shark gives you a few extra weeks to pay up, is that ‘consumer relief’?”

The average person had no way of knowing what a terrible deal the Chase settlement was for the country. The terms were even lighter than the slap-on-the-wrist formula that allowed Wall Street banks to “neither admit nor deny” wrongdoing – the deals that had helped spark the Occupy protests. Yet those notorious deals were like the Nuremberg hangings compared to the regulatory innovation that Holder’s Justice Department cooked up for Dimon and Co.

Instead of a detailed complaint naming names, Chase was allowed to sign a flimsy, 10-and-a-half-page “statement of facts” that was: (a) so short, a first-year law student could read it in the time it takes to eat a tuna sandwich, and (b) so vague, a halfway intelligent person could read it and not know anyone had done anything wrong.

The ink was barely dry on the deal before Chase would have the balls to insinuate its innocence. “The firm has not admitted to violations of the law,” said CFO Marianne Lake. But the deal’s most brazen innovation was the way it bypassed the judicial branch. Previously, federal regulators had had bad luck with judges when trying to dole out slap-on-the-wrist settlements to banks. In a pair of celebrated cases, an unpleasantly honest federal judge named Jed Rakoff had rejected sweetheart deals worked out between banks and slavish regulators and had commanded the state to go back to the drawing board and come up with real punishments.

Seemingly not wanting to deal with even the possibility of such a thing happening, Holder blew off the idea of showing the settlement to a judge. The settlement, says Kelleher, “was unprecedented in many ways, including being very carefully crafted to bypass the court system. . . . There can be little doubt that the DOJ and JP-Morgan were trying to avoid disclosure of their dirty deeds and prevent public scrutiny of their sweetheart deal.” Kelleher asks a rhetorical question: “Can you imagine the outcry if [Bush-era Attorney General] Alberto Gonzales had gone into the backroom and given Halliburton immunity in exchange for a billion dollars?”

The deal was widely considered a good one for both sides, but Chase emerged with barely a scratch. First, the ludicrously nonspecific language surrounding the settlement put you, me and every other American taxpayer on the hook for roughly a quarter of Chase’s check. Because most of the settlement monies were specifically not called fines or penalties, Chase was allowed to treat some $7 billion of the settlement as a tax write-off.

Couple this with the fact that the bank’s share price soared six percent on news of the settlement, adding more than $12 billion in value to shareholders, and one could argue Chase actually made money from the deal. What’s more, to defray the cost of this and other fines, Chase last year laid off 7,500 lower-level employees. Meanwhile, per-employee compensation for everyone else rose four percent, to $122,653. But no one made out better than Dimon. The board awarded a 74 percent raise to the man who oversaw the biggest regulatory penalty ever, upping his compensation package to about $20 million.

“”The assumption they make is that I won’t blow up my life to do it. But they’re wrong about that.”While Holder was being lavishly praised for releasing Chase only from civil liability, Fleischmann knew something the rest of the world did not: The criminal investigation was going nowhere.

In the days leading up to Holder’s November 19th announcement of the settlement, the Justice Department had asked Fleischmann to meet with criminal investigators. They would interview her very soon, they said, between December 15th and Christmas.

But December came and went with no follow-up from the DOJ. She began to wonder: If she was the government’s key witness, how was it possible that they were still pursuing a criminal case without talking to her? “My concern,” she says, “was that they were not investigating.”

The government’s failure to speak to Fleischmann lends credence to a theory about the Holder-Dimon settlement: It included a tacit agreement from the DOJ not to pursue criminal charges in earnest. It sounds outrageous, but it wouldn’t be the first time that the government used a wink and a nod to dispose a bank of major liability without saying so publicly. Back in 2010, American Lawyer revealed Goldman Sachs wanted a full release from liability in a dozen crooked mortgage deals, while the SEC didn’t want to give the bank such a big public victory. So the two sides quietly agreed to a grimy compromise: Goldman agreed to pay $550 million to settle a single case, and the SEC privately assured the bank that it wouldn’t recommend charges in any of the other deals.

As Fleischmann was waiting for the Justice Department to call, Chase and its lawyers had been going to tremendous lengths to keep her muzzled. A number of major institutional investors had sued the bank in an effort to recover money lost in investing in Chase’s fraud-ridden home loans. In October 2013, one of those investors – the Fort Worth Employees’ Retirement Fund – asked a federal judge to force Chase to grant access to a series of current and former employees, including Fleischmann, whose status as a key cooperator in the federal investigation had made headlines in The Wall Street Journal and other major media outlets.

In response, Dorothy Spenner, an attorney representing Chase, told the court that Fleischmann was not a “relevant custodian.” In other words, she couldn’t testify to anything of importance. Federal Magistrate Judge James C. Francis IV took Chase’s lawyers at their word and rejected the Fort Worth retirees’ request for access to Fleischmann and her evidence.

Other investors bilked by Chase also tried to speak to Fleischmann. The Federal Home Loan Bank of Pittsburgh, which had sued Chase, asked the court to force Chase to turn over a copy of the draft civil complaint that was withheld after Holder’s scuttled press conference. The Pittsburgh litigants also specified that they wanted access to the name of the state’s cooperating witness: namely, Fleischmann.

In that case, the judge actually ordered Chase to turn over both the complaint and Fleischmann’s name. Chase stalled. Later in the fall, the judge ordered the bank to produce the information again; it stalled some more.

Then, in January 2014, Chase suddenly settled with the Pittsburgh bank out of court for an undisclosed amount. Months after being ordered to allow Fleischmann to talk, they once again paid a stiff price to keep her testimony out of the public eye.

Chase’s determination to hide its own dirt while forcing Fleischmann to keep her secret was becoming more and more absurd. “It was a hard time to look for work,” she says. All that prospective employers knew was that she had worked in a department that had just been dinged with what was then the biggest regulatory fine in the history of capitalism. According to the terms of her confidentiality agreement, she couldn’t even tell them that she’d tried to keep the bank from committing fraud.

Despite it all, Fleischmann still had faith that the Justice Department or some other federal agency would make things right. “I guess I was just a trusting person,” she says. “I wasn’t cynical. I kept hoping.”

One day last spring, Fleischmann happened across a video of Holder giving a speech titled “No Company Is Too Big to Jail.” It was classic Holder: full of weird prevarication, distracting eye twitches and other facial contortions. It began with the bold rejection of the idea that overly large financial institutions would receive preferential treatment from his Justice Department.

Then, within a few sentences, he seemed to contradict himself, arguing that one must apply a special sort of care when investigating supersize banks, tweaking the rules so as not to upset the world economy. “Federal prosecutors conducting these investigations,” Holder said, “must go the extra mile to coordinate closely with the regulators who oversee these institutions’ day-to-day operations.” That is, he was saying, regulators have to agree not to allow automatic penalties to kick in, so that bad banks can stay in business.

Fleischmann winced. Fully fluent in Holder’s three-faced rhetoric after years of waiting for him to act, she felt that he was patting himself on the back for having helped companies survive crimes that otherwise might have triggered crippling regulatory penalties. As she watched in mounting outrage, Holder wrapped up his address with a less-than-reassuring pronouncement: “I am resolved to seeing [the investigations] through.” Doing so, he added, would “reaffirm” his principles.

Or, as Fleischmann translates it: “I will personally stay on to make sure that no one can undo the cover-up that I’ve accomplished.”

That’s when she decided to break her silence. “I tried to go on with the things I was doing, but I just stopped sleeping and couldn’t eat,” she says. “It felt like I was trying to keep this secret and my body was literally rejecting it.”

Ironically, over the summer, the government contacted her again. A new set of investigators interviewed her, appearing to have restarted the criminal case. Fleischmann won’t comment on that investigation. Frustrated as she has been by the decisions of the higher-ups in Holder’s Justice Department, she doesn’t want to do anything to get in the way of investigators who might be working the case. But she emphasizes she still has reason to be deeply worried that nothing will be done. Even if the investigators build strong cases against executives who oversaw Chase’s fraud, Holder or whoever succeeds him can still make the whole thing disappear by negotiating a soft landing for the company. “That’s the thing I’m worried about,” she says. “That they make the whole thing disappear. If they do that, the truth will never come out.”

In September, at a speech at NYU, Holder defended the lack of prosecutions of top executives on the grounds that, in the corporate context, sometimes bad things just happen without actual people being responsible. “Responsibility remains so diffuse, and top executives so insulated,” Holder said, “that any misconduct could again be considered more a symptom of the institution’s culture than a result of the willful actions of any single individual.”

In other words, people don’t commit crimes, corporate culture commits crimes! It’s probably fortunate that Holder is quitting before he has time to apply the same logic to Mafia or terrorism cases.

Fleischmann, for her part, had begun to find the whole situation almost funny.

“I thought, ‘I swear, Eric Holder is gas-lighting me,’ ” she says.

Ask her where the crime was, and Fleischmann will point out exactly how her bosses at JPMorgan Chase committed criminal fraud: It’s right there in the documents; just hand her a highlighter and some Post-it notes – “We lawyers love flags” – and you will not find a more enthusiastic tour guide through a gazillion-page prospectus than Alayne Fleischmann.

She believes the proof is easily there for all the elements of the crime as defined by federal law – the bank made material misrepresentations, it made material omissions, and it did so willfully and with specific intent, consciously ignoring warnings from inside the firm and out.

She’d like to see something done about it, emphasizing that there still is time. The statute of limitations for wire fraud, for instance, has not run out, and she strongly believes there’s a case there, against the bank’s executives. She has no financial interest in any of this, no motive other than wanting the truth out. But more than anything, she wants it to be over.

In today’s America, someone like Fleischmann – an honest person caught for a little while in the wrong place at the wrong time – has to be willing to live through an epic ordeal just to get to the point of being able to open her mouth and tell a truth or two. And when she finally gets there, she still has to risk everything to take that last step. “The assumption they make is that I won’t blow up my life to do it,” Fleischmann says. “But they’re wrong about that.”

Good for her, and great for her that it’s finally out. But the big-picture ending still stings. She hopes otherwise, but the likely final verdict is a Pyrrhic victory.

Because after all this activity, all these court actions, all these penalties (both real and abortive), even after a fair amount of noise in the press, the target companies remain more ascendant than ever. The people who stole all those billions are still in place. And the bank is more untouchable than ever – former Debevoise & Plimpton hotshots Mary Jo White and Andrew Ceresny, who represented Chase for some of this case, have since been named to the two top jobs at the SEC. As for the bank itself, its stock price has gone up since the settlement and flirts weekly with five-year highs. They may lose the odd battle, but the markets clearly believe the banks won the war. Truth is one thing, and if the right people fight hard enough, you might get to hear it from time to time. But justice is different, and still far enough away.











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