News of a Department of Justice “Slush Fund” has been making headlines recently.
Unfortunately, this is not new information – the activity goes back to 2012 and can be traced to The Residential Mortgage-Backed Securities Working Group (Working Group), created in 2012 by none other than Obama’s first Attorney General, Eric Holder. Let’s just say that I view Mr. Holder as “ethically-challenged”.
The Working Group was created within the Justice Department in 2012 as a means of prosecution and punishment for those perceived to be responsible for the financial crisis of 2008. At its formation Mr. Holder made the following statement:
“Over the past three years, we have been aggressively investigating the causes of the financial crisis. And we have learned that much of the conduct that led to the crisis was unethical, and, in many instances, extremely reckless. We also have learned that behavior that is unethical or reckless may not necessarily be criminal. When we find evidence of criminal wrongdoing, we bring criminal prosecutions. When we don’t, we endeavor to use other tools available to us.”
These “other tools” are usually civil sanctions and charges that generally result in large fines being paid by firms, often without a statement of true wrongdoing.
With the full weight of the Department of Justice behind it, the Working Group reached multi-billion settlements with virtually every major bank in America. In total, $110 billion was collected in fines. So where did all this money go? According to a Wall Street Journal report the money breaks down as follows:
$49 billion went to the Department of Treasury – some directly, but most funneled to Treasury through settlements with Fannie Mae and Freddie Mac. Spending of proceeds has not been specified.
$45 billion was for Consumer Relief – a vaguely defined category that includes borrowers and “housing-related community groups“. Breakdowns are not fully known.
$10 billion went to “other recipients” – most appear to be federal in nature.
$5.3 billion went to states to spend as they wanted.
$450 million went to the Department of Justice. Spending of proceeds has not been specified.
The lack of transparency is disturbing. What follows is alarming.
According to a Congressional Committee Report – Stop Settlement Slush Funds Act of 2016:
“A year-long Committee investigation has revealed that the DOJ is pushing and even requiring settling defendants to donate money to non-victim third-parties. Donations can earn up to double credit against defendants’ overall payment obligations, while credit for direct relief to consumers is merely dollar-for-dollar. What is more, documents show that groups that stood to gain from these mandatory donations lobbied DOJ to include them in settlements. DOJ has funneled third-party groups as much as $880 million dollars in just the last 2 years. These payments occur entirely outside of the Congressional appropriations and grant oversight process. What is worse, in some cases, DOJ-mandated donations restore funding that Congress specifically cut.”
Committee Chairman Bob Goodlatte and Subcommittee Chairman Tom Marino both accused the Justice Department of using “settlements to funnel money to activist groups instead of consumers.”
The committee report further states:
“In the most egregious cases, DOJ is using the mandatory donations to restore funding that Congress specifically cut. In 2011, Congress eliminated $88 million in funding for HUD’s housing counseling assistance. The DOJ settlements require $30mm to go specifically to groups in the HUD grant program, so 36% is recouped directly. In addition, some HUD grantees will also be eligible for a portion of the remaining $120mm in mandatory donations, not to mention the $490mm in the tax relief fund. For example, NeighborWorks is an eligible HUD grantee, but will also receive $122mm from BoA’s Tax Fund since Congress extended the non-taxable treatment of loan forgiveness in December 2015. This means that DOJ’s mandatory donation provisions, which were negotiated in consultation with HUD, are restoring at least $152mm ($122+$30) to HUD grantees in the place of the $88mm reduction mandated by Congress.”
The Committee also noted the Justice Department’s stonewalling tactics:
“DOJ is ignoring Congress’ concerns–increasing the use of third-party payments, even as Congress objects. Just last month, DOJ included such terms in its settlement with Goldman Sachs.”
“For over a year, DOJ provided none of the requested internal communications pertaining to the controversial settlement provisions. Rather, DOJ provided just sixty pages of emails between DOJ and outside parties. Furthermore, because of duplicative email chains, those sixty pages amounted to fewer than ten distinct emails. DOJ claimed in September 2015 not to have understood that internal communications were sought. This contention is difficult to credit in light of the unambiguous language in Committee letters and hearing questions. Finally, on March 18, 2016, 15 months after the initial request, DOJ relented and agreed to let the Committee review the internal documents, but only at DOJ, and subject to restrictions on releasing the documents’ contents. The internal documents confirm that DOJ conceived of the mandatory donation provisions.”
Committee Chair Goodlatte recently sent a letter to Attorney General Loretta Lynch. In it he notes several items:
“A Judiciary Committee investigation has revealed that, in just the last two years, DOJ has directed nearly $1 billion to activist groups, entirely outside of Congress’s spending and oversight authority”
“DOJ has used the [$2 billion Volkswagen] settlement to fund the [Obama’s] Administration’s electric vehicle initiative after Congress has twice refused to pay for it.”
“The Judgement Fund’s use to pay the interest in a recent settlement with Iran has also raised concerns.”
I was unable to find a complete breakdown of the “activist groups” but the Wall Street Journal’s Kimberly Strassel noted back on December 3, 2015 that they include:
“The National Council of La Raza. The National Urban League. The National Community Reinvestment Coalition. NeighborWorks America (which awards grants to left-leaning community organization groups, and has been compared with Acorn)”.
NeighborWorks was particularly singled out in the Congressional report and I have already highlighted one particular excerpt earlier. To learn more about NeighborWorks read this rather scathing report by Bloomberg News.
These groups do not provide assistance to homeowners hurt in the financial crisis. Nor are they non-partisan groups. They are, as Congressman Goodlatte rightly noted, “left-wing activist groups”.
Obama’s Department of Justice – first under Eric Holder then Loretta Lynch since 2015 – has been using the Working Group to extract huge settlements – primarily from banks – through civil suits. These settlements then are dispersed into very general segments that often appear to have nominal oversight. Where the money goes from there is largely unknown.
What is clear is that Obama’s Justice Department has taken proceeds that were intended to benefit homeowners harmed during the 2008 financial crisis – nearly $1 billion per Congressional records – and used these settlements to directly fund left-wing political organizations – their political allies.
A bill is now pending to finally curb this abuse – why it has taken this long and how it was allowed in the first place is beyond me.
As noted by Representative John Ratcliffe, a co-sponsor of the bill:
“Under the Obama administration, an immense shadow of doubt was cast over our nation’s justice system when congressional investigations confirmed that nearly a billion dollars was funneled to the DOJ’s political allies and pet organizations in the past two years alone, all the while without accountability to Congress.”
No kidding. I hope that criminal investigations follow.
I have long maintained that the Obama Department of Justice is fundamentally broken and certainly not about Justice. This report only adds to that belief.
For those curious about the true cause of the 2008 financial crisis I discuss it in Dodd-Frank Must Go.
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