Roundup: The Foreclosure Fraud Settlement

Thursday morning news broke that the foreclosure fraud settlement that had been reportedly “imminent” countless times in recent months was finally a done deal. The federal government and every state but Oklahoma (whose Republican Attorney General Scott Pruitt is philosophically opposed to even a shred of accountability for banks or help for affected homeowners) are settling with Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.

It was good to hear President Obama described the settlement in terms of “some help” and “some measure” of accountability, because as of now, that is the most that can be said in its favor. I don’t think it’s in anyone’s interest to overstate the national impact this will have. We’re not talking about a big win here. The deal doesn’t come close to matching the scale of the problem and it falls short on the accountability front. The case for this deal is that it’s a beginning not an end.

While the settlement is far from great, it’s much better than it would have been thanks to the “Justice Democrats” and those who organized around their efforts. This group of Democratic Attorneys General including Eric Schneiderman (New York), Beau Biden (Delaware), Catherine Cortez Masto (Nevada), and Kamala Harris (California), as well as Lori Swanson (Minnesota) and Martha Coakley (Massachusetts), deserve credit for preventing a wider release of the megabanks’ wrongdoing.

Two glaring problems have been the subject of discussion since the settlement was announced. First off, and this one is basic, the term sheet hasn’t been made public. This is bound to cause people to expect the worst, as they’re understandably distrustful of anything that involves elected officials and the megabanks. Second, as feared, Scott Walker is using the funds meant for homeowners to plug his state’s budget deficit. At least two other Governors are following his lead.

Schneiderman, one of the lead Justice Dems, is adamant that the deal preserves his ability to pursue real accountability. As one of the co-chairs of the mortgage fraud task force the president announced in his State of the Union address, Schneiderman is one to watch in the coming weeks and months. Will Schneiderman be given the resources he needs to do this job right?

Schneiderman spoke to a number of media outlets about the fraud settlement and what comes next.

Greg Sargent:

Schneiderman — who has gained a national liberal profile for his insistence on true accountability for financial institutions — conceded the settlement announced today was “small” in financial terms, given the struggles of underwater homeowners and people who lost their homes.

But he insisted that time will show that today’s settlement was a win — that it secured a framework that will ultimately result in a true accounting of the role big banks played in sparking the economic meltdown.

“This is a small step in an economy where we have $700 billion in negative equity, but it is a significant step,” Schneiderman said, in response to criticism that the $25 billion settlement was far too small given the injuries sustained.

Interestingly, Schneiderman vowed that if the task force to probe mortgage practices set up by the president — which he co-chairs — stalls or drags its feet, he would speak out publicly against it. Some critics, such as David Dayen, have expressed skepticism that it would have the resources and leeway it needs to secure real accountability.

“I will speak up if I don’t feel that the rights of American homeowners are being protected and we’re not pursuing the investigation as aggressively as we should,” he said. “If things break down and things don’t work I’m prepared to speak up and take action. But the initial signs are really positive.”

“This will ultimately depend on the coalition that’s assembled around these principles,” Schneiderman said. “We’ve now got a progressive coalition that … can move public officials to take a more aggressive approach.”

Schneiderman outlines a credible, historically supported theory of progressive change: the right people in the right place combined with a strong movement capable of support and pressure. Schneiderman is urging progressive groups, labor unions, and civil rights groups to stay engaged on this. While some commentators have suggested that Schneiderman may have “sold out” the message he is sending about the task force and the role of grassroots pressure is entirely inconsistent with the sellout theory.

From Rachel Maddow‘s interview with Schneiderman.

Maddow: What you’re describing is at least a 90 degree turn in Washington… in terms of the aggressiveness with which people will be held accountable for what happened in the crash. Why didn’t this happen before?

Schneiderman: I took office about a year ago and the atmosphere in the country was very different. What we’ve seen is a swing toward progressive populism in this country and I’m glad to be a part of it, but I’m just a part of it.

Schneiderman again urges those who organized around this to keep at it and not disengage. Though the deal is unquestionably flawed in many respects, that’s not the fault of Schneiderman, Biden, Harris, and Masto. There’s certainly a lot in the settlement to criticize or decry; but that can be done without discarding the allies who pushed the outcome in a positive direction.

David Atkins:

Harris and Schneiderman fought as long and as hard as they could against this tide, and their efforts without question led to a better settlement than would have been achieved without them.

I would advise that progressive wrath be focused where it belongs: on Holder, on the President, on the financial institutions and their executives (of course), and on the entire neoliberal ideology that enabled this situation to occur in the first place.

Not, however, on Schneiderman and Harris, without whom this settlement would have been worse, and without whom this issue would have been quickly and quietly swept under the rug without significant national attention. If we, hating the end result, are quick to turn on our best friends and strongest champions no matter whether they fight for us or not, no one will stand up for us in the future.

I’m all for EPI/Roosevelt Institute/Paul Krugman-type Democrats fighting the outsized influence of the consistently wrong Third Way/Hamilton Project/Tim Geithner… uh… Democrats?… or whatever Tim Geithner is. The outlook of the latter group is largely confined to D.C. — they’re out of step with the mainstream of the country (let alone the mainstream of the Democratic Party) on defining issues. The long-simmering discontent with the influence of Wall Street Dems should fuel a confrontation with those who are part of the problem. But that’s not Schneiderman and company.

Elsewhere, Beau Biden spoke with Chris Hayes’ Sunday panel. Former Rep. Patrick Murphy (D-PA), who is running to be Pennsylvania’s next Attorney General, released a statement opposing the settlement.


Via Ezra Klein’s Wonkblog

Elizabeth Warren:

Today’s settlement shows a significant commitment to helping struggling homeowners stay in their homes. But it needs to be the beginning, not the end, of efforts to hold the big banks accountable with meaningful penalties that demonstrate the rules and the law apply to everyone, no matter who your friends are or how many lobbyists and lawyers you can hire. Moving forward, further investigation and prosecution are needed to bring our long national mortgage nightmare to an end.

Dean Baker:

I’m not thrilled with the settlement, since it doesn’t accomplish much, but at least it doesn’t preclude further civil or criminal suits. In terms of the commitment of payments in the form of write-downs, we don’t have a clear counterfactual that allows us to gage how much would have been written down anyhow. We also have the peculiar situation where the banks get to pay the penalty with write-downs of debts to MBS investors.

The big plus is that the settlement does not preclude further legal action on securities fraud and other issues. [New York Attorney General Eric] Schneiderman and the other holdouts deserve credit for this.

Jared Bernstein:

Here are two reasons why I like the mortgage settlement agreement just announced: It’s not voluntary and it doesn’t require Congressional approval.

I’ll elaborate in a moment, but first, the caveats: It’s a drop in the bucket. There’s something like $700 billion out there in negative equity, and even with the leveraging — another attractive attribute of the way this should work — the $17 billion for preventing foreclosures ain’t gonna solve this.

But neither is any other single idea. Along with the other interventions policy makers are working on — ones I also hold some hope for — there’s clear potential to help distressed home owners and the macroeconomy.

Here’s what’s unique, useful and potentially important about the settlement: One of the main reasons the measures we’ve tried so far have underwhelmed is because they’ve all been voluntary from the perspective of lenders and servicers. No bank had to play along with HAMP or HARP. They had a choice of whether to respond to the incentives in the programs or not, and often it was “no thanks.” (By the way, that’s why I always liked the cramdown option — moves locus of action from solely being in the lenders’ hands.)

But the five banks named in the settlement must now set up processes to do refis and principal reductions. They don’t have a choice. And that’s a real advance.Who knows, with these processes in place, we can even dare to hope that the $17 billion, which is expected to be leveraged up to about twice that amount (i.e., banks are expected to provide a dollar of foreclosure prevention for $0.50 from the settlement fund) will be testing the waters for a deeper dive into mortgage modifications.

Karen Nussbaum, Working America:

The $26 billion is not what we wanted. We were hoping for much more. This is like pocket change. So we hope this is a down payment, and we’re hoping to see more positive action coming out of this federal investigations unit. But only a handful of people are actually going to have their payments reduced, and the people who have already lost their homes will get $2,000. That doesn’t come close to fixing the problem…this just doesn’t add up to the kind of relief that people actually need to stay in their homes.

Mike Konczal, Roosevelt Institute:

Follow the money in this deal, but also follow the process. There’s good reasons, both in theory* and empirically, to believe the “servicing” model the banks use to manage mortgage debt and foreclosures (created recently alongside the mortgage-backed security model), is destroying value for investors and homeowners through large numbers of unnecessary foreclosures. Why? Because of serious conflicts-of-interest and misaligned incentives between the banks managing the debts and investors and homeowners.

The robosigning and related scandals are a symptom of this broken process, and they should have lead the way to serious reform. Unless this model is changed in some fundamental ways, we’ll continue to have problems, including ones that make a mockery of court documents, property records, and our legal system. The settlement appears to allow the banks to hire their own monitors and is so similar to settlements at the state level that were broken by the banks in the past we have to ask: how can we expect anything to be different?

AFL-CIO president Richard Trumka:

The banks broke the law by railroading homeowners through the foreclosure process. Today’s settlement provides compensation for foreclosure victims without requiring individuals to waive their legal claims. While banks must be made to pay more to help homeowners, the settlement includes needed principal write-downs so homeowners can stay in their homes.

We urge President Obama to provide the federal investigative task force with the resources necessary to address the $750 billion in negative home equity that is the result of illegal conduct by banks. The 99 percent demand a fair economy and a judicial system that holds the rich and powerful accountable for their illegal behavior.

Robert Kuttner:

The banks bargained hard for broader protection against future liability. They didn’t get it mainly because progressive state attorneys general held out for the right to continue investigating, filing civil suits, and criminal prosecutions.

Obama wanted to announce this deal in his State of the Union address, but for the past couple of weeks, there has been a standoff, with the banks pressing for more immunity and Schneiderman reserving the right to prosecute and litigate.

In the final deal, whose actual text has not been made public, Schneiderman appears to have won big.

The question now is whether federal and state law-enforcement agencies will use the authority they have. For the first three years of the Obama administration, the feds have gone far too easy on the banks. Though Schneiderman has been added to a newly activated federal task force, it remains to be seen whether the same Justice Department and Securities and Exchange Commission (SEC) that declined to take vigorous action have truly reversed course.

Ideally, we didn’t need this settlement now. It would have been better for prosecutors to mount more cases, not just related to robo-signing and MERS but aimed at the fraud at the heart of mortgage securitization. Then, prosecutors could extract penalties that more accurately fit the crime—specifically fines and mortgage relief as restitution, well into the hundreds of billions of dollars.

This is said to be Schneiderman’s goal, both in agreeing to join the settlement once it was revised so as not to tie his hands and taking part in the Justice Department task force.

The settlement is (barely) better than nothing only if pressure is kept on the Obama administration to view it not as an end but as a beginning. The signs are good that Schneiderman and the other progressive attorneys general see it that way. But it will take quite a deathbed conversion for the Justice Department and SEC to reverse their record of the past three years.

Campaign for America’s Future – Robert Borosage:

The deal has been cut before the investigation so it is suspect on its face, but limited in its scope. Whether it will be enforced adequately remains to be seen. How homeowners benefit will differ from state to state.

But the real question remains whether the federal investigation will finally turn over all the cards so we know just how bad a hand the banks are holding. Only then is there a possibility for real accountability – and real relief for homeowners.

So this settlement must be the beginning, not the end. We have to sustain pressure on the administration for an aggressive investigation. State criminal and civil suits, individual and investor relief have to continue. We are a far remove from achieving the justice and accountability that is due.

Campaign for America’s Future – RJ Eskow:

Up to now, the fight has been to prevent the Administration from doing another cushy bank deal. Now that the door’s been left open to further action, there’s a new fight: to demand that they devote the Federal government’s resources to investigating Wall Street crime.

The agreement trades away the leverage that investigators gained by essentially catching bankers dead-to-rights as they broke laws on a mass scale through robo-signing. That means they can’t use that leverage to “sweat” more information out of the banks.

When it comes to their rampant lawbreaking around robo-signing, bank executives just dodged a bullet. But they’re still vulnerable on other forms of personal wrongdoing.

Once again, it’s all in the execution. The public has to keep the pressure on the White House to back Schneiderman and others in their investigations.

More Eskow:

Two thousand bucks for having your home illegally foreclosed on is an insult. But two billion dollars’ worth of lawyers suing bankers on behalf of wronged homeowners could change everything. And a real investigation into bank crime could make a real difference.

Will we get those things? Maybe – but only if we fight for them.

Do I think some groups inside and outside Washington oversold this deal? Yes. But do I think that Eric Schneiderman and his allies made it considerably better than it would have been? Yes.

[W]ithout public pressure – either because we’ve over-celebrated the deal or walked away from it – the scenario that’s worst for the public becomes the likeliest one.

The authorities had bankers dead-to-rights on forgery and perjury, which is what “robo-signing” really is, and they traded it away for a relative pittance. I wish they’d locked somebody up with this evidence – or, better yet, sweated the small fry until they got to the top guys behind the criminal behavior. They locked up Al Capone for tax evasion, after all, not bribery or theft or murder.

So can we stipulate the following? The money banks will have to pay is meaningless, if that’s all they ever pay. The dollar amounts homeowners will receive in compensation is an insult, and the principal relief it offers are a tiny fraction of the real problem.

Now what? We keep fighting. What else?

[W]e’re going to have to strike the right balance: Cheerleading for this deal creates a false sense that justice has been served and the battle’s over. But trashing it altogether discourages people and could prevent them pressuring the Administration and their state’s Attorney General to use the tools it does provide.

You can listen Eskow discuss the settlement with David Dayen here.

Dayen, whose comprehensive coverage of foreclosure fraud is second to none, is all over the settlement.


Housing and Urban Development Secretary Shaun Donovan believes that they will be able to get between $35-$40 billion in principal reduction in real dollars out of the settlement. Donovan became the point person on the federal level, along with DoJ, as the Administration pretty much took over the investigation and settlement process from the states, who were led by Iowa AG Tom Miller.

But even this $35-$40 billion number, which is at best a guess since the direction of the principal reduction is mostly at the discretion of the banks, pales in comparison to the negative equity in the country, which sits at $700 billion. And the banks have three years to implement the principal reductions, drawing out the loss on their books.

More Dayen:

Let me focus on what the people who settled this deal will probably tell you. They would say that the interlocking state and federal claims, and the relative intensity of the law enforcement officials in the various states, many of whom would decline to go after any claims, means that the maximum you could get out of all of these lawsuits on servicing and foreclosure issues would be commensurate with the $40 billion they believe will be the ultimate outcome of the settlement. I’ve had that told to me. You can look at the fact that Catherine Cortez Masto in Nevada secured around $57,000 per homeowner in a settlement with Morgan Stanley on these issues and dismiss that claim. But that’s the thinking, at least from some parts of this.

Dayen proposed nine ways to improve housing policy around the deal. He also asked how anyone could be sure what to think of the settlement when the term sheet has yet to be made public.

There’s a HUGE difference between an agreement in principle and the actual terms. I mean night and day. The Dodd-Frank bill was for all intents and purposes an agreement in principle. It left to the federal regulators to write hundreds of rules. And we have seen how that process of implementation has faltered on several key points. But the Administration wanted to announce a “big deal,” the details be damned. And they got buy-in from the AGs. Everyone else stayed silent.

Neil Barofsky, the Inspector General who oversaw TARP, commented on this development.

Econobloggers weigh-in: Felix Salmon called the settlement “a win for all sides.” Yves Smith wrote “The Top Twelve Reasons Why You Should Hate the Mortgage Settlement,” which includes this money quote, in more ways than one.

We’ve now set a price for forgeries and fabricating documents. It’s $2000 per loan. This is a rounding error compared to the chain of title problem these systematic practices were designed to circumvent. The cost is also trivial in comparison to the average loan, which is roughly $180k, so the settlement represents about 1% of loan balances. It is less than the price of the title insurance that banks failed to get when they transferred the loans to the trust. It is a fraction of the cost of the legal expenses when foreclosures are challenged. It’s a great deal for the banks because no one is at any of the servicers going to jail for forgery and the banks have set the upper bound of the cost of riding roughshod over 300 years of real estate law.

Joan McCarter at Daily Kos:

The banks are getting off pretty damn easy on the financial side of this. What makes the settlement less of a disaster than what it looked like even a few months ago is that, thanks to the concerted efforts of a handful of attorneys general (Eric Schneiderman of New York, Kamala Harris of California, Catherine Cortez-Masto of Nevada, Beau Biden of Delaware, Martha Coakley of Massachusetts and Lori Swanson of Minnesota) who refused to sign on to an agreement that gave the banks blanket immunity, legal immunity has been limited to banks very narrowly to robo-signing issues, and investigation of the residential mortgage backed securities market can still procede.

The concessions that those hold-out attorneys general were able to wring out the banks were critical for investigations and potential prosecutions in the massive fraud these banks committed. Those investigations, at the state and federal level, if pursued with vigor and a real intention to hold the banks accountable could potentially do what this settlement absolutely won’t: Force the banks to reform.

Seth D. Michaels at Main Street:

[T]he first part of this fight has come to a close—and, despite the flaws in this settlement, working people have won some victories over the banks along the way. But here are the questions we’ll be asking as we move forward. Will homeowners who need it actually get the help this settlement provides in a timely manner? Will the investigation task force be able to uncover and actually penalize misconduct on the part of the banks? And, most importantly, will the settlement and the next steps have enough force to prevent large-scale abuses like this from happening again?

Harold Meyerson at The American Prospect:

Looked at in vacuo, it’s not much of a deal… [b]ut the deal should be looked at as much for what it doesn’t do—for if it doesn’t even begin to provide adequate compensation for America’s beleaguered homeowners or former homeowners, neither does it preclude those homeowners from lawsuits of their own, or, more important, does it put an end to the civil and criminal liability of the banks for all they did to misrepresent mortgages both to homebuyers and investors in mortgage-backed securities.

In the division of labor on the coming investigation of bank abuses, Harris and Masto will likely take the lead on fraudulent and lax origination—more of which took place in their states than anywhere else—while Schneiderman, Biden, and the Feds focus more on the misrepresentation and fraudulent marketing of mortgage-backed securities and derivatives. The mansion of financial fraud has many rooms, and since Thursday’s deal did not seal them off, Harris, Schneiderman, U.S. Attorney General Eric Holder, and Company will be looking into them in the months to come.

The New Bottom Line calls the deal a “tiny drop in a big bucket… a paltry down payment toward full relief for homeowners” that doesn’t achieve justice for those who have lost their homes or full accountability for the banks’ wrongdoing. The NBL says the settlement is stronger than it would have been thanks to “grassroots groups and the courageous stance” of the Justice Democrats, whose work is building momentum “toward broad-scale relief for homeowners.” The NBL makes it clear that they will be watching the Obama Administration and the Mortgage Fraud Task Force closely.

Mike Lux:

[P]rogressives won something that was never even on the table when these settlement talks started: we got a bigger, broader investigation into financial fraud through the new task force, co-chaired by Schneiderman, appointed by President Obama.

So in this stage of the struggle, we definitely lost some things, especially the chance for dedicated prosecutors to keep investigating and prosecuting all those robo-signing perjuries, but we also won some important things that open the door for more investigation, prosecution, and forced mortgage write downs by the big banks. We have won our chance to keep the prospect of pressuring the banks alive. Now we have to take advantage of it. We have to keep the heat on high intensity to make sure this task force isn’t for show, that roadblocks aren’t thrown in the way of the prosecutors like Schneiderman who really want to prosecute, and that enough staff resources are allocated to take these investigations deep into the heart of what these bankers did to our economy.


Clearly this deal, and the discussion about how to respond to it in Democratic and progressive circles, requires a running debate. It would be a massive understatement to say there are a lot of moving parts to this. Deferring on the finer points to those with relevant expertise who you know share your values and goals isn’t a bad thing. The inherent complexity isn’t cause to dodge the difficult questions; it’s a reason to keep a close eye on new developments. Remember that even those who believe that on balance this deal is a victory stipulate that the victory requires follow-through.

If the Obama Administration doesn’t follow through, there will be a real backlash. They already have a credibility problem when it comes to taking on Wall Street to the degree necessary. Housing is an especially sore spot (see: the endlessly frustrating HAMP, Administration officials assuring Congressional Democrats that cramdowns would be pursued and then failing to pursue them). No small number of people within the Obama Administration are too deferential to Wall Street. While this dynamic predates the Obama White House, voters are beyond tired of it. This is one of the many subjects on which prominent progressive voices and swing voters align. If Eric Schneiderman is forced to walk away from the mortgage fraud task force, it will dramatically undercut President Obama’s populist re-election appeal. That’s not something the White House can afford to risk if they know that a vocal 99% movement is watching.


Protecting Social Security: Payroll Tax Cut Fight Edition

With the fight over a longer-term payroll tax cut fully underway, and the themes of economic security and tax fairness at the forefront, now is a good time to take a step back and look at just how much Republicans have been getting away with. GOP operatives have expressed confidence about the outcome of this fight. If their confidence was based on a belief that voters agree with them, it would be something to laugh off. On tax fairness in general, the specific payroll tax cut fight, and the directly related fight for Social Security, the GOP is thoroughly beatable. But one of the points the bullish Republicans have made is, uncharacteristically for the reality-averse GOP, not without merit. One Republican insider told National Journal that “Democrats rarely know how to make use of a strong hand.” The GOP insider pinpointed a dynamic that grassroots Dems are all too familiar with.

It’s not that there haven’t been encouraging moments as of late. The payroll tax cut fight is a good access point to the broader debate over fair tax rates — a debate that helps crystallize Republican priorities in the minds of voters. Fewer Democrats are shying away from populist contrasts. This is all good. But the recent movement in the right direction could very well prove to be fleeting. If recent history is any indication, the case for populist contrasts and confrontation will have to be made repeatedly. There are actors inside the nominally Democratic establishment (read: Third Way) whose relevance depends on elected Dems not learning the right lesson. If those hopelessly stuck in their interpretation of the 80’s and 90’s have their way, the recent mini-payroll tax cut victory will amount to little more than a short-term political win based on questionable policy. Those who speak in earnest about restoring a broad middle class have to do away with the notion that clearing low bars is enough to get us there.

The payroll tax/Social Security fight has two fronts. One is making the GOP pay the full political price for being their middle class wrecking ball selves. The other is an intraparty struggle to keep one group of Democrats that is out of step with core Democratic values and the country as a whole from blowing up the core of the party and offering up the rubble to the gods of delusional “centrism.” It’s progressives, populists, and mainstream Democrats vs. those who embrace Social Security cuts.

Note: In an attempt to avoid anything that could be rightly characterized as Monday morning quarterbacking, all of the points made in this post were also made in real time.

Team Blue

2011 wasn’t a good year for Congressional Dems, so the moment Speaker Boehner effectively admitted political defeat after the last payroll tax cut fight must have been a sweet one. If this short-term victory was a confidence builder for leading Dems, or a wake-up call to those who haven’t been willing to engage the GOP in the knock-down drag-out fight that has been going on for years and will continue whether our side finally internalizes it or not, that’s a welcome development. But this isn’t some great victory, and I think Democrats do the party and its goals a tremendous disservice if we tell ourselves that it is.

The skepticism of the payroll tax cut expressed in progressive circles is warranted. Defenders of Social Security are justifiably torn here. The people and organizations looking out for Social Security are the same ones who, for the last three years, have been adamant that the unemployment crisis demanded strong and sustained action. Of course they’re initially sympathetic to the argument that the payroll tax cut is all that is doable right now and at least it’s something. But there is disagreement over whether the payroll tax cut really is the best that can be done and deep skepticism about the efficacy of the employer-side of the payroll tax cut. To be clear, we’re not talking about an assessment that the employer-side cut is less than optimal; we’re talking about an assessment that it’s a dud.

Speaking only as a layman interested in the outcome, ideally I wouldn’t want to see any part of the payroll tax cut taken out of the economy at this time. However, if the employer-side cut is utterly ineffective, that part of the otherwise important payroll tax cut/unemployment insurance extension package isn’t worth further jeopardizing Social Security politically for, especially after the “Grand Bargain” fiasco of 2011.

While the payroll tax cut doesn’t jeopardize Social Security as far as funds go, it does make the program more vulnerable politically by fueling the perception that Social Security contributes to the deficit. And there were better options than the payroll tax cut identified in real time. Namely, the Making Work Pay earned income tax credit, which would be at least as good politically as the payroll tax cut. Making Work Pay might as well be an ongoing policy and election theme for Democrats. Making Work Pay also fits in with the Obama Administration’s desire to elevate ideas Republicans have supported in the past. The counter-argument to going with Making Work Pay was that the right would label it a second stimulus. They did this anyway with the payroll tax cut and every other recovery effort they have opposed (all of them). A key takeaway from this, if it hasn’t been made perfectly clear by now, is that when elected Democrats move toward right-wing Republicans they get little to no credit for doing so, either from the GOP or media outlets addicted to false equivalency. Results trump positioning.

The progressive reluctance to back all of the payroll tax cut comes from a recognition that the language that has been used while arguing for the payroll tax cut is sure to surface whenever the temporary cut comes up for renewal again. If this is temporary, when is it going to end and who will end it?

The reluctance is also informed by recent history. While voters — Democrats, Independents, and Republicans alike — are adamant in their opposition to Social Security cuts, the GOP still sought them, as was to be expected. But the most prominent Democrat, President Obama, was far from a stalwart defender. More people would have been receptive to an argument that the Obama Administration had been sufficiently vigilant about the impact of the payroll tax cut on Social Security’s political future if the president had stood up to the disingenuous rhetorical attacks on the successful program. Instead he joined in. He usually did so in a more measured way than the right, but he repeatedly  misled audiences about Social Security; giving cover to the right-wing/Wall Street goal of cuts that set a precedent for further efforts to unravel the program.

The president’s pursuit of Social Security cuts is not something that can be credibly denied. There is a lot of reporting that establishes that the Obama Administration wanted needless cuts and went to absurd lengths to get them as part of a package. Some combination of Speaker Boehner ultimately refusing to deal, the emergence of the 99% movement, and perhaps the White House realizing that Social Security cuts are irreconcilable with the brand of Democrat that does well in key general election states like Ohio and Wisconsin (as well as the Democratic appeal in Florida) prevented the deal from happening. But the outcome doesn’t erase a troubling reality: needless Social Security cuts were put on a table they never should have been in the first place and were kept there for a long time. The rubicon hasn’t been crossed, but clearly drawn lines have been.

With the more populist Obama back in the general election spotlight, some contend that the Social Security “Grand Bargain” folly should be forgotten about, at least until after November. I think this is a seriously misguided approach. Social Security has determined attackers and it needs determined defenders, cuts are toxic with working class voters the president and down-ticket Dems need, and cuts have the very real potential to fracture the Democratic Party — on top of being wrong and bad politics independent of this.

Social Security is central to Democratic identity. It’s at the core of what the Democratic Party is about and what it accomplishes when it’s at its best. A Democratic Party worthy of its name is committed to protecting and truly strengthening Social Security.

As an example, look what gets top billing in the official “Brought to You By” Democratic Party poster: Social Security.

If Social Security had been cut as part of a Beltway deal, the rhetorical question to the elected Democrats responsible would have been something like this:

Our country hasn’t been in this bad of shape in terms of economic security since the Great Depression. Yet despite this, you pushed through needless cuts to the 75-year plus success story that is Social Security. You did this as part of a deal that you claim addresses a problem. But Social Security didn’t contribute to this problem. And this problem isn’t the most pressing one we face. In fact, these cuts reinforce the austerity hysteria that makes our most pressing problem worse. Considering the overwhelming popularity of Social Security, how is such staggering political malpractice not a sign that you are fine with reducing the Democratic Party to a pathetic shell of what it has been, can be, and should be?

Let’s be clear, the ones who are outside of the mainstream on this are those who support Social Security cuts. In this case, “‘centrist’ wingnut” is not a contradiction in terms.

President Obama appeared to be publicly backing away from cuts last September. More recently, the populist Obama that even his sometimes critics are fans of re-emerged in Osawatomie, Kansas. To his credit, the president utilized recess appointments to send Richard Cordray, the former Democratic Attorney General of Ohio, to head the CFPB (Consumer Financial Protection Bureau), and to ensure that there would be a functioning NLRB (National Labor Relations Board). These are concrete steps taken to rebuild the middle class, which by definition means that Congressional Republicans were going to completely freak out over them. Credit where it’s due. This is all heartening.

Yet after the Kansas speech, the president gave an interview to 60 Minutes in which he again lumped Social Security in with Medicare, instead of talking about the real problem of rising health care costs.

And then there was the president’s State of the Union address:

As I told the Speaker this summer, I’m prepared to make more reforms that rein in the long-term costs of Medicare and Medicaid, and strengthen Social Security, so long as those programs remain a guarantee of security for seniors.

The speech had its good moments, but after considering what the president told Speaker Boehner last Summer, this sure looks like one of its worst. The first seven words are a clear nod to the White House-Boehner “Grand Bargain” deal that cut Social Security and did other awful things like raising the retirement age for Medicare before Boehner walked away at the last minute.

It’s true that the president said “strengthen social security.” Strengthen Social Security is the name of the coalition that is doing a great job of opposing deformative “reforms.” They’re the good guys/ladies. But this language has also been adopted by those who want to cut the program. Rarely will someone come out and admit in plain language that they’re cutting Social Security. They say they’re “strengthening” it or “securing it” or “saving” it. The group Strengthen Social Security means it. Regrettably, the president either doesn’t or he has a much different idea of how to strengthen the program that, much like the Beltway bipartisanship unicorn-spotting expedition of the first three years of this presidency, isn’t going to lead to anywhere good.

The president could state unequivocally that Social Security cuts (like raising the retirement age and the chained CPI scheme that amounts to a benefit cut) would not happen as long as he is president. He could made the kind of case for Social Security that it deserves and we all know the president is capable of. (Of course he would have to mean it.) If the history of this presidency to date is any guide, this isn’t going to happen. In fact, there’s a strong case to make that, when it comes to cutting Social Security, mainstream Democrats have to make the Obama Administration not do it.

Putting Social Security on the chopping block is anathema to operational unity within the Democratic coalition and the progressive movement. Those who pushed this nonsense in the White House, if they were interested in safeguarding the retirement security of all voters and the values of those who voted for them once already and will do so again, would knock it off.  They have more than earned any public criticism and private derision on this topic they’ve received. With that said, it’s important to understand what, as well as who, put Social Security cuts on the table.

Social Security cuts are so stupid on a number of levels that pursuing them gives rise to explanations like the “show rivals” theory — the idea that elected Democrats and elected Republicans agree on most things and the political opposition is just for show. While this theory significantly overstates the problem and envisions as deliberate things that are more subtle, the anger and confusion behind its rise is understandable.  People rightfully want to know why Social Security is something they have to worry about with a Democrat in the White House. But there’s a better answer than “show rivals.

Bubble Vision

How did Social Security cuts get put on the proverbial table in the first place? The Beltway bubble decided to prioritize the budget deficit. Bubble residents wanted something they could pass off as bipartisan, because inside the bubble, Beltway bipartisanship automatically makes something good. Inside the bubble Social Security is seen as relatively low-hanging fruit that can be included in a Beltway “Grand Bargain.” An overwhelming majority of voters are opposed to Social Security cuts (strong opposition to the Democratic “give”). A similarly large majority supports things like the expiration of the Bush tax rates for the most wealthy (strong support for the Republican “give”). But inside the bubble, this Main Street bipartisanship doesn’t register.

Social Security cuts have a small but rabid and influential constituency. Case in point: Wall Street billionaire Pete Peterson, who funds the assault on Social Security and Medicare. Peterson doesn’t like Social Security and never has. Cutting Social Security is to Peterson what “Obamacare” is to Michele Bachmann.

Peterson is aided by pundits who project their fetishes onto the electorate. David Brooks, who repeats Peterson’s talking points and clamors for cuts, is part of a larger group that likes to claim that, despite all evidence to the contrary, the president would do wonders for his re-election bid if he explicitly endorsed the Social Security cuts put forward by Alan Simpson and Erskine Bowles of the failed Simpson-Bowles Commission. Brooks isn’t alone. Andrew Sullivan wrote that if the president pushed for the cuts in Simpson-Bowles he would “regain the coalition he won with – and then some.” This is a baseless assertion. What these pundits don’t get or aren’t willing to admit is that what they want to happen to Social Security is wildly out of step with the people who work and vote for Democrats and those who would consider doing so. While these pundits like to think of themselves as standing in contrast to the “left of the left,” their warped view is rejected by progressives and the actual center.

Heaping mindless praise on Simpson-Bowles is all the rage in the bubble. Bubble residents do not seem to know that the only thing the commission produced was the proposal of its two co-chairs — Alan Simpson, the former Republican Senator from the downright tiny and extremely conservative state of Wyoming, and Erskine Bowels, a Wall Street Democrat who made $335,000 in one year at his perch on the board of Morgan Stanley. The co-chairs proposed a bad deal. But what is a raw deal to those outside of the bubble is a Grand Bargain to those inside it, because that’s what the rest of the bubble is saying. The bubble’s residents don’t have to worry about things like retirement security and they apparently have no reference point other than what their fellow inane conventional wisdom-repeating relatively well-off people say.

This insularity went all the way to the 1600 Pennsylvania Avenue, where it enabled nonsensical ideas, both regarding policy substance and political strategy that held sway in the White House. As critics of the White House’s Grand Bargaining have been pointing out for months, the theory behind the “Grand Bargain” was that once it was completed Bill Daley would learn from his trusty CNBC that the Confidence Fairy had magically fixed the economy, which would lead to the president being re-elected. Do you believe in magic? Bill Daley does.

As a bonus, the theory went, the president would become the person who “secured Social Security” — by making it less secure. Apparently a couple of people in the president’s inner circle actually thought this would make for good politics. Up until very recently, you could still catch an adviser on TV bragging about the president’s willingness to do “tough things” on “entitlements.”

Paul Starobin recently reported on Bill Daley’s White House tenure.

It was Daley, with the president’s backing, who reached out to the new House Speaker, John Boehner, in a series of moves all designed to culminate in a grand bargain between Democrats and Republicans on taxes and spending, including entitlement reforms. Daley sat down with Boehner for a get-acquainted, steaks-and-wine dinner at Bobby Van’s Steakhouse in downtown D.C. in February, and then arranged for the “golf summit” in June at which Obama and Boehner, joined by Vice President Joe Biden and Ohio’s GOP governor, John Kasich, came together for an 18-hole outing at Andrews Air Force Base.

With the U.S. government’s debt ceiling in danger of being breached, the Obama and Boehner camps got down to hard talks aimed at reducing the deficit by $4 trillion over ten years. Multiple White House aides told me that Daley was the number-one advocate for a bold package including concessions on Democratic sacred cows. On the table were big-ticket items like raising the eligibility age of Medicare. Such a deal, Daley stressed, would boost “market psychology” and “increase profoundly business and consumer confidence” in the economy, as David Lane, his counselor, characterized his views in an interview with me. Others in the White House viewed a deal as a political risk for the president and possibly a policy mistake. But Obama ruled in Daley’s favor.

What else contributed to this unrealistic theory gaining traction with a smart president? According to numerous reports, Peter Orszag, the Administration’s first OMB (Office of Management and Budget) director did a lot to shape the president’s view of the budget. Orszag is one of the lead advocates of cutting Social Security, as seen is the Diamond-Orszag plan. It seems Orszag’s view dovetailed with the president’s search for supposed common ground, even when searching for this ever-elusive ground wasn’t in the interests of a broad middle class or his own political future.

Orszag last August:

Peter R. Orszag, Obama’s former budget director, advocates tripling the size of the payroll tax break — essentially wiping out the payroll tax entirely — and keeping the rate low as long as unemployment remains high.

Orszag’s role shaping the president’s outlook is part of what makes the payroll tax cut disconcerting. To the extent would-be Social Security cutters like Orszag would have factored in that the payroll tax cut undermines Social Security politically, everything they’ve said and written about the program suggests they would see making Social Security more vulnerable as a feature of the payroll tax cut, not a bug.

On The Attack

The conservative attack on Social Security is based on ostensibly exempting current and soon-to-be retirees from the hatchet, inventing a crisis, and convincing younger people that the invented crisis is imminent. Self-described centrists try to cast Social Security as equivalent to the Bush tax rates for the most wealthy so they can pat themselves on the back for going after both. That these self-proclaimed centrists compare an intensely popular program like Social Security and its advocates to a decidedly unpopular right-wing agenda and Grover Norquist says a lot about them.

Both the right and the self-proclaimed center conflate rising health care costs with Medicare and then try to drag Social Security into the conversation about health care costs and Medicare. Both groups pretend the word “cuts” is interchangeable with “reform.” Two of their favorite “reforms” in name only are means-testing and raising the retirement age.

Means-testing Social Security and Medicare appeals to champions of the interests of the most wealthy because it helps the most wealthy claim to be contributing meaningfully; something they’ll do to forestall much more consequential attempts to address grossly unfair tax rates. Means-testing also weakens political support for the programs among the wealthy in general (the people with the most political influence) by moving the programs closer to “welfare” territory. Finally, means-testing Social Security would have to cut into middle class benefits to achieve any real savings because of the administrative cost of said means-testing.

Raising the retirement age stands out in the pack of bad ideas and scams as the worst and most offensive. Its proponents, like Pete Peterson and Chris Christie, point to rising life expectancy since the original Social Security Act passed in 1935. This is highly deceptive. Life expectancy was lower back then because infant mortality rates were higher. But that’s just the beginning of the deception.


–Life expectancy has risen more in working-age years than retirement years, which means that to the extent that Americans are living longer, they are also contributing more to Social Security.

–Although overall life expectancy is rising, lower-income groups have seen very little increase in post-65 life expectancy in recent years, and some research suggests that lower-income women may be losing ground.

–Slow wage growth and rising inequality are bigger problems for Social Security than increased life expectancy. Longevity gains for younger generations account for only one-fifth of Social Security’s projected 75-year shortfall, while slow wage growth and rising economic inequality account for more than half the projected shortfall.

The attackers, even the supposedly Very Serious ones, have no problem with getting a little crazy. Indiana’s Republican Governor Mitch Daniels, George W. Bush’s OMB director, likes to say “deficit” and “debt” a lot. This causes the usual suspects to forget his record and fawn all over him. When he isn’t busy saying his two words and responding to fan mail from Mark Halperin, Daniels likes calling Social Security a Ponzi scheme and coming up with new justifications for raising the retirement age, like when he raised the specter of replacement body parts. Yes, we must raise the retirement age because any day now we’re all going to be riding on hoverboards with our seventh pair of legs, while Tweeting, using only our minds, about the glory of Leader of Earth Gingrich as he fundamentally civilizes the Zarulons so they’ll stop interrupting our space honeymoons.

Republicans only care about Social Security to the extent they want to weaken it, privatize it, or end it without having to pay the political price. This is how privatizing Social Security becomes “personalizing” it. Paul Ryan, an Ayn Rand acolyte, isn’t hellbent on fulfilling his dream of phasing out Social Security, he’s just wishing for “reform.” Sharron Angle wanted Social Security eliminated. Then she realized language like that wouldn’t play well in a general election and discovered a way to “save Social Security” (spoiler alert: privatized). Mitch Daniels isn’t raising the retirement age, he’s just pre-celebrating your new replacement body parts.

Attacks on Social Security are not difficult to respond to.

How We Win

    • Stand up for Social Security. It works. We’re talking about an undeniably successful American institution that is vital to retirement security and has no business in a discussion about a problem it did not cause. Ideas like raising the retirement age constitute yet another raid on the middle class. Strongly oppose them and promise to fight the Wall Street-bankrolled attacks on Social Security at every turn.
    • Underscore GOP priorities When Republicans lie about Social Security we have a built-in response that puts them on the defensive and maximizes their political liability. They oppose making working pay, a surtax on incomes over a million dollars, and a tax on Wall Street transactions. One of their top priorities is permanently extending the Bush tax cuts for the most wealthy. The debate over tax rates — who is paying what, what’s fair, and what should should be rewarded, is something Democrats and progressives shouldn’t hesitate to engage in. When Republicans, or anyone else for that matter, come after Social Security, highlight what they’re doing and who they’re doing it for.
    • Do what works. It’s important to keep ideas that can spur the kind of recovery we need in the conversation, even though they may seem out of reach at the moment. These ideas include getting to work on badly needed infrastructure projects and keeping states from laying off police officers, firefighters, and teachers and doing other things that contract the economy. Let’s not mistake the brand of defeatism that avoids the kind of policy that we know works with pragmatism. The best answer to any allegation from the right is effective policy. They’re going to call us every name in the book regardless of what we do. Their attacks only resonate if we don’t get results.

Remember, Social Security has committed enemies — a fringe group, but a high-powered one with a ridiculously outsized voice in our nation’s capital. Social Security needs committed supporters who will fight every disingenuous attack on it and think ahead.

To that end, here are important takes from three staunch defenders of Social Security.

Joan McCarter:

[H]ere’s a suggestion to combat (Republicans claiming to be the true defenders of Social Security) and to actually strengthen Social Security in the long run. Democrats should embrace this newfound concern among Republicans for the program, and up the ante by coupling the payroll tax holiday with lifting the payroll tax cap. Right now, income over $110,000 is exempt from the payroll tax. Do away with that cap, and you help make sure that the lowered contributions from people who will never have more than $110,000 in income in a year don’t get hit now. It’s a win-win.

Robert Kuttner:

Subsidizing Social Security with general revenue is good policy. As long as the system is substantially financed by payroll taxes, the benefit still feels earned.

The devil, of course, is in the details. Making up the Social Security gap with a tax on millionaires is a double win. It makes the tax system more progressive, and it starkly poses alternatives in a way that plays to progressive strengths.

Dean Baker:

There is no reason to think that once cuts were put in place that the elites won’t come back for more. After all, those of us who remember the 2000 presidential race know that any improvement in the budget situation is an argument for more tax cuts. And tax cuts will inevitably mean that we will have more pressure in the future for budget cuts.

The other important part of the argument for delay is the demographic fact that we hear repeated endlessly. The country is aging. The huge baby boom cohort is reaching the eligibility ages for Social Security and Medicare.

With older people voting in much higher ratios than young people, there are not likely to be many politicians anxious to support cuts to the programs they depend upon. And, contrary to the stories of the Washington elite, the support of seniors for these programs is not driven by greed. It is driven by the fact that they recognize the importance of these programs in their own lives. They want to ensure that their children and grandchildren will enjoy the same security in their own age.

The moral of this story is that we should celebrate the work of hundreds of thousands of people across the country who have blocked the Washington elite to cut Social Security and Medicare. And remember, the future is on our side.