In her Washington Post column Megan McArdle ruminates on the termination for cause of Federal Reserve Governor Lisa Cook. After explaining her tolerance of a small amount of misconduct among officials and what “occupancy fraud” is, Megan summarizes the problems:
Retailers adopted hands-off policies that prevented employees from stopping thieves, which minimized employee injuries, legal liability and bad publicity from employee mistakes. That trade-off made sense as long as the public didn’t realize just how much it could get away with. When the internet taught us that brazen shoplifting was tolerated, those policies contributed to a shoplifting explosion — and stores were forced to take stronger measures, such as banning bags and locking up merchandise, making everyone worse off.
I worry that the Trump administration has put us, and Cook, in a similar bind.
Protecting the Fed’s independence is much, much, much more important to the health of the banking system than reducing a small amount of occupancy fraud to a slightly smaller amount. The president appears to be using government agencies such as the Federal Housing Finance Agency to pursue personal political goals, like settling scores, or replacing Fed governors he dislikes with someone more pliant. Bill Pulte, that agency’s director, should not have abetted this.
But now that he has, can we afford to say, “Well, occupancy fraud is really not a big deal, it happens all the time, and, realistically, almost no one is ever punished”? Because that’s a good way to ensure that occupancy fraud really does happen all the time, or at least more of the time, forcing banks to do whatever the banking equivalent is of putting the Target deodorant aisle on lockdown. And I don’t love that solution, either.
So unless Cook explains why this really wasn’t occupancy fraud, we’re left with two unpalatable choices: letting a public official get away with something the system can’t afford to publicly condone, or letting Trump get away with something that no one can afford to publicly condone.
The only way out of that conundrum is for Cook to tell us why what looks like occupancy fraud was actually no such thing. So I sure hope she does, and soon.
While I could focus my remarks on the problems that Congress has created in its loosey-goosey definition and oversight of the Federal Reserve, I will merely note that out in passing and instead point out the context in which Fed Gov. Cook’s termination has taken place. Recently, a record-breaking civil judgment against Donald Trump has been voided by an appeals court. The judgment was levied under a novel theory of law in which there were no victims and for which no one had ever been prosecuted before. Some are calling Dr. Cook’s termination “retribution”. An alternative framing might be consistency.
What I think we are seeing is an extraordinary decline in trust. When you can’t trust Federal Reserve governors, Presidents of the United States, cabinet officers, lawyers, judges, banks, physicians, journalists, or ordinary customers of brick-and-mortar retail stores, whom can you trust?
The answer, rather obviously, is no one. We will miss our higher trust society now that it’s gone. It means a higher level of scrutiny, policing, and more restrictive laws will inevitably be necessary.
The point is that Cook wasn’t provided an opportunity to address the accusations before she was terminated, called a Loudermill hearing. Addressing the accusation on Twitter, er X, isn’t how it’s supposed to work. That just throws it to the mob. Not sure why Trump didn’t take this very simple step. It’s almost as if he thinks he’s an autocrat or something.
Loudermilk hearings are irrelevant. The Federal Reserve is not a federal agency or department.
Dave Schuler: The Federal Reserve is not a federal agency or department.
While the Federal Reserve is largely independent, the Federal Reserve Act requires “cause” for termination, which would imply some sort of due process, if only to prevent elementary mistakes. The Court reviewing the case will probably try to apply some sort of due process.
Trump clearly lied on his loan applications, they just decided no one was harmed. Unless Cook is not keeping up on payments, then similarly no one has been harmed. In both cases they obtained loans at lower rates than they should have but I guess that is not counted as harm. I also prefer consistency so I think Cook’s case should be handled the same as Trump’s. Assuming Cook is really guilty she should step down. So should Trump.
A couple of asides. First, we were told that there was a massive outbreak of shoplifting but numbers from the retailers themselves didnt support that. Next, we were told that it was the change in laws with cashless bail and raising the limits on shoplifting prosecution that lead to increased shoplifting. Instead, what we had were localized areas of increased shoplifting due to policies instituted by the stores themselves. Turns out that people making $9.00/hour weren’t all that keen on stopping shoplifters.
Second, according to several pieces i have read only about 20 cases of this kind are prosecuted a year. Part of that is that since it only happens about 2% of the time it doesnt pay for banks to be aggressive about it. If it increases they will go look for it. The price for being caught will be high as it will make it difficult to get loans in the future.
Steve
I don’t think it’s realistic to believe that Cook will respond at this point. If the loan application documents weren’t genuine or perhaps been amended, it would have been crazy not to point this out earlier. Those documents evidence a prima facie case that she committed one or more crimes. Once the U.S. Attorney’s Office received the referral they could be expected to start the process of issuing subpoenas to state and local taxing and real estate bodies, the IRS, financial institutions and perhaps even educational institutions. Maybe, they’ll find something else, but they would at least be looking for the circumstances surrounding the transaction and get a precise chronology of events.
Her response, if she were to give it, is probably that she made a mistake, somewhat anticipated by the removal letter stating that gross negligence is no excuse. But stating that she didn’t mean it is not proof of much of anything; it’s self-serving. She would need corroboration of mistake and I’m not sure what that could be in these circumstances. Also, what crimes the government might be investigating is uncertain, probably even to the investigators at this point, so the precise nature of any mental state requirement is equally uncertain. Credibility is ultimately a question for a jury (or other fact-finder) based upon the totality of circumstances. She is probably being advised/instructed not to address the circumstances as they might help prosecutors with their case. Her complaint is crafted to avoid making her mental state/ surrounding circumstances an issue. The government shouldn’t be able to subpoena her if her testimony would be legally irrelevant.
All that means is that even in the most unlikely of circumstances, she is the first official removed by a President in U.S. history entitled to a Loudermill hearing, she is very unlikely to tell the President anything, let alone think he could be persuaded. That’s not the point. The point is to keep insisting that the burden of proof is on the President, say nothing, and only as a last resort plead the Fifth. She won’t want to plead the Fifth unless forced to because that act can be treated as incriminating in non-criminal settings.
There are a lot of difficult complications from dual criminal and civil proceedings, and usually it means the accused can’t address one of the other without consideration of the impact on both.
That Trump trial is not over, it’s headed to the highest NY Court. Two judges said the fine was excessive, but he had committed business fraud which supported the injunctions; two judges said the entire case should be re-tried due to trial judge errors; and one judge said that the case should never have been brought in the first place.
No, Steve, it’s not no harm no foul.
PD makes the point that it was just the fine that was overturned. But the real absurdity here, and it was pointed out in court documents, is that it was a noncoercive/arms length transaction between two very sophisticated parties.
Duetche Bank knows how to underwrite a commercial RE loan. They know how to hire appraisers. Perhaps more importantly, they know how to say no to loan/to-value that is out of whack. And most borrowers claim higher collateral values than warranted. It’s the game.
The notion of fraud came from a tax appraisal of $18mm, a number absurd on its face, and one, if cited, self identifies one as a clown. Comparable, as bizarre as they can be, place Mara Lago at $400-500mm. Trump claimed $500/600. Not surprising. Par for the course. I’ve seen far worse.
Who knows what biased judges might rule, but it’s a BS charge. Talk about loss of faith.
On the other hand, the only thing the Fed woman can plead is false or forged documents. Which she didn’t. The truth is she got caught red handed committing real fraud. Let’s now see how much faith we can have in the judiciary.
You forget a lot of details Drew. First, the $400 million number is true if there were no restrictions on the use of Mar-a-Lago, but there were restrictions and the property had been appraised at far less than 1/10th of the value Trump claimed. Next, it was about far more than Mar-a-Lago. You might claim that Trump had a good way to get around those restrictions but the pattern holds for all of the other property values he claimed and the differences are not small.
“Mar-a-Lago
Trump’s valuation: On one financial statement, the property was overvalued by as much as 2,300%.
Details: Trump valued the property at up to $612 million, despite having signed a deed that restricted it to be used as a social club, not residential development. The Palm Beach County assessor valued the property at between $18 million and $27.6 million during the same period. Via GPT…
Trump Tower penthouse, New York City
Trump’s valuation: Claimed the apartment was nearly three times its actual size, which resulted in an overvaluation of between $114 million and $207 million.
Details: Trump’s statements claimed the 10,996-square-foot triplex was 30,000 square feet.
Seven Springs estate, Westchester County, New York
Trump’s valuation: Was valued at as much as $291 million.
Details: This was a far cry from independent appraisals conducted in the same timeframe that valued the property at $30 million. The Trump Organization had also claimed a tax break on the property by agreeing to conserve much of the land, which limited its development potential.
40 Wall Street, New York City
Trump’s valuation: The Trump Organization valued the property lease at $525 million in 2011 and $735 million in 2015.
Details: These figures were significantly higher than a 2010 appraisal by Cushman & Wakefield, which valued the lease at $200 million.”
Steve
Steve. Really?
Made a lot of loans in your profession? Illiquid asset appraisals, especially real estate, are worthless. Toilet paper Your citations notwithstanding.
The old saw is that the value of a high ticket, illiquid asset is worth whatever a willing buyer and seller say it is on the day of closing. Duetche Bank knows this, and was/is perfectly capable of making such judgments in their underwriting. Your assertions put you in the clown category. Made a lot of high ticket commercial real estate loans, have you Steve? One? Even one? And Letitia James is just as clueless.
Want to price our next deal? You little expert, you. Only one condition. You write a two million dollar check. Shouldn’t be a problem. You are a valuation expert. We will probably steal the company……
You know, I actually believe you that a lot of you high fliers routinely lie about your financials. It’s probably pretty normal for a segment to claim the property they own is 3 times larger than what it really is. Or to have the property appraised and then claim right after that it’s worth 10 times more. You are correct that you dont truly know what it’s worth until you sell it so you might as well exaggerate to get a better deal.
The experienced, professional banks? These would be the same banks where half of the mortgage loans in 2004-2005 were liars loans and well over half of the Alt-A loans had little or no documentation? Yup, those banks.
Anyway, what would be my chances of lying and claiming that my property is 3 times larger? Close to zero? Suspect I need another $50million, $100 million or a $billion to have those kinds of rules apply to me.
Steve
Drew: The old saw is that the value of a high ticket, illiquid asset is worth whatever a willing buyer and seller say it is on the day of closing. Duetche Bank knows this, and was/is perfectly capable of making such judgments in their underwriting.
Deutsche Bank did not commission independent appraisals of every property Trump listed on his statements of financial condition, which Deutsche Bank said were key to the loans. However, they did devalue them by as much as 50% based on “sanity checks”.
As banks rely on statements of financial condition, New York State has a vested interest in making sure such statement are accurate. Literally multiplying the size of his New York City condo is clearly an instance of misrepresentation.
That’s typical, Zach. They are well aware of property valuations. Its part of the job. I don’t need to hire a plastic injection molder appraiser to know its collateral value under FMV, OLV or hammer valuations. Deutche is not a Fred and Ethyl’s most excellent mortgage and payday loans outfit. You and steve should really stay in your lane, and not recite crap you might get from Raw Story. Its a negotiation, not fraud. I guess it shocks you, but Deutche actually knows what they are doing. Your insistence on your points basically is an assertion that you know more than they do. Oh well, good for a belly laugh.
I have noticed you guys really want to stay away from, and compare to, the wonderful Fed member’s actions:
https://x.com/mich_enjoyer/status/1962866902411227241
Now THAT’s fraud. Its a false comparison you make born of zero analytical consideration, and all partisan politics. The notion of cause was mentioned in the thread. Well, claiming fraudulent residency for a business rental property is, uh, well, cause.
@Drew
You and steve should really stay in your lane, and not recite crap you might get from Raw Story.
It’s ChatAI, but Raw Story may be one of the sources plagiarized.
Drew: They are well aware of property valuations.
That’s silly. If they *know* the property value, then there would never be a need for an independent appraisal.
You must be an idiot, Zach. It’s for the file. Sigh. Clowns all around.
They know the values. It’s their profession.
Have you ever made a loan? Other than to your equivalent idiot brother in law…….
Enough. I’m dealing with children.
Drew: They know the values. It’s their profession.
Notably, you didn’t answer the point about why lenders use independent appraisals or how New York State has a valid interest in ensuring the integrity of financial statements.
Zach- Drew is correct. The rules apply to people like us, they dont apply to people like Drew and those in the financial class. Trump et al have their property appraised for taxes and lie or exaggerate the restrictions on the property to get low appraisals so they pay less in taxes. Then a couple of months later they claim those restrictions dont really apply and they claim the property is worth 10 times more. They lie and the banks know they are lying, they just dont know how much. But its OK because they are the smartest people, Masters of the Universe actually, so the “negotiate” the value.
And if the bank deal goes bad the bank gets bailed out and Trump/financial guy just declares bankruptcy. Really, no one loses, except maybe the taxpayer who pays to bail out the bank and all of the companies that lose money when the borrower goes bankrupt. The fact is we just have different rules for that class.
So it’s not that we are in the wrong lane, we are just in the wrong economic class and vocation to have the right, or even the nerve, to complain about our betters.
Steve
There is, in fact, a massive amount of shoplifting that retailers work their asses off to prevent. Putting stuff in locked cabinets, using spider wraps and small plastic cases to trigger expensive alarm systems, having to spend extra money on those items AND the labor to use them, etc, etc, etc. And it gets worse every day. I’m on the front line of the battle, at the very pointy end of the spear. About half of my hours (I work between 32 to 40 hours a week outside the Christmas season) are spent wrapping stuff up to be sure it doesn’t get stolen. They put me in the part of the store with the most high value items at risk because I’m one of the two most OCD ppl about this.
We have one person whose entire full time job is tracking stuff down to figure out when it was stolen. We have expensive security camera systems that we monitor to track stuff even further. We post alerts that go out nationwide on the company intranet about suspicious individuals. (In store we mostly only pay attention to people once their suspected theft goes into six digits. I wouldn’t have believed it possible before working there, but DAYUM.)
I haven’t thought about it too much, but anti-theft measures probably match rent on our space on a monthly basis. But a lot of that is hidden in labor costs (like mine) which gets attributed to other areas. It’s a huge freaking problem, and my store is in a nice area of town.
AND it fucks up a lot of our other metrics because it impacts how many of each item we can have on the floor. It’s a massive drain on the whole system. Death to shoplifters!