DURHAM, N.C. (Legal Newsline) - The way Duke University professor and former North Carolina gubernatorial candidate Michael Munger sees it, there can be only two reasons New York Attorney General Andrew Cuomo is suing Bank of America -- and neither of them are good.
"One is that he actually believes it," Munger said Tuesday when asked about Cuomo's fraud lawsuit. "That would mean his hypocrisy is incredible.
"The other is that this is fake, that he's doing this for personal aggrandizement."
Cuomo has drawn some criticism since filing his lawsuit, which alleged Bank of America withheld Merrill Lynch's projected heavy losses in the fourth quarter of 2008 before a shareholder vote to approve a merger of the two.
It also withheld Merrill Lynch's plans to spend up to $5.8 billion in executive bonuses after the merger, Cuomo claims. He alleged fraud on the parts of former CEO Kenneth Lewis and former CFO Joseph Price.
"This merger is a classic example of how the actions of our nation's largest financial institutions led to the near-collapse of our financial system," Cuomo said in a press release Feb. 4.
Munger, like a recent Wall Street Journal editorial, says Cuomo's reign as secretary of the Department of Housing and Urban Development Authority under President Bill Clinton was a big cause of the financial problems of today.
Cuomo required Fannie Mae and Freddie Mac to buy $2.4 trillion in mortgages over a 10-year span. Cuomo said that meant affordable housing for 28.1 million low- and moderate-income families.
"The fact is that pressure had been placed on both private banks and Fannie Mae and Freddie Mac to increase the amount of affordable housing available for people who couldn't afford it," Munger said.
"Banks were making loans they wouldn't make under normal circumstances. They were pressed by both Congress and Cuomo and the HUD. Basically, they were putting a government stamp of approval on them to buy these as investment-grade assets.
"To put it bluntly, the government was setting a trap... For Andrew Cuomo to blame somebody else, he caused it as much as anybody, or his agency caused it more than anybody -- and certainly more than any bank merger."
Munger also singled out Rep. Barney Frank, D-Mass., for opposing a proposal made by President George W. Bush's administration that would have transferred oversight of Fannie Mae and Freddie Mac away from Congress and the HUD. Frank said the entities were not facing any kind of financial crisis.
And it was earlier pressure from Congress that resulted in Cuomo's policies while at the HUD, Munger said. Asked to describe Cuomo's term with one word, Munger chose "complicit."
"He didn't resist," Munger said. "He was far from being someone who made it better. He went along to create the conditions that caused the disaster.
"He forced the banks to make bad loans, then he forced Fannie Mae and Freddie Mac to certify the bad loans as if they were good."
Munger earned his master's degree in economics at Washington University in St. Louis and worked as a staff economist at the Federal Trade Commission. A Libertarian who received 3 percent of the 2008 vote for governor, Munger, who has a PhD in political science, is also the head of the political science department at Duke.
Politics, he said, could be part of the reason for Cuomo's suit. Now that Gov. David Paterson is not running, Cuomo appears to have a clear path to the Democratic nomination for governor if he wants it.
"It oughta discredit him, but it will probably help him in political terms," he said.
"People believe the premise of the lawsuit, that the financial industry caused all this."
Cuomo says Bank of America deceived taxpayers because it misled the federal government into giving it Taxpayer Asset Relief Program funds. The bank has repaid the loan, with interest.
"Bank of America, through its top management, engaged in a concerted effort to deceive shareholders and American taxpayers at large," he said. "This was an arrogant scheme hatched by the bank's top executives who believed they could play by their own set of rules.
"In the end, they committed an enormous fraud and American taxpayers ended up paying billions for Bank of America's misdeeds."
Munger said it is easier for politicians to "demonize" the financial industry instead of the government. He also said President Barack Obama's pledge made during the State of the Union Address to create more loans for small businesses will create "more bad loans to small businesses," much like Cuomo's actions at the HUD created bad housing loans.
"Small businesses and large businesses depend on certainty. They need predictability," he said.
"Politicians derive power from uncertainty. Obama and his cronies are trying to maximize uncertainty. He's making it worse everyday."
From Legal Newsline: Reach John O'Brien by e-mail at firstname.lastname@example.org.
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