New York Attorney General Eric Schneiderman has been celebrated as the progressive Great White Hope. But the danger of assuming leadership is that that individual becomes a target both of attacks and of seduction. And while I’d like to think better of Schneiderman, an announcement earlier this evening has strong hallmarks of Schneiderman falling prey to the combined pressures and blandishments of the Administration and its allies.

Only a sketchy bit of news has been released, with the most extensive reporting so far coming in Huffington Post which incorrectly anticipated a State of the Union announcement of the fact that Schneiderman will be co-chairing a Federal committee to investigate mortgage abuses (the story appears to have been confirmed in general terms via an announcement from Schneiderman’s office). Key details from the HuffPo story:

The unit will not supersede the efforts already underway by the Department of Justice. Instead, it will operate as part of the president’s Financial Fraud Enforcement Task Force. In addition to Schneiderman, the unit will be co-chaired by Lanny Breuer, assistant attorney general at the Criminal Division of the Department of Justice, Robert Khuzami, director of enforcement at the SEC; John Walsh, a U.S. attorney in Colorado, and Tony West, assistant attorney general in the Civil Division at DOJ.

So get this: this is a committee that will “investigate.” The co-chair, Lanny Breuer, along with DoJ chief Eric Holder, hail from white shoe Washington law firm Covington & Burling, which has deep ties to the financial services industry. Even if they did not work directly for clients in the mortgage business, they come from a firm known for its deep political and regulatory connections (for instance: Gene Ludwig, the Covington partner I engaged for some complicated regulatory work when I was at Sumitomo Bank, later became head of the OCC). We’ve written at length on how the OCC is such a shameless tout for the banking industry that it cannot properly be called a regulator. Similarly, the SEC has been virtually absent from the mortgage beat, no doubt because its enforcement chief, Robert Khuzami, was general counsel to the fixed income department at Deutsche Bank. That area included the trading operation under Greg Lippmann who we have described as Patient Zero of so called mezz CDOs, or to the layperson, toxic mortgage paper that kept the subprime bubble going well beyond its sell date. And we don’t need to say much about the DoJ. It has been missing in action during this entire Administration.

Neil Barofsky, former prosecutor and head of SIGTARP, doesn’t buy the logic of this committee either:

A lot of soi-disant liberal groups have fallen in line with Obama messaging, which was the plan (I already have the predictable congratulatory Move On e-mail in my inbox). Let’s get real. The wee problem is that this committee looks like yet another bit of theater for the Administration to pretend, yet again, that it is Doing Something, while scoring a twofer by getting Schneiderman, who has been a pretty effective opponent, hobbled.

If you wanted a real investigation, you get a real independent investigator, with a real budget and staffing, and turn him loose. We had the FCIC which had a lot of hearings and produced a readable book that said everyone was responsible for the mortgage crisis, which was tantamount to saying no one was responsible. We even had an eleven-regulator Foreclosure Task Force that looked at 2800 loan files (and a mere 100 foreclosures) and found nothing very much wrong.

Now we have a committee full of people who have made numerous statements in the media and to Congressional committee minimizing the severity of the mortgage mess. Are were to believe they all had a conversion experience on the eve of the State of the Union address? But apparently the members of what passes for the left are prepared to take “investigation” at face value since it would be unpleasant to consider the possibility that they are being snookered again.

And it seems awfully plausible that the aim of getting Schneiderman on board with an Administration “investigation” is to undermine the effort by 15 Democrat attorneys general to devise their own strategy for dealing with mortgage abuses. We’ve heard reports privately that some of the defecting AGs are in a panic.

Put it another way: one thing that would convince me that this committee was serious was if the settlement pact was put on hold until the investigation were completed. The fact that the settlement push is in high gear is yet more proof that this committee is yet another bit of regulatory/enforcement theater, just like the Foreclosure Task Force, or the servicer consent decrees (confirmed as an embarrassment via the use of badly conflicted “consultants”), or the current OCC investigation into foreclosure abuses, which excludes all sorts of injuries inflicted upon homeowners, most notably servicer fees abuses and misapplication of payments.

And another indicator that the Administration is using every tool at its disposal to put pressure on the dissenting AGs: the Center for Responsible Lending has given a not terribly enthusiastic endorsement of the settlement pact. Why should this not be taken at face value? While the CRL has done some good work in the consumer lending space, anything it does in the mortgage arena should be viewed skeptically. The Center received a large grant from hedge fund manager John Paulson, who is famous for having made a fortune shorting subprime (readers of ECONNED will remember how we demonstrated that subprime shorts that used CDOs, as Paulson sometimes did, played a direct role in turning what would have been a contained subprime bubble into a global financial crisis). And most important, Paulson has been a vociferous opponent of investigations and policies to promote mortgage modifications. Remember, as we discussed when the Roosevelt Institute accepted money from the Peterson Foundation and then repudiated FDR’s legacy by publishing policy papers on how to “reform” entitlements, the real prize for the neoliberals is to get trusted progressive organizations to do their dirty work.

It’s clear what the Administration is getting from getting Schneiderman aligned with them. It is much less clear why Schneiderman is signing up. He can investigate and prosecute NOW. He has subpoena powers, staff, and the Martin Act. He doesn’t need to join a Federal committee to get permission to do his job. And this is true for ALL the others agencies represented on this committee. They have investigative and enforcement powers they have chosen not to use. So we are supposed to believe that a group, ex Schneiderman, that has been remarkably complacent, will suddenly get religion on the mortgage front because they are all in a room and Schneiderman is a co-chair?

Maybe Schneiderman has convinced himself that he will get more reach or resources this way, but I have trouble fathoming the logic. While he did do a real service by begin the first to question the AG settlement when that was a isolated and courageous position, and was also early to crank up investigations, other less well resourced states (Delaware, Nevada, Massachuseetts) that started later have filed serious cases. In particular, Catherine Cortez Masto of Nevada has been doing old fashioned, go-after-the-foot-soldiers-to-get-the-capos prosecutions of the sort Eliot Spitzer recommended in Inside Job. Why has Schneiderman, after such a promising start, done so little?

Maybe Schneiderman has fallen for the same sort of pitch that the Administration used on Elizabeth Warren. But the tradeoffs were completely different for her. The CFPB was her baby; giving her the chance to set it up was terribly seductive. And she could convince herself that she’d have more power as an insider than running a shadow CFPB out of Harvard to keep the real one honest. But Schneiderman already has a real power base and media reach. It’s hard to see what the Administration could offer him to get him to compromise his independence (which this effort will, no matter what he has convinced himself).

It would appear big aim of setting up this committee (and the uncertainty as to whether Schneiderman is now going to join the settlement deal) is to create disarray among the dissenting AGs. I’m sure it is no coincidence that there is a conference call scheduled for 11:00 AM tomorrow among the Democratic AGs. Delaware’s Biden as of Tuesday afternoon said he was not supporting a settlement, and there is good reason to think at least Masto of Nevada, who has been the most aggressive so far, will hold firm.

It would be better if I were proven wrong, but this looks to be yet another clever Obama gambit to neutralize his opposition. With all the same key actors in place – Geithner, Walsh, Holder – there is no reason to believe the Administration has had a change of heart until there is compelling evidence otherwise.