Krugman has more on the firing of Lisa Cook:
Cook has said that she will not resign. So at this point the immediate onus is on Jerome Powell, the Fed chairman. He has the right — I would say the obligation — to say, “Show me the legal basis for this action.” If Trump’s officials can’t provide that basis, he should declare that as far as he is concerned, Cook is still a Fed governor.
If Powell caves, or the Supreme Court acts supine again and validates Trump’s illegal declaration, the implications will be profound and disastrous. The United States will be well on its way to becoming Turkey, where an authoritarian ruler imposed his crackpot economics on the central bank, sending inflation soaring to 80 percent
Look at that graph above.
And the damage will be felt far beyond the Fed. This will mark the destruction of professionalism and independent thinking throughout the federal government.
So, about the legal authority. The Supreme Court, shamefully, has said that Trump has the authority to fire officials at will throughout the federal government, effectively eviscerating the principle of a professional civil service. But even the Court specifically carved out protections for Fed governors, saying that they can only be removed “for cause.”
Normally “for cause” means neglect of one’s job or malfeasance on the job. Yet even Trump’s people have made no claims that Lisa Cook has failed to fulfil her duties at the Fed or done anything wrong in her role as governor.
So what is the complaint about Cook? Trump says that she committed mortgage fraud by taking out two mortgages, claiming both properties as her primary residence, back when she was a professor at Michigan State, before joining the Fed.
Even if true, this accusation wouldn’t meet the standard for immediate dismissal from the Fed.
Furthermore, there’s no reason to believe Trump’s assertions that she committed fraud. So far, the Justice Department hasn’t even made any formal charges, let alone won a conviction. And we have no clear evidence of wrongdoing. As far as I can tell, the only evidence seen by outsiders shows that she took out mortgages on two properties, and the security instruments associated with these mortgages say that both properties are “principal residences.”
But as Adam Levitin at Credit Slips, says, “principal” isn’t the same as “primary”: someone who has a home in the city and a second place in the country might well consider both “principal” residences. Furthermore, there is no evidence that Cook even knew what the security instruments said — she may have done nothing more than promise to make her mortgage payments.
And a claim of mortgage fraud requires both that the borrower make a deliberate misrepresentation — as opposed to making a mistake on a complicated process — and that this misrepresentation caused financial harm to the lender. We’ve seen no evidence at all for either proposition.
[…]
The immediate test here is how the Fed itself responds. Cook is doing the right thing by refusing to resign. Jerome Powell now faces a moment of truth: Will he back her up, until or unless Trump demonstrates that he has the legal authority to fire her?
What if Trump uses some kind of force — deployment of U.S. Marshals? — to block Cook from continuing to work? Good. That will demonstrate to everyone the grotesqueness of this power grab.
And one way or another, this will end up in the courts, where we will find out whether our judicial system has any integrity left.
I can easily see him sending in the federal marshalls to physically remove her. And unfortunately I can easily see it being a two day story after which the press will move on to the next atrocity. That’s how this stuff works.
He doesn’t seem sure the financial markets will react and so far, that seems to be the case. But eventually something very bad is going to happen. Just look at that graph up top.
I would also like to ask what the hell this flunky at the Federal Housing Finance Agency is doing? It appears that he is targeting the private records of Trump enemies — Leticia James, Adam Schiff and now Cook for the purpose of finding some kind of irregularity that Trump can use to harass them and in the case of Cook, fire them. It’s not an audit, which would turn up people of all political persuasions, I’m sure. This is the definition of weaponization and I’m shocked it’s not illegal. (Not that it matters.)
The man’s name is Bill Pulte, an heir to his grandfather’s construction fortune and a dyed in the wool Trumper. He will almost certainly be named to some much higher post as thanks for his service. I think they’re looking for a new head of Consumer Finance Protection Bureau. Maybe the ATF director. Hell, why not Director of the Office of Government Ethics? He certainly has experience in breaking them.
This is all wrong and as Krugman points out, along with all other economic experts who are appalled at what Trump is doing — and what his minions are letting him get away with. Either they are all as delusional as he is or they’re stupid.
Update —
Michael Hiltzik of the LA Times has some other information on all this:
The accusations against all three targets involve occupancy misrepresentations — occupancy fraud, if you like. Specifically, Cook, Schiff and James are accused of falsely telling mortgage lenders that the loans in question were for their primary residences.
The idea is that they may have received a break on the loan terms — a lower down payment required, or a lower interest rate charge — because lenders think kindlier of borrowers for primary residences.
But none of the public accusations from the FHFA specify what, if any, financial advantages were received by the targets.
Occupancy fraud is a fairly low-level problem for mortgage lenders, which tend to judge the creditworthiness of borrowers more on such factors as the borrowers’ income and the value of the property versus the loan amount, and on the borrowers’ credit history. Moreover, the specifics of each case are amazingly weak.
And it’s unlikely that they’re the result of random audits of FHFA loans, as Levitin observed in relation to the Cook case.
“No one ever goes back and examines loan applications on performing loans for occupancy fraud; that would entail expenses for no benefit,” he wrote. “Instead, the only way anyone would have noticed a problem with Cook’s loan application is that Pulte, as head of FHFA, directed Fannie or Freddie to pull her application. That is unheard of.”
His reference was to the quasi-governmental firms Fannie Mae and Freddie Mac, which buy and re-market mortgages originated by banks and other lenders. Pulte is the chairman of both firms.
It was a memo purportedly from Fannie Mae’s criminal investigators to Pulte that generated the accusation against Schiff. As my colleagues Kevin Rector and Laura J. Nelson reported, the one-page memo made no allegation of fraud.
The memo notes that all five of the mortgage loans that were its subject already had been paid off before July 14, the memo’s date. There’s no indication in the memo or otherwise that the loans were ever in arrears or in default, or otherwise impaired in any way.
The Fannie Mae memo says that the FHFA inspector general demanded “the loan file and any related investigative or quality control documentation, as well as all other loans associated with…Adam B. Schiff.” (The ellipsis signifies a redacted portion of the memo.) Since there was no prior indication of wrongdoing in relation to Schiff’s loans — a 2023 CNN article on his ownership of two homes concluded that he was “likely not in any legal jeopardy” — where did the initiative for this demand come from?
As the request from FHFA was specifically directed at Schiff’s mortgages, it obviously couldn’t have resulted from a random screening of Fannie Mae loans. That lends strength to Schiff’s contention that the accusation “is just Donald Trump’s latest attempt at political retaliation against his perceived enemies. So it is not a surprise, only how weak this false allegation turns out to be.”
I asked FHFA who at the inspector general’s office demanded the files, what was the reason for the demand, and whether Pulte played a role in the demand. I received no response.
I’m pretty sure we know who did it and at whose behest.
He goes into the details of the three cases and it’s clear that this is likely a minor paperwork error at worst. And who knows? These people are such liars that we don’t even know if any of it is true?
The fact that this is coming from the man who was found to have overvalued his assets by $812 million to $2.2 billion between 2014 to 2021 on his loan documents is stunning. They have no limits.