by Mark Gabrish Conlan • Copyright © 2017 by Mark Gabrish Conlan • All rights reserved
The last TV show I watched last night was a surprisingly
compelling documentary on the long-running PBS Frontline series, produced by PBS affiliate WGBH in Boston,
called “Small Enough to Jail.” It was about the Abacus Federal Savings Bank,
which was founded in New York’s Chinatown in 1984. Its principal founder and
first CEO was a Chinese-American attorney named Thomas Sung, and its business
plan relied so strongly on outreach to the Chinese-American community that all
its ads featured the bank’s name and promotional information not only in Roman
letters but Chinese characters: the bank’s name in Chinese was 國寶銀行. According to the Wikipedia
page on it, “The founders’ original purpose was to provide banking services to
immigrants and local residents of lower Manhattan. As the Chinese immigrant
population grew in the 1980’s and 1990’s, the bank retained its original
mission, but expanded its size and scope. It now has six branches covering New
York, New Jersey and Pennsylvania.” What made Abacus newsworthy enough to be
the subject of a Frontline documentary
was that in 2012 the New York District Attorney’s office — then headed by Cyrus
Vance, Jr., son of President Carter’s Secretary of State — brought an elaborate
indictment against Abacus and 19 of its key officials, mostly centered around
charges that the bank had committed loan fraud by giving home loans to people
with inadequate capital and its officials had basically demanded bribes from
their potential borrowers in exchange for granting these “liars’ loans.”
The
charges were filed against the context of the 2008 meltdown in the housing
market in the U.S., caused by the tactics of giant banks like Chase, Citibank,
Bank of America, Morgan Stanley and Goldman Sachs in not only granting dubious
housing loans to borrowers unlikely to be able to repay them but packaging
these loans into so-called “Mortgage-Backed Securities,” which the banks
selling them to investors represented as grade triple-A offerings when they
were really built on sand, and once the borrowers started defaulting on their
loans the value of the mortgage-backed securites collapsed and took the
housing-loan sector and much of America’s financial industry with it. The
similar shenanigans (though with inflated stock prices instead of housing loans)
of the financial industry in the run-up to the 1929 stock market crash and the
resulting Great Depression had produced aggressive investigations by the
federal government and fraud charges against both the major financial
institutions and many of the top officials that had run them. (Indeed, when he
was elected President, Franklin D. Roosevelt appointed what would now be called
a special counsel, New York Judge Samuel Seabury, to oversee these
investigations and aggressively nail as many of the big banks’ officers for
fraud as he could.) But the government’s reaction in 2008, both under
Republican President George W. Bush and the Democrat who replaced him, Barack
Obama, was profoundly different; as Neil Barofsky, former head of mortage fraud
at the New York U.S. Attorney’s office, said on this show, “[T]here was this
notion that we couldn’t bring criminal action against them because the
collateral consequences of an institution that was so large, so internationally
connected that indicting them or bringing criminal charges against them could
wreck the entire financial system.”
So the only bank anywhere in the U.S. which was charged and brought to trial for loan fraud in
connection with the pre-2008 housing bubble was little six-branch Abacus
Federal Savings Bank and the Sung family — and while the show includes
interviews with some of the prosecutors, including Vance and Polly Greenberg,
who actually brought the case to trial (and who in a particularly nasty bit of
sore-loserism is shown here after Abacus and its officers were acquitted, when
she told reporters, “Abacus was not exonerated ─ not exonerated. Exoneration is
when a person is proven innocent. I don’t think there’s anything here that says
that Abacus was proven innocent”), it’s clear from director Steve James’
presentation that he regards Abacus as a scapegoat. According to James’
presentation, the New York state authorities went after Abacus because it was literally “small enough to jail” — its successful
prosecution and closure wouldn’t shake the world’s financial system the way
holding Chase or Citibank or Bank of America or Goldman Sachs would have — and
also because it was a bank owned, operated by and serving a community of color.
James’ show depicts Thomas Sung as a long-time attorney in the Chinese-American
community who had worked himself up from immigrant roots (he was born in
Shanghai) and had done a lot of pro bono work, including representing New York’s Chinese-American Association,
and had got into banking relatively late in life when he realized that a lot of
the people in his community, especially small business owners looking to
improve and expand, were being hobbled economically because the big white banks
wouldn’t lend to them. So he decided to start a bank aimed at the Chinese-American
community, soliciting them to deposit with the promise that their money would
be used to help fellow Chinese develop the Chinese-American community
economically.
His role model, intriguingly, was George Bailey, the character
played by James Stewart in Frank Capra’s classic 1946 film It’s a
Wonderful Life; he and his wife made a
point of watching that film on TV every time it came on and James studs his film with appropriate clips from it. Vance, who
comes off in James’ film as the equivalent of Mr. Potter (the villain in It’s
a Wonderful Life, played by Lionel
Barrymore), is shown in an interview he gave for the film as saying, “I felt
that our handling of the bank was consistent with how we would have handled the
bank if we were investigating a bank that serviced the South American community
or the Indian community. There was nothing different that we did or
purposefully designed to treat this bank differently.” What’s amazing about
that is the unconscious (at least I hope it was unconscious!) racism he brought to the presentation: notice
that he did not say he was
treating Abacus the same way as he would treat a bank owned and run by whites,
only that he was treating it the same as he would treat any other bank owned
and run by people of color. As James unfolds the story, it seems that Abacus’s
troubles stemmed from a highly charismatic and apparently successful loan
officer they had hired in 2005 named Ken Yu. In 2009 Thomas Sung and his
daughters Vera and Jane realized that Yu was using his position as an Abacus
loan officer to submit fraudulent applications and sock potential borrowers for
bribes to get their loans approved. The Sungs say they themselves reported this
to federal authorities and gave them reams of documentation to indicate that
this was a problem with Ken Yu and a few other loan officers — but when Vance
and his crew got hold of the bank’s documents, they decided to prosecute on the
ground that the corrupt loan officers couldn’t have got away with their fraud
without the bank’s upper-level management knowing about it. They even issued a
seating chart of the bank’s home loan department and offered it as an exhibit
in the trial, arguing that higher officials in the bank were sitting close
enough to Yu in the office to have uncovered his fraud — as legendary attorney
Louis Nizer once acidly joked about another case, “This had gone beyond guilt
by association — now it was guilt by proximity.”
The indictment the New York
City district attorney and the tactics he used — inviting reporters to watch a
perp walk in which all 19 defendants were taken out of the bank literally chained to each other, as well as doing a plea deal
with Ken Yu and making him the star witness at the two-month trial — so
appalled one of Thomas Sung’s daughters, Chanterelle, that she quit her job
with the New York City district attorney’s office and went to work at Abacus
with her father and two sisters, and among other things she masterminded their
P.R. strategy to try to get their side of the story out to the media. “Small Enough
to Jail” is a tough-minded look at a particularly grim byway of the American
financial scandal of nearly a decade ago, and one of its most interesting
insights is that many of the so-called “fraudulent” loan documents the
prosecutors used against Abacus were created because though their borrowers had assets, many of them were running their businesses
“off the books” and hadn’t disclosed all their earnings to the IRS. Thomas Sung
recalled one of the loans he was accused of making fraudulently and said it was
to the owner of a Chinese restaurant which wanted the money to modernize their
kitchen, and he said that no matter what their financial documents said (or didn’t say), he knew they’d be good
for the money because he ate at the restaurant regularly himself and he could
see how much business they were doing. Abacus’s defense noted that their
default rate on mortgage loans was 0.5 percent, one-tenth of the national
average, and James claims in his closing credits that all the loans the indictment against Abacus said were
fraudulent are now either completely paid off or still performing. “Small
Enough to Jail” is a fascinating movie that shows that sometimes the biggest
victims of large, predatory capitalism are small capitalists whom it’s easy for
authorities to throw to the wolves — and, though James doesn’t really stress
the point, it also shows that even in the highest reaches of the Democratic
Party in a supposedly liberal city, racism lurks around the corner ready to
spread its poison and lead prosecutors to come down harder on alleged
wrong-doing if the alleged wrongdoers are people of color.
