Wednesday, September 13, 2017

Frontline: “Small Enough to Jail” (WGBH/PBS, aired September 12, 2017)

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.