Seven women were arraigned Tuesday in Washington, D.C., on federal charges of “unlawful entry” stemming from last month’s homeowner sit-ins at the Department of Justice and a lawfirm called Covington and Burling. Protesters targeted Covington for its revolving-door relationship with a government that’s failed to prosecute Wall Street. When Lanny Breuer stepped down as head of DOJ’s criminal division this winter after Frontline revealed him as the primary culprit in the government’s apparent ‘too big to jail’ approach to foreclosure fraud, Covington provided him a new professional home. It’s also provided a moniker for the group formally charged on Tuesday: the “Covington Seven.”

The women face one of three different legal paths, their attorney Mark Goldstone told ThinkProgress. The charges bear a maximum penalty of six months jail time and/or a $1,250 fine. While a small fine is more likely to be the outcome, Goldstone said, that would come with a conviction on their permanent records. The women might be able to escape conviction provided they are not re-arrested and they do not return to Covington and Burling premises.

After their arraignment, members of the Covington Seven told ThinkProgress why they’d gotten involved.

Sherry Hernandez of Los Angeles told me her Countrywide mortgage ballooned after just four months, with her monthly payments jumping by $800. Her family decided to get a different loan and get out of the suddenly-unaffordable Countrywide mortgage, since they knew they had notarized paperwork showing their loan did not carry penalties for paying it back early. “But they held us to this prepayment penalty we didn’t agree to,” Hernandez said, which “raised our payment trying to get out of the predatory loan by $75,000 more.” Countrywide was the largest subprime lender, and implicated in much of the ugliest financial conduct of the housing bubble and bust. Yet a few years after it was bought by Bank of America, a firm called PennyMac sprang up, run almost entirely by Countrywide alumni. The Hernandezes sued Countrywide successfully, but meanwhile the second loan they’d taken out to replace the predatory one had been sold off…to PennyMac. “PennyMac has foreclosed,” Hernandez said. (PennyMac declined to comment on an individual case, citing privacy laws.)

Asked what she wanted to her message to be on the day she attended the sit-in, Hernandez chuckled. “Oh I have the perfect line. It’s the line they used on us when our hands were cuffed behind our backs, the seven little grandmas: ‘If you don’t arrest them, they’ll just do it again.’”

Deborah Castillo of St. Louis came home from voting on Election Day of 2012 to find an eviction notice on her front door. Castillo, 60, had seemed well positioned for her financial future just a few years earlier, with a good handle on her own mortgage and an investment property nearly paid off. “I had a two-family flat that was $3,000 from being paid for,” Castillo said, “but I had to refinance that in 2005 to help pay for the medical bills for my son, who’s schizophrenic.”

“That was my so-called nest egg, that was our security. And so I had to refinance that, unfortunately with Countrywide.” The same year, Castillo’s daughter contracted bacterial meningitis, and Castillo took 9 months away from her phone company job to care for her daughter. When the balloon payment hit, Castillo couldn’t keep up. Her husband lost his job amid the economic downturn, compounding their struggles. Just a few years on from nearly owning their “nest egg” rental property, Castillo found herself drawing down retirement savings to make ends meet.

And then, in the middle of the loan modification process, US Bank foreclosed on the Castillo family home. “[They] sat on the paperwork,” Castillo told ThinkProgress. The bank refused to accept payments while the modification was pending, yet charged Castillo penalties for missed payments. “Their lack of processing my document on time allowed them to put me in foreclosure,” she said. With eviction pending, Fannie Mae sought and won a $17,000 judgment against Castillo “for being in my home illegally.” (A representative of US Bank officially declined to comment, citing policy against discussing ongoing litigation.)

Castillo is clear-eyed about the culprits in her case. “Something can happen to you in life, no matter what, that can cause you to get into a bind,” Castillo said. “But US Bank, they’re not losing.” Thanks to bailouts, “there was no reason for the banks to settle or work with people, because the government guaranteed that they would win, that they would not be left holding the bag.” And now, with the initial crisis that sparked the government aid to the financial sector, no one in Washington was doubling back to address the paperwork rigmarole that the bailed-out companies used to boot the Castillos from their home. That’s how Castillo ended up getting handcuffed in the Covington and Burling lobby. “We wanted to get someone’s attention. And unfortunately, doing it the legal way through the court is not getting their attention,” she said.

“I worked my ass off to help [President Obama] get elected,” said Castillo, whose volunteer work for the 2008 campaign earned her the photo-op at right. “And now I want him to work his ass off to keep not only me in my home, but everybody else. Because he didn’t get there on his own. I don’t think he’s forgotten, but he needs to put his foot up somebody’s ass and make them remember, we helped put them there.”

Castillo, Hernandez, and the other five, whose stories reflect the same themes of deception and bullying, have to choose how to respond to the unlawful entry charges prior to a July court date. But whichever path each decides to walk, they’ll face more punishment than any of the companies involved in these wrongful foreclosures have faced. “The charges are much harsher for those that sit in front of a doorway than those who steal billions of dollars, force people out of their homes, wreck the economy, and wreck people’s lives,” Goldstone, their lawyer, said. “It demonstrates there’s two systems of justice.”

An agreement to resolve the largest municipal bankruptcy in U.S. history awaits a judge’s approval after officials in Jefferson County, Alabama approved the deal on Tuesday. The county, home to Birmingham, went bust in 2011 following the implosion of a complex web of bad deals and bribes between local officials and Wall Street firms including JP Morgan Chase, Goldman Sachs, Bear Stearns, and Lehman Brothers. While the proposed deal would erase most of the fees, penalties, and inflated costs the county owes to the firms that originated the predatory, graft-driven scheme, citizens of the bankrupt county will also face about a 30 percent hike in sewer fees over four years.

Combined with an earlier settlement, the pending bankruptcy deal would push JP Morgan’s balance-sheet losses on the Alabama sewer debacle to roughly $1.6 billion. But that eye-popping figure is unlikely to change the fact that the bank’s municipal debt business is still doing remarkably well.

While Jefferson slashed services and laid off about a thousand workers, JP Morgan registered record profits in quarter after quarter. Overall, its municipal-debt underwriting business has remained mostly unscathed by the Jefferson County scandal. The bank continues to be one of the largest players in the market, underwriting $64.7 billion worth of public debt offerings from 2009-2011. Even after JP Morgan employees openly discussed millions of dollars in bribes paid to local power brokers and extracted millions in fees on deals that turned a $250 million sewer project into a $3 billion expense for Jefferson County, local governments continue to give the firm their business.

The combination of flagrant bribes, predatory lending schemes involving Alabama’s largest city, and the readymade metaphor of a sewer system at the center of the story helped make the Jefferson County scandal national news. But it’s only one of dozens of tales like it, where local officials agreed to interest rate swaps and other long-term harmful arrangements that allowed Wall Street firms to extract massive profit from deals that bankrupted cities. Detroit has amassed nearly $4 billion in debt from such swaps.

The world’s biggest banks have been manipulating the rates underlying those swaps for years, as last year’s LIBOR scandal revealed, with the end result that borrowers go ever deeper into debt while lender profits climb. In the Detroit case, Wall Street has made nearly $500 million off of a city that’s so deep in the red that it’s slashing emergency services. One debt analyst estimated in 2012 that U.S. taxpayers have sent a combined $20 billion to Wall Street in fee payments stemming from swap agreements.

On Monday, a regulatory body created by the Dodd-Frank reforms of 2010 named the first set of non-bank financial companies that will face the most stringent provisions of the Wall Street reform package. Since the so-called “shadow banking” sector was the epicenter of the complex and risky behavior that caused the financial crisis to spill over into the broader economy, the announcement constitutes significant progress for meaningful Wall Street reform. The news means that three major financial companies that do not take deposits – AIG, Prudential Financial, and GE Capital – will be unraveled by the government rather than bailed out should they go bankrupt in the future.

But the Financial Stability Oversight Council’s (FSOC) announcement was immediately mischaracterized as making bailouts more likely by Rep. Jeb Hensarling (TX), Chairman of the House Financial Services Committee. In a statement, Hensarling claimed that “hardworking taxpayers are at greater risk of being forced to fund yet another Wall Street bailout as their government officially designates more large companies as being ‘too big to fail’.”

Hensarling’s statement is premised on a misconception of the Dodd-Frank provision known as Orderly Liquidation Authority. That misconception is hardly limited to Hensarling. It was included in the GOP’s budget last year, and it dates back to industry-funded talking points drafted by Republican strategist Frank Luntz back when Dodd-Frank was being written.

The Orderly Liquidation Authority is the government’s tool to take over and unwind a failing financial company, rather than bailing it out. Federal Reserve Chairman Ben Bernanke has said such a policy could have forestalled the 2008 bailouts, and the Treasury Secretary who oversaw those bailouts agrees. Experts disagree about whether or not the system is sufficient to remedy the too-big-to-fail problem, with many arguing that further restrictions on the size and behavior of giant financial firms are necessary. But the GOP claim that Dodd-Frank enshrines bailouts and too-big-to-fail in law gets a complicated policy backwards.

Meanwhile, the announcement about AIG, Prudential, and GE Capital means that they will also be subject to stricter regulations than smaller, less systemically risky firms. “Systemically important financial institutions,” a list the three now find themselves on, will be subject to new Federal Reserve oversight and required to draft a “living will” to be used in dismantling them should they fail. Other specifics of the requirements they face have yet to be settled. They have 30 days to appeal the decision.

A group of European countries that set out in 2012 to implement a 0.1 percent tax on financial transactions is scaling the plan back, Reuters reported Thursday, after the industry “lobbied furiously against a scheme aimed at making them contribute to the costs of the financial crisis.” Unnamed sources close to the process told the wire service that the European Commission now seeks just a 0.01 percent tax on a smaller subset of financial transactions, and would hope to raise the rate and expand its reach “on a staggered basis” in the future.

While slashing the proposed rate by a factor of ten would dramatically reduce the revenues the tax would provide to cash-strapped governments in the region, the bigger problem is the reported shift to exempting the riskiest, least-productive types of financial behavior. Reuters’ sources say derivatives trades would no longer be taxed initially, and that the revised proposal would essentially punt the derivatives question into the future.

The idea behind the microscopic tax on trades dates to the Great Depression-era desire to curb “the predominance of speculation over enterprise” that had blown up the economy. Eight decades later, with the world still climbing out of a Great Recession caused in part by technologically-accelerated speculation, the idea is gaining renewed traction around the globe. As markets become increasingly beholden to computers that can execute thousands of trades every second, they grow dangerously volatile, as demonstrated in 2010 by a “flash crash” caused by high-frequency traders (HFTs). The European reforms that are now decaying sought in part to guard the broader economy from the risks of such crashes by discouraging HFTs.

Similar proposals from Progressive Caucus members in the U.S. House have yet to catch on more broadly among lawmakers, although a long list of economists, business tycoons, faith leaders, and other public figures have endorsed the idea. But as in Europe, the policy’s American targets have ratcheted up their efforts at influencing policy. HFTs spent nearly 8 times as much to influence elections in 2012 as they spent in 2008.

One version of the American financial transactions tax, proposed by Rep. Keith Ellison (D-MN), included a separate micro-tax on the market in derivatives, which was the epicenter of the financial crisis that precipitated the great recession. Another version set a flat rate for all financial transactions.

While the designs of the proposals vary, the arguments against them are generally the same: raising the cost of trading will hurt growth. But as the Center for Economic and Policy Research’s Dean Baker has shown, the benefits of taxing financial transactions seem likely to outweigh the costs, and reasonable, enforceable taxes of this sort would help create economic growth that’s more sustainable, and possibly even more robust.

An investigation into allegations that major financial institutions tried to collect credit card debts using some of the same potentially fraudulent and abusive paperwork practices that drove millions of wrongful foreclosures is expanding, according to the Washington Post.

The investigation had previously focused on JPMorgan Chase, which had fired a woman named Linda Almonte from its credit card collections team in 2009. Almonte alleged that the unit was instructed to sign off on erroneous documents that would then be used as the basis for legal proceedings against consumers in default. When Almonte filed a wrongful termination suit and sought whistleblower protections, regulators at the Office of the Comptroller of the Currency (OCC) began an investigation that led JPMorgan to drop at least $45 billion worth of credit card debt collection proceedings in the spring of 2011. The American Banker reported on the investigation in early 2012, sparking speculation that shoddy or outright fraudulent procedures around the key documents that govern debt proceedings were far more widespread than mortgage market abuses.

Two years later, the OCC is fueling that suspicion by expanding its investigation. While JPMorgan dropped its own court proceedings around the spuriously documented debts, the Post story on the expanded investigation notes that many smaller companies exist solely to buy such debt from the big banks for a fraction of their value, then attempt to collect themselves. These downstream debt buyers “often purchase just a spreadsheet of names” based on the banks’ records, meaning the dodgy JPMorgan practices alleged in affidavits did not necessarily cease to plague consumers when the high-powered bank dropped proceedings against them.

Automated signing of legal documents without proper review and over staff objections is relatively clear-cut, and activists frustrated by government inaction on other forms of Wall Street misconduct may find the credit card debt news heartening. In the housing market version of this same story, however, strong evidence of “robo-signing” fraud has still produced feeble settlements. The perverse incentives in those settlements have done more to help the banks than the wrongly foreclosed. The news that OCC is expanding the scope of the investigation into similar wrongdoing with credit card debt collection doesn’t guarantee a better ultimate outcome for credit card holders than the government secured for homeowners.

The American housing market posted its largest gains in seven years in March, according to the Standard & Poor’s/Case-Shiller housing price index released Tuesday. All 20 cities the index measures posted gains from the same point last year, led by Phoenix, where prices rose by 22.5 percent in the previous 12 months.

As this chart from Quartz shows, the Case-Shiller index has shown a steady gain in home prices across the country over the last year, as the market continues to rebound after bottoming out during the housing bust that sparked the Great Recession and dragging along in the years since:

The gains come for a variety of reasons, according to economists and analysts, who largely pegged the rises on the limited supply of homes available on the market. That supply is limited in part by the number of homeowners who remain underwater, owing more on their mortgages than their homes are worth. Rising prices could alleviate some of those problems while also pushing more homeowners to put their houses up for sale and encouraging builders to begin construction on new houses, analysts said.

But even as the market improves, the news isn’t all good: Americans across the country are still struggling with foreclosures, underwater homes, and reduced wealth that came from losing their homes during the crisis. The big banks that played a hand in creating the bubble that burst and sparked the crisis, meanwhile, have successfully gamed settlements with the federal government that were supposed to hold them accountable and managed to avoid prosecution for their actions. That has led senators from both parties to call on regulators and prosecutors to get tougher on banks on behalf of homeowners.

Three years after Congress passed sweeping reforms of Wall Street, the industry has successfully widened a variety of cracks in the Dodd-Frank law. But credit for the industry’s success at watering down the landmark legislation doesn’t just go to well-heeled lobbyists – regulators and lawmakers are helping.

The New York Times’s Dealbook blog reports this morning on the most predictable sort of industry subversion of the law’s intent: Citigroup essentially wrote a bill that would keep taxpayers on the hook for banks’ bets on the complex, high-stakes financial products known as derivatives. The derivatives market was central to the financial collapse. Added together, the total on-paper value of the derivatives bets outstanding in 2010 was roughly 23 times greater than the entire world’s economic output. Dodd-Frank included a requirement that financial institutions take their derivatives gambling to separate institutions not backed by federal deposit insurance.

But the House Financial Services Committee passed a bill undoing that reform in early May. “Citigroup’s recommendations were reflected in more than 70 lines of the House committee’s 85-line bill,” Dealbook reports, and “two crucial paragraphs” were taken wholesale from the industry.  While the change is supported by such heavyweights as Federal Reserve Chairman Ben Bernanke and Dodd-Frank namesake Barney Frank, Americans for Financial Reform director Marcus Stanley notes that it “restores the public subsidy to exotic Wall Street activities.”

While bank lobbyists exist to advocate for bank interests, legislators and financial regulators work on the taxpayer’s behalf. But with battles over Dodd-Frank ongoing, the House Financial Services Committee is a plum assignment for legislators because of the industry cash the seats invite. In the case of the Citigroup-penned derivatives bill, supporters “received twice as much in contributions from financial institutions compared with those who opposed” the proposal, Dealbook notes.

Elected officials aren’t the only public servants using positions critical to Dodd-Frank’s survival to weaken its protections for taxpayers. And as financial reporter David Dayen wrote in The American Prospect on Tuesday, some regulators are instead working to protect Wall Street. Dayen’s prime example is a Commodity Futures Trading Commission member named Mark Wetjen, who forced the CFTC into a compromise that undermines Dodd-Frank’s effort to bring transparency to the derivatives market. Instead of big reform, like forcing banks to make derivatives trades publicly or requiring actual competition in that market, Wetjen ensured the absolute minimum change to how derivatives get originated. As a result, the law that was supposed to dramatically reshape the derivatives market and mitigate its risks to the real economy will instead impose only “the smallest possible increase” in competition and transparency, Dayen noted.

Wetjen, who is rumored to be the next head of the CFTC, has been hard at work watering down other Dodd-Frank reforms as well:

He asked for several bank-friendly changes to planned derivatives rules, delayed rules by refusing to commit to voting for them, advocated giving Wall Street additional time to comply, publicly announced concerns with [Chairman Gary] Gensler’s proposed regulations in a speech to the main trade lobby for the industry (the International Swaps and Derivatives Association), and generally took Wall Street’s side, both in public and behind the scenes. In February, word leaked that Wetjen wanted to weaken the RFQ proposal. He has become the key swing vote on the panel, threatening to side with Republicans and vote down rules unless his changes are implemented.

Between lobbying dollars and industry-friendly regulators, the financial industry is succeeding at undermining the government’s response to the biggest economic collapse since the Great Depression.

A week after a bipartisan group of lawmakers on the House Financial Services Committee overwhelmingly approved a rollback of certain financial reforms contained in the Dodd-Frank Wall Street Reform Act, one of the Senate’s biggest consumer advocates is pushing back.

Massachusetts Sen. Elizabeth Warren (D) came out swinging against the repeal of new rules meant to regulate derivatives, the complex financial instruments that were at “the center of the storm” that caused the financial crisis. The rules shouldn’t be weakened or repealed just because big banks want to see them eliminated, Warren argued Thursday, The Hill reports:

“The big banks won some battles and lost some battles during the financial regulatory debate in 2009 and 2010, but their tune never changed and their lobbying never let up,” she said. “It is dangerous for Congress to amend the derivatives provisions of the Dodd-Frank Act without at the same time taking accompanying steps to strengthen reform and maintain the law’s equilibrium.”

One rule the package of legislation advanced by the House committee would eliminate is a “push out” provision that would limit derivatives trading at banks that receive federal backing. Similar to the Volcker Rule, another provision Wall Street largely opposes, it is aimed at making taxpayer-backed banks safer to avoid crises similar to the one that thrust the United States into a recession and led to a bailout of major banks in 2008.

Warren isn’t alone in her opposition to the rollback. The Obama administration has long opposed the repeal of the derivatives rules, and former Federal Deposit Insurance Commission chair Sheila Bair has said the swaps and derivatives rules need to be strengthened rather than weakened. Whether the rules will face a repeal vote in the Senate isn’t clear: the House passed similar legislation in 2012, only to see it die in the Senate without a vote.

Massachusetts Sen. Elizabeth Warren (D) isn’t letting regulators off the hook for their lack of prosecutions of Wall Street banks in the wake of the financial crisis. After using her initial Senate Banking Committee hearing to press regulators about whether big banks are “too big to trial,” Warren is doing so again — this time in a letter to the Securities and Exchange Commission, the Justice Department, and the Federal Reserve.

The letter questioned regulators’ willingness to pursue settlements instead of prosecutions, and asked them to provide any analysis to justify that practice, The Hill reports:

“I believe strongly that if a regulator reveals itself to be unwilling to take large financial institutions all the way to trial — either because it is too timid or because it lacks resources — the regulator has a lot less leverage in settlement negotiations,” Warren wrote in the letter.

“If large financial institutions can break the law and accumulate millions in profits and, if they get caught, settle by paying out of those profits, they do not have much incentive to follow the law.”

Warren isn’t alone in her criticism: Ohio Sen. Sherrod Brown (D) and Iowa Sen. Chuck Grassley (R) pushed the Justice Department over the notion that big banks have become “too big to jail” in January, and Grassley accused regulators of giving banks a “get out of jail free card” for their involvement in the crisis.

Prosecutions for financial fraud hit a 20-year low in 2011, and regulators largely turned to settlements to punish big banks after the crisis. But various settlements have allowed them to avoid admissions of wrongdoing, and the largest of the settlements — the mortgage and foreclosure fraud settlements — have been rife with problems that have allowed banks to game their requirements while homeowners have struggled to access required assistance.

Campaign contributions by high-frequency trading firms have skyrocketed 673 percent since 2008, according to a new report focusing on 48 companies. These traders contributed $16.1 million during the 2012 election cycle, up from just $2.1 million in 2008. That’s not including the 93 percent spike in funds spent on lobbying Congress, the Securities and Exchange Commission, and the Commodity Futures Trading Commission since the recession.

The biggest single-year jump in spending occurred between 2009 and 2010, as traders attempted to kill the beefed up regulations in the Dodd-Frank Wall Street Reform Act. While the law cracked down on risky trading by banks, it only mentioned high-frequency trading once, and left hedge funds and trading firms largely unregulated.

The report details how high-speed traders successfully ducked the bulk of Dodd-Frank’s regulations after the financial crisis:

“Unsurprisingly, high frequency traders upped their campaign contributions and lobbying spending at the same time Congress was debating a new law to crack down on the excesses of Wall Street,” said CREW Executive Director Melanie Sloan. “Despite all of the new regulations put forth in Dodd-Frank, these firms managed to come away unscathed. If lobbying and campaign contributions don’t directly buy influence in Washington, they certainly don’t hurt.”

Unregulated high-speed trading, which prioritizes quick profits without the burden of investment, renders the market extremely volatile and subject to major fluctuations. So-called “flash crashes,” like the Dow’s 1,000-point plunge in 2010 caused by an automated high-speed trading program, expose the risk these trades pose to the entire economy. Despite the lack of greater economic benefit, high-frequency trading has come to dominate the stock market since the financial crisis.

In response to the 2010 flash crash, the SEC approved a plan to limit high-speed trading in the event of major price swings. The agency is planning to further tighten regulations on the industry, while lawmakers may also consider a financial transactions tax to make such trades more costly.