Justice and Mercy on Wall Street and in Galveston

My husband had or has family who live near the Gulf in Texas. Years ago they had Hurriciane Parties and people thought they were nuts where I live in New York State. Nothing really bad ever occured where they needed to leave.

HOWEVER, if you are clearly told you should leave or you may die and do not leave and rescuers have to come you bear some of the responsiblity and some of the cost.

In parts of NYS people use snowmobiles and sometimes they are told by the govt in their area, evdently, that it is safe to go out on the ice covering nearby water-how this is known I do not know. HOWEVER, if on your own you look at the ice and feel it is safe and go on it with a snowmobile and rescuers from the town or city have to come and save you you are billed.

That is how it should be.

Hugs
Laura

I thoroughly enjoy your blogs for your well-phrased exploration of the issues at hand. What occurs to me in particular with regard to the folks in Galveston is that we are at choice and can make our choices coming from two places: fear or love. I would choose to act out of love and rescue my fellow human beings, no matter whether it is "their fault" or not. What disturbs me about human beings is that so often when we are confronted with a problem, we choose to a) find someone to blame and then b) wash our hands of any further responsbility as it is the fault of the person or persons named in point a).

All the best,

Allan F. Wier II

With regard to the LONG post about the mortgage mess--it's not quite accurate.

the bad loans included a lot of fraudulent loans-- but not fake loans. That is, the insiders and professional fraudsters took the money-- they just didn't repay any of it.

Then, too-- the reason these loans were made is not because the loan companies ran lot of qualified buyers, it’s because they were making the brokers rich. Qualified buyers were put in to these loans--they paid more!

And last,the California Civil Code the gentleman is speaking about is CC 17200, and it was not repealed, it was limited to harmed parties because of abuse by crooked attorneys. (I am an attorney and I was appalled by the bogus shake-down lawsuits.) If a harmed consumer wished to sue under this or other statutes they could. No one has, as far as I know—under this statute or garden variety fraud. It’s just too huge a burden.

So the argument that this one statute statute( in any form) could have prevented a huge mess which involved players from all states and a lot of geed by brokers and loan companies is simplistic and unrealistic.

Sorry. YOu can't pin this one on any one player.

I feel obligated to help the helpless.
Voluntarily putting yourself in harms way is an act of choice.
Since rescuing the casualties is always costly I find it it necessary to distinguish between the helpless and the risk takers.

As per Lehman and other financial institutions, most casualties are unfortunately the helpless. I don't envy people with families having to look for a job in this financial climate.

I doubt Edna Caroll Straus, who is an attorney (#110028), knows anything about the Unfair Competition Statute which is Business and Professions Code 17200. There is no Civil Code 17200. Since Ms. Straus doesn't know the law that was mentioned, it seems unlikely she read the law, and then study the cases such as Barquis, Hernandez, Beatty, that applied it to consumer fraud cases. We can infer that Ms. Straus did not even try to research the law or else she would have discovered that there is no CC 17200. As my mother would say, Ms. Straus was like "a blind lady looking in a dark closet for a black hat that wasn't there."

No one said the law had been repealed. It had been decimated and destroyed by making it virtually impossible to sue under it to stop an unfair, unlawful or deceptive business practices such as selling bad loans to Wall Street investors on the false representation that the loans were solid. Before Gov Arnie and his cronies destroyed the law, any person who found that a business was engaged in unfair, unlawful or deceptive business practices could file a lawsuit and have a court order the business to stop cheating people. After Gov Arnie finished with the law, it would require tens thousands of dollars to stop a business from cheating people. In other words, Gov Arnie made it so horrendously expensive to bring a lawsuit, that no one could afford to do it. (Remember, Tort Reform only takes lawyers away from consumers but neve limits the number of lawyers businesses may have.)

As for the alleged abuses of the law, it takes a bizarre mind to think that ordering a corporation to stop selling tainted baby formula to an unsuspecting public is a shake down. Here is what really happened.

State agencies visit auto repair shops, nail salons, butchers, grocery stores that sell cigarettes to minors, liquor stores that sell liquor to minors, unlicesned building contractors who would feece homeowners with substandards repairs maybe once every two years. The state's fines will be very small for violations -- a few hundred dollars. The businesses would immediately revert to the unlawful practices as they made a gizillion more dollars with their unlawful practices. One Beverly Hills lawfirm obtained the records of the various agencies and then visited the businesses that had been cited to see whether they were violating the law again. Businesses that had reformed were left alone. Nail salons were particularly bad at not cleansing the equipment and were passing terrible fungi and other diseases to women through pedicures etc. Everyone knows about crooked car repiar shops, etc.

When the law firm verified that a business was again violating the law, it contacted them and said that if the business did not agree to stop engaging in the unlawful behavior, the law firm would sue them and get a court order. A court order is much stronger than an agency rebuke because the court's authority stays with the order and if the business re-starts the unlawful behavior, they're back in court explaining to the judge why they're doing it again. Thus, the threat that a court order would be entered against the business was generally enough to have the business voluntarily stop its illegal behavior.

Attorney fees: The law firm asked for modest attorney fees, usually less than $1,000.00. Calif Civil Code, 1021.5 expressly provides that when a lawfirm confers a benefit on the general public, the lawfirm may recover "reasonable attorney fees and costs" from the law violator. The judge sets the amount of the attorney fees if the business believes they are too high.

California businesses hated the law as any person who caught them cheating the public could stop them. The motto for business has become Don't Compete When You Can Cheat.

How does this relate tho the mortgage crisis which today resulted in the Administration nationalizing the country's largest insurance company, AIG?

Contrary to what Ms. Straus asserts, Countrywide and other lenders did run out of qualifier borrowers. However, they were making too much money selling the loans to Wall Street (which never should have been alowed to buy them, but that's another story). Thus, the lenders made riskier and riskier loans, less or no downpayment, low initial payments which would jump in the 5 year, no credit or income checks. In Garden Grove California they were selling to illegal aliens (who it turned out were more motivated to pay their mortgages than most), but the lenders put the unsuspecting people into mortgages which were bound to fail when interst rates went up. Thus, despite the good intentions of the new homeowners, the monthly payments became too high for them to pay with two and three people working full time.

After a while some lenders ran out of even people to make bad loans and started to sell bogus loans like Equity Funding in the 1970's was sellinig bogus insurance policies to get the money from the re-insurers. At this point no one knows how many bad loans are out there and how many are simply bogus. All Wall Street knows is that a huge percentage of people are not making any payments. As with Equity Funding, when there is no homeowner and the loan is totally bogus, the lender himself will make the initial mortgage payments to Wall Street so that the fruad does not become immediately apparent.

The loans acts like the AIDS virus. Wall Street would buy a bundle of loans for an amount that took into account the historic default rate. Because there were so many bad loans, the default rate was drastically higher than Wall Street suspected, but it took a few years before the viral loans would show up and by that time, Wall Street had loaded up on and more and more bundles which had an ever increasing percentage of viral loans.

An added dimension was that Wall Street used the viral loans as collateral to borrow money (the difference between selling a loan and using it as collateral is a difference without a distinction in this situation). When the collateral turned out to be worth millions of dollars less that Wall Street had represented, the Wall Street firm was in a double bind. Its creditors wanted sound collateral, but Wall Street had none. A lot of the money that Wall Street had borrowed went to buy more bad loans. Finally the Wall Street firms had so many viral loans, that they started collapsing.

The destruction of California's Unfair Competition Law by Gov. Arnie is responsible for the present meltdown in the sense that no one could stop the crooks. If corrupt Republicans had not backed the destruction of the law, then that law firm, whom Ms. Straus believes is so evil, would have sued Countrywide, IndymacBank and any other lender and would have stopped the viral loans before they spread.

The corruption was nationwide, but this disaster started in California and once started, it could not be stopped because Gov Arnie had destroyed the only law strong enough to stop such outrageous corruption.