Bankster's Holiday 4 - Paying the Piper
How to punish a non-living corporation.
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Earlier articles in this series explained how government meddling in the mortgage market and systematic regulatory failure first created and then popped the housing bubble which led us into the Obama depression. It's abundantly clear that increased regulation isn't the answer and "better" regulation is inherently impossible; what to do?
As our regular readers no doubt eagerly anticipate, we at Scragged have figured out the answer. Regulation clearly doesn't work and having government agencies run the banks doesn't work as we've shown, but there is a remedy.
What's more, we are delighted to reveal that our remedy is based on the widely-accepted legal fiction that corporations are persons. The Supreme Court has recently ruled that corporations have the free-speech rights of actual people and can buy political ads just like people can. The Left, of course, is infuriated that corporations don't always have the heart, soul, and responsibilities of people to go along with their rights.
We can't do much about the heart and the soul of the corporation, but when it comes to responsibilities, the Left has a good point. If corporations have the free speech rights of persons, they ought to be held responsible for their actions as you and I would be.
The Fictional Corporate Persona
There's a good reason why corporations should be treated as if they were people. You can bring a civil suit against a corporation, and, if it's shown that the corporation damaged you, the corporation has to pay you.
Unfortunately, criminal law has little effect against a corporation in that the corporation can't be put in jail. If a corporation commits an act which turns out to be a crime, it's usually difficult to jail the employees who actually committed the deeds because the decision-makers and the doers are so widely separated.
Consider the IndyMac employees who signed thousands of mortgages after spending 30 seconds on each one. Are they criminals? What about the new hires who didn't understand mortgages and just did what they were told? Are they criminals?
Criminal convictions require criminal intent; it would be hard to show that the managers who were supposed to handle the mortgages intended to defraud anyone. Their position would be that they were just trying to clean out the bad loans as the TARP legislation required. The increased volume put pressure on their underlings which led to illegal short cuts, but it could be hard to prove that any specific bank employee intended to commit crimes.
The same is even more true of the minions who rubber-stamped the forms. They freely admit that they had no idea what they were doing, they could have been signing widget-shipping forms for all they knew. Again, there's no criminal intent and there's no plausible reason why they should have known they were committing a crime considering the reams of utterly opaque legalese on every page; thus, there's nobody to imprison here either.
Does this mean that all this wrong can be done, and yet everyone gets off scot-free? Historically, that's exactly what it's meant 99% of the time, which as the Left points out is unjust and corrosive. Fortunately, we have the solution.
From Corporation to Corpse
The answer? Convict the corporation of the crime and impose capital punishment on the corporation.
It wouldn't be hard to show that the corporation as a whole intended to submit falsified legal papers; in the case of IndyMac Federal Bank, that is in fact precisely what the corporation did, by the millions, as a matter of routine. We can pin this on the corporation even if we can't nail individual employees.
With a crime of this magnitude, made routine in daily business, the corporation as a whole is clearly rotten through and through regardless of evil intent or lack thereof on the part of the employees. The appropriate penalty is that the corporation should be put to death.
This is straightforward - after all, every corporation is a creature of the state in the first place. The corporation operates according to a corporate charter which is issued by the government. A corporation can't operate without a charter and a charter is subject to terms and conditions as laid out in the law.
If the corporation violates its charter, the state can withdraw the charter which puts the corporation to death. The assets are sold and creditors paid off as in a bankruptcy - not as a Chapter 11 reorganization, but a Chapter 7 liquidation of assets down to the last penny. After all, the whole point is to get rid of a "going concern" that has been convicted of fraud.
If the corporation as a whole was profitable, there ought to be enough assets to pay off all the creditors with maybe something left over for the stockholders, but the corporation is no longer in business. The state holds on to the corporate name and trademarks for, say, five years to make sure that the name thoroughly dies in the public consciousness and the "dead" corporation can't be reconstituted, and then sells them to the highest bidder if any.
The corporation dies. The stockholders get the remains, the employees get unemployed, and the pension plan is liquidated. We don't have to put any person in jail which is a good thing because putting people in jail is expensive.
Being suddenly unemployed would be punishment enough, particularly for the upper reaches of the management hierarchy who might reasonably be looked on as Typhoid Mary by future employers. For the "Burger King kids" there'd be no such stain; changing jobs is never fun, but Burger King would be happy to have them back none the worse for wear.
We don't have to send a giant multinational bank to the electric chair right off the bat. We can start with a middle-range bank whose obliteration in and of itself wouldn't shake the banking system too badly, but the nature of the demise would put the rest on notice that it's not nice to commit fraud. Wouldn't the stockholders be more careful if the very existence of their firm could be put at risk?
Given that corporations are persons, let's go all the way and inflict capital punishment on corporations who [sic] misbehave - just as we want to do with corrupt and incompetent bureaucracies.
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What does Chinese history have to teach America that Joe Biden doesn't know?
That certainly would change the attitude of CEO's and managers! Can you say stock holder's lawsuit for destroying their investment? CEO's practicing CYA would prevent misbehavior instead of the old saw of "Will anyone rid me of this man" (lead to the death of Archbishop Thomas Beckett). Deniablility would be a thing of the past. Good idea!
In theory, Sorbanes Olxey requires that CEOs sign off on whatever their company does. If a bank CEO signed off last year and the bank was knowingly submitting false papers to the court at the time, one would think that orange jumpsuits would be the uniform of the day.
The NYT is enraged that the Obama administration seems to think that foreclosures are good and will clear out the market. Wow!
Learning to Love Foreclosures?
Disturbingly, the Obama administration has been arguing that foreclosures are, in effect, good for the economy.
http://www.nytimes.com/2010/11/06/opinion/06sat2.html?nl=todaysheadlines&emc=tha211
In the most recent mortgage mess, the Obama administration has — oddly and disturbingly — been arguing that foreclosures are, in effect, good for the economy and should proceed apace as banks get their snarled paperwork in order.
Phyllis Caldwell, chief of the Treasury Department’s Homeownership Preservation Office, recently told a Congressional panel that the administration was making progress on preventing foreclosures — a claim disputed by some panelists. She also said that “an important part of assuring long-term stability in the market is to enable properties to be resold to families who can afford to purchase them.”
The trouble with her statements, which echo those of other officials, is that they gloss over the question of whether families who were foreclosed upon were given a fair shot at keeping their homes.
Some Americans, no matter what, cannot afford to keep their house. But mass foreclosures are a huge drain on the economy, crushing home values for everyone. In September, 347,420 homeowners received a foreclosure notice, up nearly 3 percent from the previous month, according to data from RealtyTrac, a marketer of foreclosed properties. Before resorting to foreclosures, banks need to make a much more serious, transparent and timely effort to work out new loan terms.
We assume the White House’s stance is an attempt to keep the markets calm in the face of ongoing revelations of chaos in the foreclosure process. That would make sense if the White House had a more aggressive policy to prevent foreclosures. But in a year and a half, its signature antiforeclosure effort has permanently modified fewer than 500,000 loans. That’s far short of the need — 4.2 million loans are now in or near foreclosure.
It comes down to this: banks are paid incentives to modify mortgages so owners can hold on to their homes, but other incentives can trump timely modifications or make foreclosures look like a better financial deal for the banks. Dragging out a delinquency, for example, can allow banks to postpone acknowledging losses, while a foreclosure sale allows them to collect late fees and other charges applied to delinquent loans.
It doesn’t take a big leap of logic to conclude that homes are being lost that could be saved, but for the banks’ reluctance to rework bad loans. The Obama administration needs to do more.