Letter 2 America for August 26, 2014

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English: West face of the United States Suprem...

English: West face of the United States Supreme Court building in Washington, D.C. Español: Edificio de la Corte Suprema de Estados Unidos en Washington, D.C. (Photo credit: Wikipedia)

Dear America,

When I was in law school, I had to go through something called "moot court."  Moot Court is simulated courtroom argument that is intended to teach law students what it is like to both write out cogent arguments in the form of briefs and orally before judges, and it is invaluable experience.  In my moot court brief, which regarded a case of corporate malfeasance, I described a possible perpetrator as a "nefarious corporate inveigler," and the judge in our argument referred to that phrase in particular when he praised the brief in question.  I bring that up now because for the first time I am recognizing the utility of that phrase today.  The financial crisis wasn't just a confluence of human events such as economics endeavors never endingly to describe, predict and find remedies for.  The creation of the mortgage-backed securities was not just a random misfortune; it was a deliberate act...a scheme if you will.  And those who created the securities were like the schemers in "The Producers."  They thought that they could sell off these risky bonds, which were in reality just bundles of often times low grade mortgages taken out by people who had virtually no prospect of paying them off unless they could sell the underlying homes for a profit, because in the course of time those houses and condos would indeed be sold and the non-creditworthiness of the mortgagors would never come to light.  And if the financial fabulists' dreams of unending wealth were even a possibility, that might have been a rational risk.  But pie doesn't come out of the sky and money doesn't create itself...and housing bubbles do burst.  Thus, the financial crisis and the "Great Recession" that followed weren't just unfortunate coincidences.  They were the aggregate effect of the acts of nefarious corporate inveiglers who thought they could get away with selling nothing for something.  The question is, why aren't those nefarious corporate inveiglers in jail?  Jeffrey Skilling, Enron's lead corporate inveigler, is in jail.  Charles Keating, the nefarious corporate inveigler who ran Lincoln Savings & Loan like it was a money farm for his own use, is in jail...actually, he was in jail for a few years, but he's dead now.  But Jaime Dimon isn't in jail, nor is the CEO of any one of the large investment banks that either failed or came close to it.  In fact, none of their executives is in jail, and no one has given even a half-hearted explanation as to why.  Well, I for one want an explanation other than, "it's complicated."

In 1819, the U.S. Supreme Court recognized the right of corporations to enter into contracts in the case of Trustees of Dartmouth College v. Woodward.  Even before there was a U.S. Supreme Court, corporations were considered by British courts to be endowed with such rights, and with powers as well.  The progression of cases that ensued after 1819 led ultimately to the Citizens United case, which though a perversion of reasonable thought does follow the precedents by which the Western courts bind themselves under the doctrine called stare decisis.  Stare decisis, put simply, means that a court must follow the preceding cases when deciding issues and be bound by them unless the highest court with jurisdiction overrules the precedent and imposes another on its posterity.  In other words, courts have to do what they have always done unless and until a higher authority changes it.  So, Citizens United was a correct decision.  It's just that it perpetuated a lousy legal idea.  To some extent, such things can be changed through legislation as statutory law, that is law made by the legislation, overrides common law.  But when it comes to constitutional principles, the law as stated by the U.S. Supreme Court binds everyone, even legislators.  And in reality, corporations should have a sort of immunity from the constraints that we operate under as individuals.  A lawsuit against a corporation shouldn't impart liability on an individual acting in the name of the corporation unless he is acting ultra vires, or outside his authority.  Thus, when Fabrice Tourres, otherwise known as the "Fabulous Fab" when he was a derivatives trader at Goldman Sachs, appeared in court as a defendant for securities fraud, he was found guilty because of the representations he made about the garbage he was selling as gold and the prosecuting SEC asked that he be required to pay a fine of $1 million without asking reimbursement from his former employer.  That is because, while the Fab was employed by Goldman Sachs, his acts were ultra vires...that is, he was intentionally lining only his own pocket and only incidentally lining those of the executives at Goldman Sachs.  Goldman Sachs, since we are talking about incidental things, agreed to pay more than half a billion dollars so it wouldn't have to go to trial, and could thus decline to admit liability rather than being found by a court to be liable.  And these amounts are fines, not damages awards.  The federal government keeps that money and the injured investors get nothing.  So, as you can see, a corporation's criminal liability is just a matter of money.  No one goes to jail because he's a crook if he is working in a corporate office unless he is just so flamboyant about it--like the Fabulous Fab was--that his acts can be seen as not just criminal, but self-serving rather than a function of corporate duties.  And of course, a corporation itself can't go to jail.  Why? Because it isn't a person!  That's rub in all this entity theory.  Corporations may be considered to have all the rights and powers of the individual, but they don't have all of the accountability, which means that they can do bad things without worrying about getting raped in the shower...not that anyone should have to suffer being raped in the shower, which is different issue.

So, since our Supreme Court is so willing to promulgated federal law based on fantasies about the personal lives of corporations such as to endow them with the rights the rest of us have, what we need now is legislators who are willing to change state law so that corporations' employees are personally liable under broader circumstances.  The Fab belongs in jail, just like Charles Keating, and New York State, where he worked on Wall Street, should have seen to that, though it didn't.  The alternative is for us to elect enough representatives and senators who are rational about such things to pass a constitutional amendment distinguishing between corporeal and corporate people by, for example, ensuring that a person within a corporation is responsible for every criminal act committed by the corporation under criminal law, or by imposing vicarious liability on all those who knew or should have known that a corporation's acts were illegal.  In any event, what we need is rational legislators to deal with this issue.  Of course, like the man searching in the pharmacy for the talcum powder, if we could elect such legislators, we wouldn't need to be talking about it this way.

Your friend,

Mike


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This page contains a single entry by Michael Wolf published on August 26, 2014 3:24 PM.

Letter 2 America for August 22, 2014 was the previous entry in this blog.

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About this Entry

This page contains a single entry by Michael Wolf published on August 26, 2014 3:24 PM.

Letter 2 America for August 22, 2014 was the previous entry in this blog.

Letter 2 America for September 21, 2014 is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.

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