Stumble It!Jan 15 2009
On Big Business
Big businesses are bad for the American economy. And here’s why:
Countrywide, the California-based mortgage company, made loans to so-called “sub-prime” lenders who were in no way qualified to receive home loans. They made these loans for two reasons; first and foremost, it made them money - not because they ever expected to collect anything from the loan recipients (more and more evidence indicates that they fully expected these loan recipients to default on their loans within two or three years and five at the outside) but because they could “re-package” the loans by combining them with other bonds and an insurance policy that would pay out in the event that a loan recipient defaulted. These were called “synthetic” or “composite” securities and were sold on the open market as if they were not the “junk bonds” of the new millennium. In this manner, Countrywide, a “big business” defrauded its shareholders (who loved the number of loans being made and the short-term profits), and defrauded investors who foolishly bought up what seemed a “no-lose” security.
Then the market melted down. Countrywide received at least $12,000,000,000 in taxpayer money to “bailout” its struggling self. Its CEO and other high-ranking executives weaved a tale of doom and gloom for the American economy should it be allowed to “fail” and be eliminated from the market, knowing full well that Bank of America had already decided to purchase the failing loan giant for $4,000,000,000. In this way, Countrywide has defrauded taxpayers by deliberately mis-stating the importance of its services and the consequences of its demise.
Countrywide, in a bid to stave off what seemed like inevitable governmental interference in its loan dealings and foreclosure process made a promise on national television that it would work with loan recipients to end the cycle of foreclosure. However, in a recent court case in New Hampshire, Countrywide’s own attorneys which are defending it in a case where the lender is accused of “breach of good faith, fraud, negligence and misrepresentation” in not negotiating with a New Hampshire family have brazenly stated that the commercials were “mere commercial puffery.” For those of you unfamiliar with 18th century English, Puffery means lies. In essence, their defense against misrepresentation is “you can’t believe everything we say, because we lie.” and in this manner Countrywide has misrepresented itself to all sectors of the American populace, its investors, the taxpayers, and the loan recipients.
Historically, such a massive bailout is absolutely unheard of, but the behavior of the large mercantile entity is not; the entire corporate entity scheme was founded in England where the influence of a select few and the money made by the work and sweat of thousands, was used to keep the workers in line. In the founding of the United States, the Founding Fathers expressed a healthy fear of the potential of corporate power; Thomas Jefferson envisioned a nation of yeoman farmers who would embody the essence of republican virtues, writing to a friend “I hope we shall…crush n its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country.”
What is Countrywide and other financial companies other than “the aristocracy of our moneyed corporations”? Countrywide’s history in the past 12 months is an excellent example of the power that corporations hold over the economy, the taxpayer, and the legal system. Additionally, corporations are able to play by different legal and financial rules from small businesses and individuals; in filing their yearly earnings taxes, a corporation can apply the losses of a previous year (up to seven, or in some cases more, years ago) and use it as “credit” against this year’s earning - corporations can even get a tax return in a profitable year. Corporations are treated as individual entities in the legal system (that is, a corporation has the right to own property, make contracts, etc. as if it were a living, breathing person) but when criminal cases are levied against corporations, in the rare cases that guilt is established, the corporation is often assessed fines because, it is argued, the individuals within the corporation committed the crime, and not the entity itself. Its as if you argued your kidneys stole money from old ladies without your knowledge and the courts only fined you and admonished you to get new kidneys.
Also, big corporations, such as Countrywide (and AIG, and Washington Mutual, and the rest of the “finance” crowd) produced their own downfall. Unlike the much-maligned automobile industry, the mortgage meltdown was entirely the finance companies’ own making. It would be unfair to say that American auto companies did not paint themselves into a corner with lower fuel efficiency and and unresponsive system of manufacture, but they did not control the price of oil over the summer of 2008; the main factor in Americans’ decisions to switch to more fuel efficient cars. Additionally, the Automobile industry isn’t causing an economic crisis by building Hummers and Escalades, and Expeditions. Finally, they aren’t causing people to lose their homes through the manufacture of F-150’s or Vipers. Yet Countrywide and others received a fairly painless bailout while the auto industry was forced to jump through hoops.
In closing, the way in which Countrywide and others make a profit, that is the interest received on money, was classically termed “usury” and was held in the lowest, meanest of contempt by Medieval and Renaissance thinkers. There are even proscriptions against usury within the Judeo-Christian bible (Exodus 22:25-27, Matthew 25:14-29, etc.) as well as in codified state laws (though each state adds exceptions for credit card, installment, and even farm loans which make companies like Countrywide immune to legal ramifications of loan sharking). Some may argue that banks are in the business of making money and ensuring the profits of their share holders, but I would argue that they are making short-term, profit-driven decisions that are unhealthy for the m and for the economy as whole. Islamic banks, particularly the Saudi national bank and banks in Dubai and Kuwait do not charge interest yet are still able to maintain profitability. Additionally, American banks have not always charged interest; The Bank of Italy, which was based in San Francisco, used to not charge interest to Italians but began to branch out in the early 20th century, becoming the Bank of Italy in America and later becoming The Bank Of America, or BofA; the same BofA that is now buying Countrywide.
__________________resources________________
“In court, Countrywide calls ads “Puffery “” MSNBC 15 Jan 2009
“Reuters reports COuntrywide receiving another $12B ” The Consumerist 20 Sep 2008
Thomas Jefferson , Wikipedia
New King James Bible
Washington State Dept. of Financial Institutions; exemptions to usury laws
