Lender Morality, Predatory Loan Victims, American Values, Personal Responsibility

Happy Independence Day!
So the front page of the June 27 Wall Street Journal has an article on how one Wall Street firm contributed to the, so far, sub-prime, “Mortgage Meltdown.”

There is a Chinese proverb “The law is for the lesser man.” It means the moral man does not need the law to guide him to right actions. Other than the occasional sociopath, and most politicians, humans have an innate sense of right and wrong.
The article details how Lehman Brothers evaluated one of the many sub-prime lenders, First Alliance Mortgage, since deceased.  The memo written by the operative who made the first hand investigation, is quoted as describing, among other things, ” a financial ’sweat shop’ specializing in “high pressure sales for people who are in a weak state,” and employees who “leave their ethics at the door.”

The next line of the article prompted this blog entry: “The big wall Street investment bank decided First Alliance wasn’t breaking any laws.” So they put in over half a billion dollars. Greed is one of the seven deadly sins.  Of course, now that the spotlight is turning to the lending practices, the response is heard, “People should look at what they are signing, they are responsible . . .” and so on.

Does this include people who cannot speak English, or it is their second language, non-high school graduates, people who trusted friends, or crooked brokers, and signed based on a verbal mis-representation of what the documents actually said, someone who is blind, someone whose signature was forged?  I have seen all of these situations in my office.

I expect no relief from the politicians; my trust is in the people.  On gaining our independence, we accepted from England something called the common law, collected judicial and jury rulings on various issues. The other basis for law is statutory, like the French Napoleanic Code.  Courts should develop the existing common law of fraud, contract, and whatever else is applicable, to these situations, to hold essential parties to these scams, like Lehman Brothers, responsible for their actions.

Personal responsibility was one of the cries of the oppressed creditor class in ramming the bankruptcy reforms through Congress. Let the lenders be judged by the same standard.  Juries must be allowed by the Courts to hold Lehman Brothers and the others responsible for their conduct, which was indispensable to the entire process.
This is more than a case of “turning a blind eye.” Those providing the money, knew, or should legally be held to have known, the source of their profits from which they expected to be repaid.

Would this same defense apply if they were lending to drug dealers?  “Gee, we didn’t know that Joe Importer, with no address, no financial statement, no tax returns, no employer, no bank account, was bringing illegal drugs into the country. We just knew his business was making 200% profit per year. We just gave him a no document-stated income loan. We were just providing a business man an opportunity to grow his business. It is the American way.”

Not.
In the words of that great American hero, Humphrey Bogart “You pays your money, and you takes your choice.”  Many Wall Street firms paid their money to sign up for predatory lending scams across America. That was their choice. They should not be isolated from the inevitable consequences of their unethical decisions.