Countrywide
Texas governor (right) stands by Countrywide founder Mozillo in the go-go days of subprime lending.

Do you remember that golden era when almost anyone could get a home loan? 

If you don’t, in the last year you’ve either (a) developed an extremely aggressive case of Alzheimer’s, (b) turned one year old, or (c) both.

Blawgletter recalls the populist feeling that made subprime lending seem so very American and so terifically right.  Poor people need financing for a first dwelling?  Great!  Middle class folk finally get to speculate in real estate?  Awesome!

Subprime lending traded more risk against higher interest rates and bigger up-front charges.  Lenders prospered, and most borrowers did okay too.  Call it temporary suspension of disbelief, the essential element in our buying everything from Hollywood plotlines to Green Eggs and Ham.

But when real estate values began to fall, the whole ball of subprime lending yarn started unwinding.  Loans kept closing and funding, but the lenders didn’t get (nearly) enough compensation for their (rapidly) growing risk.  Worse, watchdogs turned wilfully blind:  Accounting firms continued to okie-dokie dubious financial reports.  Wall Street kept on packaging the mortgages and selling them to investors.  Rating organizations missed not a beat in putting their AAA stamp of approval on the securities.  Even the federal government looked the other way.

We’ve reported on the litigation types that will likely arise from the subprime debacle.  But we struggle most to draw breath at the lackadaisical attitude of those who swore to protect the weak from the failures and excesses of the market.  By which we mean auditing firms like KPMG, PricewaterhouseCoopers, Ernst & Young, and Deloitte & Touche; ratings companies such as Standard & Poors and Moody’s; and federal watchdogs, particularly including the Federal Reserve, the Securities and Exchange Commission and the Treasury Department.

Thomas Jefferson said that the best government governs least.  He meant in part, we believe, that effective government works one heckuva lot better than the ineffective kind, thus making more government unnecessary.

Paul Krugman writes in his NYT column today about "Banks Gone Wild", lamenting the lack of accountability by those most responsible for the subprime crisis.  He also points to "a pervasive loss of trust, which is like sand thrown in the gears of the financial system."  Amen, Brother Krugman.  Amen.

Barry Barnett

P.S.  A November 24 article in The Wall Street Journal highlights that "Rising Rates to Worsen Subprime Mess".

Feedicon14x14 Our feed loves the holidays.

Cerberus Capital Management asked a trial court in New York City today to declare that United Rentals, Inc., has no contractual basis for forcing the former to buy the latter.  So sayeth the WSJ.

Blawgletter commented yesterday on the unlikelihood that URI will defeat the three-nogginous hellhound.

And so it goes.

Barry Barnett

Feedicon_2 It goes like it goes, like a river flows.

Lincoln
Abraham Lincoln (1809-1865).

By the President of the United States of America.

A Proclamation.

The year that is drawing towards its close, has been filled with the blessings of fruitful fields and healthful skies. To these bounties, which are so constantly enjoyed that we are prone to forget the source from which they come, others have been added, which are of so extraordinary a nature, that they cannot fail to penetrate and soften even the heart which is habitually insensible to the ever watchful providence of Almighty God. In the midst of a civil war of unequaled magnitude and severity, which has sometimes seemed to foreign States to invite and to provoke their aggression, peace has been preserved with all nations, order has been maintained, the laws have been respected and obeyed, and harmony has prevailed everywhere except in the theatre of military conflict; while that theatre has been greatly contracted by the advancing armies and navies of the Union. Needful diversions of wealth and of strength from the fields of peaceful industry to the national defence, have not arrested the plough, the shuttle or the ship; the axe has enlarged the borders of our settlements, and the mines, as well of iron and coal as of the precious metals, have yielded even more abundantly than heretofore. Population has steadily increased, notwithstanding the waste that has been made in the camp, the siege and the battle-field; and the country, rejoicing in the consciousness of augmented strength and vigor, is permitted to expect continuance of years with large increase of freedom. No human counsel hath devised nor hath any mortal hand worked out these great things. They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy. It has seemed to me fit and proper that they should be solemnly, reverently and gratefully acknowledged as with one heart and one voice by the whole American People. I do therefore invite my fellow citizens in every part of the United States, and also those who are at sea and those who are sojourning in foreign lands, to set apart and observe the last Thursday of November next, as a day of Thanksgiving and Praise to our beneficent Father who dwelleth in the Heavens. And I recommend to them that while offering up the ascriptions justly due to Him for such singular deliverances and blessings, they do also, with humble penitence for our national perverseness and disobedience, commend to His tender care all those who have become widows, orphans, mourners or sufferers in the lamentable civil strife in which we are unavoidably engaged, and fervently implore the interposition of the Almighty Hand to heal the wounds of the nation and to restore it as soon as may be consistent with the Divine purposes to the full enjoyment of peace, harmony, tranquillity and Union.

In testimony whereof, I have hereunto set my hand and caused the Seal of the United States to be affixed.

Done at the City of Washington, this Third day of October, in the year of our Lord one thousand eight hundred and sixty-three, and of the Independence of the Unites States the Eighty-eighth.

By the President: Abraham Lincoln

The Second Circuit today upheld an award of $1 billion in punitive damages.  The decision came in a case against a Turkish family that, the district court found, swindled Motorola and Nokia into lending the Uzans and their affiliates more than $2.8 billion to finance a telecommunications business. 

The district court awarded the $1 billion after the Second Circuit vacated Judge Rakoff’s previous award of more than $2 billion in punitives.  In this appeal, the court concluded that awarding a mere $1 billion didn’t run afoul of Illinois law or the U.S. constitution.  Motorola Credit Corp. v. Uzan, No. 06-1222-cv (2d Cir. Nov. 21, 2007).

[The WSJ expressed outrage at the Uzans’ fraudulent conduct.  How can the wheels of commerce turn with such deception, it demanded to know.  Except that, apparently, it hasn’t reported on the case or the conduct at all before today.]

What does Blawgletter make of the Second Circuit’s ruling?  At first blush, we thought that Exxon now will have to stop popping off about the behemothitude of the $2.5 billion award against it for "letting an alcoholic who’d relapsed into dipsomania captain an enormous oil tanker, the Exxon Valdez."  Until now, the oil gargantuan touted the fact that the award against it exceeded the total that federal courts of appeals have upheld since the dawn of time.  Will it now hush up?

Count us skeptical.  Exxon used the argument in hopes of getting the U.S. Supreme Court to review the Ninth Circuit’s affirmance of a $2.5 billion judgment — which the appeals court cut from a $5 billion verdict in 1994.  The Court of course abhors such tenditious arguments and as a result naturally would recoil from the Exxon petition.  Except that, er, um, it didn’t exactly do that.  Quite the opposite.

Perhaps Exxon will rephrase its point to say that, if the Court upholds the Valdez award and also lets the Uzan award stand, the $3.5 billion total will exceed Exxon’s earnings in less than 40 days during the fourth quarter of 2005 alone.  Then again, perhaps not.

Barry Barnett

Feedicon Our feed reports; judges-for-life decide.

Crt
CRT displays have gotten skinnier.

Earlier this month, Blawgletter posted once and then again about a new antitrust investigation into possible price-fixing by makers of cathode ray tubes or CRTs.  Agencies in Japan and Europe conducted raids at Samsung and Matsushita.

MarketWatch today reports that the probe includes Royal Philips — a Dutch company and one of the several CRT manufacturers that we listed as possible subjects of the inquiry.  The MarketWatch story notes that, in 2001, Philips transferred its CRT business to a 50/50 joint venture with LG, a South Korean company. 

The JV’s name?  LG.Philips Displays, of course.  Just don’t confuse it with LG.Philips LCD, which Philips and LG started in 1999 to to produce liquid crystal display or LCD devices. 

Since April 2007, LG.Philips Displays has gone by LP Displays.

Barry Barnett

Feedicon14x14 Happy Thanksgiving, y’all!

The United States Supreme Court today accepted review of an appeal in which two federal judges quoted from and relied on the Court’s infamous decision in Dred Scott v. Sandford, 60 U.S. 393, 450 (1857).  The D.C. Circuit’s majority and dissenting opinions appear in Parker v. District of Columbia, 478 F.3d 370 (D.C. Cir. 2007).  Stories here, here, and here.

In March, Blawgletter marvelled at the repugnance of leaning on Dred Scott for any proposition — much less the idea that Americans ought to fear recognizing people of African descent as citizens for then they’d have individual rights (such as a right to pack heat).  We reported the possibility of a certiorari grant earlier this month.  According to www.scotusblog.com, the Court will consider the following question in District of Columbia v. Heller, No. 07-290 (U.S.):

Whether the following provisions — D.C. Code secs. 7-2502.02(a)(4), 22-4504(a), and 7-2507.02 — violate the Second Amendment rights of individuals who are not affiliated with any state-regulated militia, but who wish to keep handguns and other firearms for private use in their homes?

The Court has never formally overruled Dred Scott, whose holding the fourteenth amendment abolished.  The time, we say, has at long last come.

Barry Barnett

Feedicon14x14

Cerberus_3
Herakles holding Cerberus.

Cerberus Capital Management takes its name from a mythical critter — a dog with three heads.  Plus a serpent for a tail.  Cerberus and other hellhounds guarded the gates of, well, Hades.  They let souls in but not back out.  Kind of a Hotel California thing.

You might think that a moniker like that would give fair warning to people aspiring to do business with it.  Apparently not.  Per the WSJ, merger candidate United Rentals feels "sorely disappointed" that CCM wants to renegotiate its agreement to buy the company for $4 billion — or walk away from the deal upon payment of a measly $100 million "Parent Termination Fee".

Blawgletter doesn’t blame United Rentals for its disappointment, but we do wonder whether its lawyers read section 8.2(e) of the Agreement and Plan of Merger before suing the fictional canine’s namesake in Delaware.  In that section, United Rentals agreeds that its "sole and exclusive" remedy for CCM’s backing out will consist of getting the centimillion smackers.  In case of doubt, it adds (with our emphasis):

In no event, whether or not this Agreement has been terminated pursuant to any provision hereof, shall Parent, Merger Sub, Guarantor or the Parent Related Parties, either individually or in the aggregate, be subject to any liability in excess of the Parent Termination Fee for any or all losses or damages relating to or arising out of this Agreement or the transactions contemplated by this Agreement, including breaches by Parent or Merger Sub of any representations, warranties, covenants or agreements contained in this Agreement, and in no event shall the Company seek equitable relief or seek to recover any money damages in excess of such amount from Parent, Merger Sub, Guarantor or any Parent Related Party or any of their respective Representatives.

United Rentals thus appears to have set for itself a Sisyphean task.  How appropriate.

Barry Barnett

Feedicon_2 Yes, our feed does check out any time it likes.

The First Circuit today decided an issue that it would have punted if it had its druthers.  It reached the question (instead of referring it to an arbitrator) because the parties asked it to.  The court ruled that, under the peculiar circumstances of the case before it, a ban on class arbitration did amount to an unconscionable curtailment of the plaintiffs’ rights under Commonwealth of Massachusetts law.  Skirchak v. Dynamics Research Corp., Nos. 06-2136 & 06-2180 (1st Cir. Nov. 19, 2007).

Barry Barnett

Feedicon14x14 Our feeds never punts and seldom fumbles.

Blawgletter doesn’t know whether The Washington Post columnist Dan Froomkin leans left or right, but we’d guess from today’s piece that he won’t likely get (or accept) a delegate’s slot at the Republican Party National Convention in Minnesota next year. 

Mr. Froomkin entitles his November 16 offering as "Bush’s Other War:  on the Courts".  Ouchie!

Good thing he writes well, if provocatively.  His first two paragraphs say:

Long after the Iraq war is over — in other words, a long time from now — another of President Bush’s legacies will still be very much with us: the profound rightward turn of the federal judiciary in general and the Supreme Court in particular.

So last night’s 25th anniversary gala for the Federalist Society, complete with a keynote from Bush himself, was an orgy of self-celebration. Membership in (or at least affiliation with) the reactionary legal group is practically a requirement for Bush appointees to the bench or top legal jobs.

Dan, we admire your spunk.  Come guest blog sometime here at Blawgletter.

Barry Barnett

Feedicon14x14_3 Certain people in Washington, DC, read our feed — and like it.