On the same day that it was reported that the city of Memphis was suing Wells Fargo for its unethical mortgage practices, I came across a separate article from the New York Times which shows that a tidal wave of litigation has struck the U.S. legal system – with many, serious ripples from this tidal wave guaranteed to impact the U.S. economy and U.S. society for years to come.
Memphis and Shelby County have alleged in their statement of claim that Wells Fargo and its agents engaged in predatory and discriminatory practices in its mortgage business with ethnic minorities. This suit is far from unique. Other U.S. cities, such as Baltimore and Cleveland have launched similar suits – alleging that U.S. banksters preyed upon the unsophisticated borrowers among ethnic minorities with especially unfair and misleading terms, as part of their enormous mortgage-scam.
Presumably, the cities who filed these claims are already armed with mountains of data showing that while U.S. financial institutions scammed everyone with their crooked mortgages, and “exotic” financial products, that the terms offered to minorities were even more predatory than the misdeeds perpetrated against white borrowers.
Meanwhile, data released by the state of New York shows the New York legal system ending the year with the largest backlog of cases clogging that legal system in history. While many of these cases are criminal matters, or civil cases involving the gigantic surge in “human misery” litigation, vast numbers of filings are directly related to Wall Street scams, or as the Times put it, “The Civil Courts hum with stories of people who got credit too easily.”
The Times also talked about “multi-million dollar business deals that fell apart”, “bad debts”, and “contract disputes”. While some of the legal actions against Wall Street will be filed locally, of necessity, many suits will end up being filed in New York – the base of operations for most of the banker oligarchs.
I could have included this topic in my “Predictions for 2010”, however I've written about this issue so many times over the last year or so (for example, “Bankster Sues Bankster - AGAIN”) that it would hardly have qualified as a new insight. It is only fitting that The Land of Bank Scams is also The Land of Litigation – with more lawyers, and law-suits per capita (by a huge margin) than anywhere else on Earth. Thus it was always inevitable that the lawyers would swoop in to peck at all the remaining “flesh on the bone” of these oligarchies.
Indeed, this is clearly the greatest miscalculation of the banksters. Whether their (short-sighted) greed simply blinded them to the inevitable deluge of litigation which would follow their multi-trillion, Ponzi scheme, or whether their arrogance resulted in the self-delusion that somehow their crimes would go unpunished, it is ultimately the endless stream of litigation which will whittle these oligarchies down to nothing.
While they can always command their servants in the U.S. government to cover their massive losses on their bad bets, and scams gone awry - through further hand-outs, it would be political suicide for U.S. politicians to hijack taxpayer dollars in order to pay off legal judgments against the banksters. Thus, Wall Street oligarchs will be squeezed into oblivion by the combination of endless judgments against them for their misdeeds, combined with the steady exodus of clients – who won't want any of their assets managed by crooked bankers, desperate for dollars to pay off their legal damages.
Keep in mind that there will be many chapters to this serial, legal drama. The first chapter involved “asset-backed commercial paper”. In that example, not only Wall Street oligarchs but virtually all Western bankers peddled this investment to their clients as being “as safe as a savings account”. After many of these clients suffered large losses on these “safe” investments, the bankers immediately began rushing into legal settlements for this particular scam.
The large losses suffered by investors were, by themselves, prima facie proof that these investments were not as safe as a savings account. Therefore, with judgments against them 100% certain, the bankers settled immediately to cut their losses.
Every category of banker scam will have a different “gestation period”. This is the result of either of two factors. Some of these “investments” will take longer before the losses crystallize or the evidence appears which demonstrates the culpability of the bankers. Mostly, however, the determining factor will be the complexity of the scam in question.
Given that these toxic, financial products were deliberately structured to be as complex and opaque as possible (so that clients could not possibly understand what they were buying), it will take several years for teams of (outrageously-paid) lawyers to simply figure out what was being sold for many of these products – before the litigation itself even begins.
This process can be envisioned as peeling the layers off of an onion. The legal system will deal with these categories of litigation of one-by-one – with it likely being the case that one wave of litigation will facilitate the next, through establishing various patterns of liability and inappropriate behavior.
History tells us that the “high and mighty” are typically the architects of their own demise, with hubris being the primary factor in these repetitive episodes of self-destruction. With the arrogance of the Wall Street oligarchs being even greater in magnitude than the tens of billions of dollars in “performance bonuses” which they pilfer from corporate coffers each year, their downfall is that much more certain.
While many of the victims of Wall Street suffered their own harm in rapid fashion, the death-through-litigation of the Wall Street oligarchies will be much more akin to “the Chinese water torture”. Insulated by their lawyers, and with most of the initial judgments destined to be damage awards against the corporate entities, rather than the banksters themselves, it will be several years before any of these denizens of Wall Street begin to feel any pain personally.
However, as the larger and more complex cases work their way through this over-crowded legal system (and as corporate assets to pay off future judgments dwindle), the focus of these court cases will gradually shift to targeting the personal fortunes of the bankers. This can be accomplished simply by demonstrating that the conduct of the oligarchs was not mere “negligence”, nor were they “isolated incidents” - but rather an organized, deliberate campaign of fraud.
This is only one of the legal avenues which can quickly strip away the protection from personal liability which is usually provided by the corporate model. There are several others. The bottom-line is that with enough legal dollars 'chasing' the personal fortunes of the Wall Street oligarchs that there will be plenty of opportunities to demonstrate personal liability against these miscreants.