Since I started the South Florida Law Blog following the 2008 economic meltdown, I have made no secret of the fact that I am extremely critical of what can best be characterized as “America’s new crony capitalism.”
Crony capitalism occurs where certain industries have gained undue influence in the political process and thus have curried favor unjustly from the government. This undue influence distorts the market in favor of those that can afford favorable treatment (in other words, not you or me), and also creates a system where these industries are permitted to grow unfettered and unregulated, leading to practices such as the “Wall Street Rule” or “Too Big To Fail.”
Typically the type of influence that these corporations are able to obtain falls within the executive and legislative branches of the government. Whether we like it or not our system does allow for a certain amount of lobbying as well as campaign contributions in order to obtain such influence.
But not surprisingly, the ease with how these companies are able to obtain such influence has created a highly uneven playing field between the average tax payer and that of large multi-billion dollar industries, particularly banks.
But despite all of this crony capitalism, under no circumstances did I ever expect to see the banking industry blatantly attempt to try and corrupt the judicial branch which is typically the most neutral of the three branches of government when it comes to political influence and crony capitalism. Yet, in another “Too Big To Fail” twist, the Illinois Bankers Association (the “IBA”) has done just that.
So please allow me to present to you Exhibit A, a letter the IBA wrote to the Illinois Supreme Court Mortgage Foreclosure Committee on April 13th, which is not only highly peculiar but remarkably inappropriate.
In the letter, the IBA asked the court to ensure that Fannie Mae and Freddie Mac promissory notes are deemed negotiable instruments.
Is the Illinois Bankers Association looking to become the poster child of lobbyists gone wild? Or is Machiavelli alive and well in Illinois in 2012?
The problem with the IBA’s arguments is that they never even attempt to address the veracity of the claim being made across the country that the Fannie Mae and Freddie Mac promissory notes are not negotiable.
This is an incredibly obvious omission given the new movement in foreclosure defense to attack the negotiability of promissory notes. It is clear that the banking industry is terrified that a member of the judiciary who follows the “law” instead of “lore” might actually examine the contents of a Fannie Mae or Freddie Mac promissory note and determine that one of the million extra clauses contained therein destroys the note’s negotiability.
In the system of commercial instruments, a promissory note is treated as the equivalent of cash, bearable to whoever is in possession of the original. However, like a check a promissory note is transferred by endorsement if it is negotiable. Thus, in our commercial system it is common for Bank A to transfer a Note to Bank B by endorsement, making the system of transfer easy and according to the lore of the banks, nearly infallible.
However, if a Court were to ever find that the notes are not negotiable, that is that they cannot be transferred by endorsement, then the entire banking industry’s practice of trading these notes like baseballs cards would cease to exist and would have extensive ramifications on the ability of any bank to foreclose on a loan where it was not the original lender.
Yet, instead of addressing the substantive legal arguments raised attacking the negotiability of these promissory notes, the IBA tried to unjustly and improperly pressure a Supreme Court established committee by stating that the individuals raising the concerns about negotiability “apparently are not concerned with the implication beyond the context of the given lawsuit or class of lawsuits, but the rest of us should be for obvious reasons.” Basically, the position implied from the letter is that the Court should turn a blind eye from the merits of the argument because the banks might be grievously injured if the Court follows the law of commercial paper.
Now Machiavelli may have thought that the ends always justifies the means. But in the America where I grew up I always thought that in the judicial process, the idea of fairness and the rules of law would always triumph over the influence of one large industry.
What the IBA has done here, in a not-so-subtle manner, is threaten the courts not to disturb the apple cart.
The IBA is clearly suggesting that because the Fannie and Freddie promissory notes comprise half of all residential mortgages in the U.S for a total value of about $5.3 Trillion, (yes that’s with a T) any application of some basic legal principles concerning negotiability, whether right or wrong, must be avoided at all costs due to the potential catastrophic economic effect, forgetting of course the legal rights of the citizens tied up in those notes.
The irony of this position of course cannot be overlooked.
If the courts had done their job in the first place and deemed these promissory notes non-negotiable years ago based on the concepts law students learn during the first days of law school, then the entire economic crisis that was brought upon us by the banks could have been completely avoided.
Thus, to now continue to sweep the obvious legal shortcomings of these promissory notes under the rug to me are just reprehensible and despicable. All I can say to the IBA in response to its letter is “you’d make Machiavelli proud.”
From The Trenches,
Tags: alive and well, bankers association, business, capitalism, cheque, crony capitalism, economics, finance, Freddie Mac, illinois, illinois bankers association, legal documents, machiavelli, mortgage industry of the united states, negotiable instrument, oppenheim, payment systems, promissory note, Real Estate, roy, securities, the illinois