October 23, 2010
Book Review, The Monster: How a Gang of Predatory Lenders and Bankers Fleeced America and Launched a Global Crisis
The Monster: How a Gang of Predatory Lenders and Bankers Fleeced America, and Launched a Global Crisis
By Michael Hudson, Times Books
Posted on October 22, 2010, Printed on October 23, 2010
The following is an excerpt from Michael Hudson's THE MONSTER: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America – And Spawned a Global Crisis (2010, Times Books)
A few weeks after he started working at Ameriquest Mortgage, Mark Glover looked up from his cubicle and saw a coworker do something odd. The guy stood at his desk on the twenty-third floor of downtown Los Angeles's Union Bank Building. He placed two sheets of paper against the window. Then he used the light streaming through the window to trace something from one piece of paper to another. Somebody's signature.
Glover was new to the mortgage business. He was twenty-nine and hadn't held a steady job in years. But he wasn't stupid. He knew about financial sleight of hand -- at that time, he had a check-fraud charge hanging over his head in the L.A. courthouse a few blocks away. Watching his coworker, Glover's first thought was: How can I get away with that? As a loan officer at Ameriquest, Glover worked on commission. He knew the only way to earn the six-figure income Ameriquest had promised him was to come up with tricks for pushing deals through the mortgage-financing pipeline that began with Ameriquest and extended through Wall Street's most respected investment houses.
Glover and the other twentysomethings who filled the sales force at the downtown L.A. branch worked the phones hour after hour, calling strangers and trying to talk them into refinancing their homes with high-priced "subprime" mortgages. It was 2003, subprime was on the rise, and Ameriquest was leading the way. The company's owner, Roland Arnall, had in many ways been the founding father of subprime, the business of lending money to home owners with modest incomes or blemished credit histories. He had pioneered this risky segment of the mortgage market amid the wreckage of the savings and loan disaster and helped transform his company's headquarters, Orange County, California, into the capital of the subprime industry. Now, with the housing market booming and Wall Street clamoring to invest in subprime, Ameriquest was growing with startling velocity.
Up and down the line, from loan officers to regional managers and vice presidents, Ameriquest's employees scrambled at the end of each month to push through as many loans as possible, to pad their monthly production numbers, boost their commissions, and meet Roland Arnall's expectations. Arnall was a man "obsessed with loan volume," former aides recalled, a mortgage entrepreneur who believed "volume solved all problems." Whenever an underling suggested a goal for loan production over a particular time span, Arnall's favorite reply was: "We can do twice that." Close to midnight Pacific time on the last business day of each month, the phone would ring at Arnall's home in Los Angeles's exclusive Holmby Hills neighborhood, a $30 million estate that once had been home to Sonny and Cher.On the other end of the telephone line, a vice president in Orange County would report the month's production numbers for his lending empire. Even as the totals grew to $3 billion or $6 billion or $7 billion a month -- figures never before imagined in the subprime business -- Arnall wasn't satisfied. He wanted more. "He would just try to make you stretch beyond what you thought possible," one former Ameriquest executive recalled. "Whatever you did, no matter how good you did, it wasn't good enough."
Inside Glover's branch, loan officers kept up with the demand to produce by guzzling Red Bull energy drinks, a favorite caffeine pick-me-up for hardworking salesmen throughout the mortgage industry. Government investigators would later joke that they could gauge how dirty a home-loan location was by the number of empty Red Bull cans in the Dumpster out back. Some of the crew in the L.A. branch, Glover said, also relied on cocaine to keep themselves going, snorting lines in washrooms and, on occasion, in their cubicles.
The wayward behavior didn't stop with drugs. Glover learned that his colleague's art work wasn't a matter of saving a borrower the hassle of coming in to supply a missed signature. The guy was forging borrowers' signatures on government-required disclosure forms, the ones that were supposed to help consumers understand how much cash they'd be getting out of the loan and how much they'd be paying in interest and fees. Ameriquest's deals were so overpriced and loaded with nasty surprises that getting customers to sign often required an elaborate web of psychological ploys, outright lies, and falsified papers. "Every closing that we had really was a bait and switch," a loan officer who worked for Ameriquest in Tampa, Florida, recalled. " 'Cause you could never get them to the table if you were honest." At companywide gatherings, Ameriquest's managers and sales reps loosened up with free alcohol and swapped tips for fooling borrowers and cooking up phony paperwork. What if a customer insisted he wanted a fixed-rate loan, but you could make more money by selling him an adjustable-rate one? No problem. Many Ameriquest salespeople learned to position a few fixed-rate loan documents at the top of the stack of paperwork to be signed by the borrower. They buried the real documents -- the ones indicating the loan had an adjustable rate that would rocket upward in two or three years -- near the bottom of the pile. Then, after the borrower had flipped from signature line to signature line, scribbling his consent across the entire stack, and gone home, it was easy enough to peel the fixed-rate documents off the top and throw them in the trash.
At the downtown L.A. branch, some of Glover's coworkers had a flair for creative documentation. They used scissors, tape, Wite-Out, and a photocopier to fabricate W-2s, the tax forms that indicate how much a wage earner makes each year. It was easy: Paste the name of a low-earning borrower onto a W-2 belonging to a higher-earning borrower and, like magic, a bad loan prospect suddenly looked much better. Workers in the branch equipped the office's break room with all the tools they needed to manufacture and manipulate official documents. They dubbed it the "Art Department."
At first, Glover thought the branch might be a rogue office struggling to keep up with the goals set by Ameriquest's headquarters. He discovered that wasn't the case when he transferred to the company's Santa Monica branch. A few of his new colleagues invited him on a field trip to Staples, where everyone chipped in their own money to buy a state-of-the-art scanner-printer, a trusty piece of equipment that would allow them to do a better job of creating phony paperwork and trapping American home owners in a cycle of crushing debt.
Carolyn Pittman was an easy target. She'd dropped out of high school to go to work, and had never learned to read or write very well. She worked for decades as a nursing assistant. Her husband, Charlie, was a longshoreman.In 1993 she and Charlie borrowed $58,850 to buy a one-story, concrete block house on Irex Street in a working-class neighborhood of Atlantic Beach, a community of thirteen thousand near Jacksonville, Florida. Their mortgage was government-insured by the Federal Housing Administration, so they got a good deal on the loan. They paid about $500 a month on the FHA loan, including the money to cover their home insurance and property taxes.
Even after Charlie died in 1998, Pittman kept up with her house payments. But things were tough for her. Financial matters weren't something she knew much about. Charlie had always handled what little money they had. Her health wasn't good either. She had a heart attack in 2001, and was back and forth to hospitals with congestive heart failure and kidney problems. Like many older black women who owned their homes but had modest incomes, Pittman was deluged almost every day, by mail and by phone, with sales pitches offering money to fix up her house or pay off her bills. A few months after her heart attack, a salesman from Ameriquest Mortgage's Coral Springs office caught her on the phone and assured her he could ease her worries. He said Ameriquest would help her out by lowering her interest rate and her monthly payments.
She signed the papers in August 2001. Only later did she discover that the loan wasn't what she'd been promised. Her interest rate jumped from a fixed 8.43 percent on the FHA loan to a variable rate that started at nearly 11 percent and could climb much higher. The loan was also packed with more than $7,000 in up-front fees, roughly 10 percent of the loan amount. Pittman's mortgage payment climbed to $644 a month. Even worse, the new mortgage didn't include an escrow for real-estate taxes and insurance. Most mortgage agreements require home owners to pay a bit extra -- often about $100 to $300 a month -- which is set aside in an escrow account to cover these expenses. But many subprime lenders obscured the true costs of their loans by excluding the escrow from their deals, which made the monthly payments appear lower. Many borrowers didn't learn they had been tricked until they got a big bill for unpaid taxes or insurance a year down the road.
That was just the start of Pittman's mortgage problems. Her new mortgage was a matter of public record, and by taking out a loan from Ameriquest, she'd signaled to other subprime lenders that she was vulnerable -- that she was financially unsophisticated and was struggling to pay an unaffordable loan. In 2003, she heard from one of Ameriquest's competitors, Long Beach Mortgage Company.
Pittman had no idea that Long Beach and Ameriquest shared the same corporate DNA. Roland Arnall's first subprime lender had been Long Beach Savings and Loan, a company he had morphed into Long Beach Mortgage. He had sold off most of Long Beach Mortgage in 1997, but hung on to a portion of the company that he rechristened Ameriquest. Though Long Beach and Ameriquest were no longer connected, both were still staffed with employees who had learned the business under Arnall.
A salesman from Long Beach Mortgage, Pittman said, told her that he could help her solve the problems created by her Ameriquest loan. Once again, she signed the papers. The new loan from Long Beach cost her thousands in up-front fees and boosted her mortgage payments to $672 a month.
Ameriquest reclaimed her as a customer less than a year later. A salesman from Ameriquest's Jacksonville branch got her on the phone in the spring of 2004. He promised, once again, that refinancing would lower her interest rate and her monthly payments. Pittman wasn't sure what to do. She knew she'd been burned before, but she desperately wanted to find a way to pay off the Long Beach loan and regain her financial bearings. She was still pondering whether to take the loan when two Ameriquest representatives appeared at the house on Irex Street. They brought a stack of documents with them. They told her, she later recalled, that it was preliminary paperwork, simply to get the process started. She could make up her mind later. The men said, "sign here," "sign here," "sign here," as they flipped through the stack. Pittman didn't understand these were final loan papers and her signatures were binding her to Ameriquest. "They just said sign some papers and we'll help you," she recalled.
To push the deal through and make it look better to investors on Wall Street, consumer attorneys later alleged, someone at Ameriquest falsified Pittman's income on the mortgage application. At best, she had an income of $1,600 a month -- roughly $1,000 from Social Security and, when he could afford to pay, another $600 a month in rent from her son. Ameriquest's paperwork claimed she brought in more than twice that much -- $3,700 a month.
The new deal left her with a house payment of $1,069 a month -- nearly all of her monthly income and twice what she'd been paying on the FHA loan before Ameriquest and Long Beach hustled her through the series of refinancings. She was shocked when she realized she was required to pay more than $1,000 a month on her mortgage. "That broke my heart," she said. For Ameriquest, the fact that Pittman couldn't afford the payments was of little consequence. Her loan was quickly pooled, with more than fifteen thousand other Ameriquest loans from around the country, into a $2.4 billion "mortgage-backed securities" deal known as Ameriquest Mortgage Securities, Inc. Mortgage Pass-Through Certificates 2004-R7. The deal had been put together by a trio of the world's largest investment banks: UBS, JPMorgan, and Citigroup. These banks oversaw the accounting wizardry that transformed Pittman's mortgage and thousands of other subprime loans into investments sought after by some of the world's biggest investors. Slices of 2004-R7 got snapped up by giants such as the insurer MassMutual and Legg Mason, a mutual fund manager with clients in more than seventy-five countries. Also among the buyers was the investment bank Morgan Stanley, which purchased some of the securities and placed them in its Limited Duration Investment Fund, mixing them with investments in General Mills, FedEx, JC Penney, Harley-Davidson, and other household names. It was the new way of Wall Street. The loan on Carolyn Pittman's one-story house in Atlantic Beach was now part of the great global mortgage machine. It helped swell the portfolios of big-time speculators and middle-class investors looking to build a nest egg for retirement. And, in doing so, it helped fuel the mortgage empire that in 2004 produced $1.3 billion in profits for Roland Arnall.
In the first years of the twenty-first century, Ameriquest Mortgage unleashed an army of salespeople on America. They numbered in the thousands. They were young, hungry, and relentless in their drive to sell loans and earn big commissions. One Ameriquest manager summed things up in an e-mail to his sales force: "We are all here to make as much fucking money as possible. Bottom line. Nothing else matters." Home owners like Carolyn Pittman were caught up in Ameriquest's push to become the nation's biggest subprime lender. The pressure to produce an ever-growing volume of loans came from the top. Executives at Ameriquest's home office in Orange County leaned on the regional and area managers; the regional and area managers leaned on the branch managers. And the branch managers leaned on the salesmen who worked the phones and hunted for borrowers willing to sign on to Ameriquest loans. Men usually ran things, and a frat-house mentality ruled, with plenty of partying and testosterone-fueled swagger. "It was like college, but with lots of money and power," Travis Paules, a former Ameriquest executive, said. Paules liked to hire strippers to reward his sales reps for working well after midnight to get loan deals processed during the end-of-the-month rush. At Ameriquest branches around the nation, loan officers worked ten- and twelve-hour days punctuated by "Power Hours" -- do-or-die telemarketing sessions aimed at sniffing out borrowers and separating the real salesmen from the washouts. At the branch where Mark Bomchill worked in suburban Minneapolis, management expected Bomchill and other loan officers to make one hundred to two hundred sales calls a day. One manager, Bomchill said, prowled the aisles between desks like "a little Hitler," hounding salesmen to make more calls and sell more loans and bragging he hired and fired people so fast that one peon would be cleaning out his desk as his replacement came through the door.As with Mark Glover in Los Angeles, experience in the mortgage business wasn't a prerequisite for getting hired. Former employees said the company preferred to hire younger, inexperienced workers because it was easier to train them to do things the Ameriquest way. A former loan officer who worked for Ameriquest in Michigan described the company's business model this way: "People entrusting their entire home and everything they've worked for in their life to people who have just walked in off the street and don't know anything about mortgages and are trying to do anything they can to take advantage of them."
Ameriquest was not alone. Other companies, eager to get a piece of the market for high-profit loans, copied its methods, setting up shop in Orange County and helping to transform the county into the Silicon Valley of subprime lending. With big investors willing to pay top dollar for assets backed by this new breed of mortgages, the push to make more and more loans reached a frenzy among the county's subprime loan shops. "The atmosphere was like this giant cocaine party you see on TV," said Sylvia Vega-Sutfin, who worked as an account executive at BNC Mortgage, a fast-growing operation headquartered in Orange County just down the Costa Mesa Freeway from Ameriquest's headquarters. "It was like this giant rush of urgency." One manager told Vega-Sutfin and her coworkers that there was no turning back; he had no choice but to push for mind-blowing production numbers. "I have to close thirty loans a month," he said, "because that's what my family's lifestyle demands."
Michelle Seymour, one of Vega-Sutfin's colleagues, spotted her first suspect loan days after she began working as a mortgage underwriter at BNC's Sacramento branch in early 2005. The documents in the file indicated the borrower was making a six-figure salary coordinating dances at a Mexican restaurant. All the numbers on the borrower's W-2 tax form ended in zeros -- an unlikely happenstance -- and the Social Security and tax bite didn't match the borrower's income. When Seymour complained to a manager, she said, he was blase, telling her, "It takes a lot to have aloan declined."
BNC was no fly-by-night operation. It was owned by one of Wall Street's most storied investment banks, Lehman Brothers. The bank had made a big bet on housing and mortgages, styling itself as a player in commercial real estate and, especially, subprime lending. "In the mortgage business, we used to say, 'All roads lead to Lehman,' " one industry veteran recalled.Lehman had bought a stake in BNC in 2000 and had taken full ownership in 2004, figuring it could earn even more money in the subprime business by cutting out the middleman. Wall Street bankers and investors flocked to the loans produced by BNC, Ameriquest, and other subprime operators; the steep fees and interest rates extracted from borrowers allowed the bankers to charge fat commissions for packaging the securities and provided generous yields for investors who purchased them. Up-front fees on subprime loans totaled thousands of dollars. Interest rates often started out deceptively low -- perhaps at 7 or 8 percent -- but they almost always adjusted upward, rising to 10 percent, 12 percent, and beyond. When their rates spiked, borrowers' monthly payments increased, too, often climbing by hundreds of dollars. Borrowers who tried to escape overpriced loans by refinancing into another mortgage usually found themselves paying thousands of dollars more in backend fees -- "prepayment penalties" that punished them for paying off their loans early. Millions of these loans -- tied to modest homes in places like Atlantic Beach, Florida; Saginaw, Michigan; and East San Jose, California -- helped generate great fortunes for financiers and investors. They also helped lay America's economy low and sparked a worldwide financial crisis.
The subprime market did not cause the U.S. and global financial meltdowns by itself. Other varieties of home loans and a host of arcane financial innovations -- such as collateralized debt obligations and credit default swaps -- also came into play. Nevertheless, subprime played a central role in the debacle. It served as an early proving ground for financial engineers who sold investors and regulators alike on the idea that it was possible, through accounting alchemy, to turn risky assets into "Triple-A-rated" securities that were nearly as safe as government bonds. In turn, financial wizards making bets with CDOs and credit default swaps used subprime mortgages as the raw material for their speculations. Subprime, as one market watcher said, was "the leading edge of a financial hurricane."
This book tells the story of the rise and fall of subprime by chronicling the rise and fall of two corporate empires: Ameriquest and Lehman Brothers. It is a story about the melding of two financial cultures separated by a continent: Orange County and Wall Street.
Ameriquest and its strongest competitors in subprime had their roots in Orange County, a sunny land of beauty and wealth that has a history as a breeding ground for white-collar crime: boiler rooms, S&L frauds, real-estate swindles. That history made it an ideal setting for launching the subprime industry, which grew in large measure thanks to bait-and-switch salesmanship and garden-variety deception. By the height of the nation's mortgage boom, Orange County was home to four of the nation's six biggest subprime lenders. Together, these four lenders -- Ameriquest, Option One, Fremont Investment & Loan, and New Century -- accounted for nearly a third of the subprime market. Other subprime shops, too, sprung up throughout the county, many of them started by former employees of Ameriquest and its corporate forebears, Long Beach Savings and Long Beach Mortgage.
Lehman Brothers was, of course, one of the most important institutions on Wall Street, a firm with a rich history dating to before the Civil War. Under its pugnacious CEO, Richard Fuld, Lehman helped bankroll many of the nation's shadiest subprime lenders, including Ameriquest. "Lehman never saw a subprime lender they didn't like," one consumer lawyer who fought the industry's abuses said.Lehman and other Wall Street powers provided the financial backing and sheen of respectability that transformed subprime from a tiny corner of the mortgage market into an economic behemoth capable of triggering the worst economic crisis since the Great Depression.
A long list of mortgage entrepreneurs and Wall Street bankers cultivated the tactics that fueled subprime's growth and its collapse, and a succession of politicians and regulators looked the other way as abuses flourished and the nation lurched toward disaster: Angelo Mozilo and Countrywide Financial; Bear Stearns, Washington Mutual, Wells Fargo; Alan Greenspan and the Federal Reserve; and many more. Still, no Wall Street firm did more than Lehman to create the subprime monster. And no figure or institution did more to bring subprime's abuses to life across the nation than Roland Arnall and Ameriquest.
Among his employees, subprime's founding father was feared and admired. He was a figure of rumor and speculation, a mysterious billionaire with a rags-to-riches backstory, a hardscrabble street vendor who reinvented himself as a big-time real-estate developer, a corporate titan, a friend to many of the nation's most powerful elected leaders. He was a man driven, according to some who knew him, by a desire to conquer and dominate. "Roland could be the biggest bastard in the world and the most charming guy in the world," said one executive who worked for Arnall in subprime's early days. "And it could be minutes apart."He displayed his charm to people who had the power to help him or hurt him. He cultivated friendships with politicians as well as civil rights advocates and antipoverty crusaders who might be hostile to the unconventional loans his companies sold in minority and working-class neighborhoods. Many people who knew him saw him as a visionary, a humanitarian, a friend to the needy. "Roland was one of the most generous people I have ever met," a former business partner said.He also left behind, as another former associate put it, "a trail of bodies" -- a succession of employees, friends, relatives, and business partners who said he had betrayed them. In summing up his own split with Arnall, his best friend and longtime business partner said, "I was screwed."Another former colleague, a man who helped Arnall give birth to the modern subprime mortgage industry, said: "Deep down inside he was a good man. But he had an evil side. When he pulled that out, it was bad. He could be extremely cruel." When they parted ways, he said, Arnall hadn't paid him all the money he was owed. But, he noted, Arnall hadn't cheated him as badly as he could have. "He fucked me.But within reason."
Roland Arnall built a company that became a household name, but shunned the limelight for himself. The business partner who said Arnall had "screwed" him recalled that Arnall fancied himself a puppet master who manipulated great wealth and controlled a network of confederates to perform his bidding. Another former business associate, an underling who admired him, explained that Arnall worked to ingratiate himself to fair-lending activists for a simple reason: "You can take that straight out of The Godfather: 'Keep your enemies close.' "
From the Book THE MONSTER: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America – And Spawned a Global Crisis by Michael W. Hudson. Copyright © 2010 by Michael W. Hudson. Reprinted by arrangement with Times Books, an imprint of Henry Holt and Company LLC.
Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, most recently, "THE MONSTER: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America – And Spawned a Global Crisis" (2010, Times Books) He can be reached via his website, email@example.com
© 2010 Times Books All rights reserved.
View this story online at: http://www.alternet.org/story/148577/
September 13, 2009
Review of My Book
Book Review by Christine Wilton:
I have been reading everything bankruptcy related lately. A few weeks ago, M. Jonathan Hayes sent us an email on our listserv for the Central District Consumber Bankrutpcy Attorneys Association, CDCBAA for short, that he had just published a new book entitled, A Summary of Bankruptcy Law. I am one of those folks who likes summaries or digest versions of anything that cuts to the point and gives me just the meat, hold the potatoes and vegetables.
The section on chapter 7 bankruptcies takes up a major portion of the summary material. I would have liked more information regarding chapter 13 processes, but it is a summary, so I let that go. The material is concise and to the point. It's an easy read and looks similar to a top tier law student's outline of a subject. Not that I was a top tier law student, but I've obtained outlines from a few. Overall, the book holds up to its title as a summary and I would add, a thorough summary at that.
Like kicking the tires on a car you're thinking about buying, I took the book's website citations and case citations for a spin. The book provides valuable tools, advice on practice materials and case citations that I am still looking up. I reccommend this book to the new practioner and law student. Since the book was written by a California attorney, it is well suited for the California practitioner and more specifically, those of us practicing in the Central District. I even printed a copy of Judge Randall Newsome's Research Notebook and if I ever get a chance to meet the man, I promise to buy him a beer Jonathan. Thank you for your good work.
The book can be purchased at Amazon.com.
September 10, 2009
Outliers, The Story of SuccessThis is one of the best books I have ever read. I don't read books on how to be successful (wear a suit, look the other guy in the eye etc) but my wife told me about the book a few times and the first chapter starts with a discussion about hockey so I gave it a try. I was hooked within a few pages. An outlier is a person with a reasonable amount of intelligence, who makes tons and tons of effort to get to someplace, and is in the right place at the right time - the stars align for him or her. Malcolm Gladwell proves this beautifully. I expect unfortunately that people are going to be described now as outliers until the word loses its significance. The young USC quarterback, Matt Barkley, was called an outlier in a recent article and Prof. Steve Bainbridge calls himself an outlier on his blog. An outlier is not just some super smart person or great athlete; he is, as we all are, a product of a lots of things that result in what we call success. To be sure, he is a person who makes a monster effort at what he is doing, but lots of people make monster efforts and don't reach the pinnacle of success - that's what the book is about - why do some get there and some don't? Let me know what you think.
July 16, 2009
Review of My Supreme Court Book on Bankruptcy Litigation Blog
Boy, to be included in the same anything with Ken Klee is probably the highlight of my career. Steve Jakubowski of the Coleman Law Firm in Chicago has written a review of my book, Bankruptcy Jurisprudence from the Supreme Court. You can access the review here. The review is posted today on his exceptional blog - Bankruptcy Litigation Blog. Steve reviews Ken Klee's new book on the Supreme Court as well as mine and opines that they would be good reading for Sonia Sotomayor.
My book is available on Amazon. Let me know what you think. JH
April 02, 2009
The Great Decision: Jefferson, Adams, Marshall and the Battle for the Supreme Court
This is a great book if you love the Supreme Court and the history of our country. It is an entire book on Marbury v. Madison, 5 U.S. 137 (1803) written by Cliff Sloan and David McKean. The Amazon listing is here.
I had no idea how close we came to making the Supreme Court a weak sister to Congress and the Executive Branch. The book details the Judiciary Act of 1801 which created a whole bunch of new judgeships (and Circuit Courts of Appeal) by the Federalist Congress right before John Adams left the presidency filling the new positions on his way out. The Republicans took over Congress and Thomas Jefferson, resenting the fact that the Federalists would control the judiciary for a long time, exhorted the now Republican Congress to repeal the Judiciary Act of 1801 and pitch out most of the so-called midnight judges. In the meantime, William Marbury sued the Secretary of State, James Madison, demanding that he be ordered to deliver the judicial commission. The suit was filed by Marbury in the Supreme Court because the Judiciary Act of 1791 authorized certain suits to be filed directly with the Supreme Court. Worrying about the courts getting too strong, Congress did repeal the Judiciary Act of 1801 and changed the Supreme Court "sessions" so that Marbury v. Madison could not be heard until Feb 1803. In the meantime, Stuart v. Laird was filed challenging the power of Congress to repeal the act which in effect removed 16 or so judges who had been appointed "for life" under the Act.
Given the incredible atmosphere, Marshall crafted an incredible decision striking down the portion of the 1791 Act giving the Supreme Court original jursidiction over certain actions. A few days later the Supreme Court, without Marshall who had recused himself since he was the trial judge (on Circuit) in the Stuart v. Laird trial, agreed with the Marshall lower court ruling that Congress had the power to repeal its act.
The book is easy to read and fascinating and I highly recommend it. .
Don't forget my book on the Supreme Court - Bankruptcy Jurisprudence and the Supreme Court - which you can get on Amazon here.
February 05, 2009
Bankruptcy Jurisprudence From the Supreme Court
My new book on the Supreme Court is now available on Amazon. You can access the website here. The book contains my briefs on 121 Supreme Court cases dealing with bankruptcy from Sturges v. Crowninshield in 1819 through the Piccadilly Cafeterias case last year. It includes almost every case since 1984 - about 60 in all. I have added comments on the various justices who wrote the opinions and other interesting tidbits about the cases and the times. Let me know what you think. JH
April 13, 2008
Book Review: A Matter of Interpretation: Federal Courts and the Law
The cover of this book ascribes the authorship to Antonin Scalia, but it actually consists of six essays, the first and last by Scalia. The focus is the first essay by Scalia titled: Common-Law Courts in a Civil-Law System: The Role of United States Courts in Interpreting the Constitution and Laws. The essay is a pretty fascinating discussion of statutory interpretation. The first quarter of the short essay is an entertaining review of the development of common law and the function of common law in teaching law students. He writes, "What intellectual fun all of this is! It explains why first-year law school is so exhilarating: because it consists of playing common-law judge, which in turn consists of playing king - devising, out of the brilliance of one's own mind, those laws that ought to govern mankind." But along came democracy. Legislatures chosen by the people as a whole make the laws. Judges interpret them. "It is simply not compatible with democratic theory that laws mean whatever they ought to mean and that unelected judges decide what that is."
As to statutory interpretation, he begins, "We American judges have no intelligible theory of what we do most." He discusses the "Intent of the Legislature" analysis, concluding "it is the law that governs, not the intent of the lawgiver." He goes on to discuss textualism, canons and presumptions, and legislative history as tools to interpret statutes pointing out the limits of each, especially the latter.
The essay ends with a criticism, as you can imagine, of the followers of the "Living Constitution" theory. The analysis of the constitution, he writes, tends to be an analysis not of what the constitution says but what the Supreme Court has said over the years about the particular issue at hand. This leads to an extension or modification of previous cases "with no regard for how far that logic, thus extended, has distanced us from the original text and understanding." Nor do the Living Constitution advocates simply follow the will of the American people. According to Scalia, "They follow nothing so precise; indeed as a group they follow nothing at all." He concludes that the concept of the Living Constitution has led to the phenomena of government choosing judges who will interpret the laws and the constitution the way the choosers of judges want it interpreted. In his usual understated way, he ends with, "This, of course, is the end of the Bill of Rights, whose meaning will be committed to the very body it was meant to protect against: the majority."
The remainder of the book is not near as compelling as the first essay. The remainder consists of four responses to Justice Scalia and then a short response from him. This book however should be required reading for every law student.
November 13, 2007
Randall Newsome Research Binder
If you are in the 9th Circuit, you need to print out this "research binder," and keep it by your desk. Judge Newsome, bankruptcy judge sitting in Oakland, updates it every year or so. It is posted on the Northern District Bankruptcy Court website.
The research binder has the name, cite, and a short summary of what appears to be every published case in the 9th Circuit for the last 20 years or so. It is broken down nicely into categories such as "Abstention," "Abandonment," etc.
September 29, 2007
"Courting Failure" by Professor Lynn LoPucki
This 2005 book by Professor LoPucki is subtitled, "How Competition for Big Cases is Corrupting the Bankruptcy Courts." It is a little surprising how blatant LoPucki is about accusing judges, in New York and Delaware primarily, of courting the local bar in order to induce large corporations to file in their particular jurisdiction. He tells stories of how other courts blew it by not kow-towing to the big firms that decide where to file the big cases. If huge fees and rates are even questioned or first day motions, cash collateral motions, and exclusivity are not simply rubber stamped, the court will never see a big case again, he asserts. If there is a hint that a judge might appoint a chapter 11 trustee early in the case, the court is not considered. Management of the big cases choose the attorneys. A chapter 11 trustee chooses his own attorneys and typically investigates management. According to LoPucki, the New York judge in the Enron case performed admirably but Ken Lay's standards.
Why you might ask would a judge in Chicago or Houston want to see large cases filed in their jurisdictions, much less compete for the "privilege"? LoPucki answers that the judge handling the case will win a lot of new friends, get his or her name in the paper a lot, and achieve notoriety. Some of course do not want the extra work but many do. LoPucki does not even hint that a judge will get any financial benefit from the big cases coming to town although obviously a big case judge will be actively sought by the big firms after retirement.
The book is supported very nicely be statistics and tables and is a very entertaining read. His factual proof is compelling. He cites how Judge Burton Lifland in New York was "accidentally" getting something like half the big cases filed in New York when there were five judges "on the wheel." He got a statistician involved to compute the probability of that accident.
Let me know what you think. Jon Hayes