Personal Injury Blog

Bush Administration Protected Wall Street from Lawsuits

October 13th, 2008

As Wall Street went berserk investing in high risk sub-prime mortgages, the government, prodded on by influential, but dubious lobbyists, worked to block a concept called assignee liability, that would have given investors the right to sue anyone who held the paper on their loans.  A new Seattlepi.com report gives us a look into what can happen when the government decides to interfere with a citizens’ right to seek redress for liability.

The report delves into the background of the move to shield influential Wall Street financiers from being held liable in the event of a bust up.  The assignee liability principle would have held everyone liable, from the bank that approved the bad loan, to the investment banker who ultimately ended up buying the loan. Hundreds of thousands of sub prime loans were given to people who had unreliable credit, or had loans forced on them through predatory lending practices, and then sold in mortgage packages to Wall Street securities dealers.  In the end, as the amount of greed in the country’s financial nerve center was becoming slowly but painfully clear, many of the banks which did the lending, were either defunct or swallowed by other institutions. The investment banks that had purchased these loans were in the same boat. A mad cycle of lending to the lowest economic denominators, coupled with frenzied buying of these high risk mortgages, has led to one of the worst financial crises in the country's history.

As Seattlepi.com points out, much of the damage could have been avoided if the banks and securities dealers had had the assignee liability principle hanging over their heads.  As it turned out, lobbyists and members of Congress, including a Republican who went on to face corruption charges, influenced the Bush administration to withhold support for assignee liability.  The principle, in fact, was forgotten in all the lunacy that was going on at Wall Street, and it’s only now, when we have the advantage of 20/20 hindsight, that we realize that assignee liability could have prevented at least some of the carnage.

There were plenty of factors that went into creating the sub prime mortgage bubble.  Predatory lending, a drop in interest rates and high demand for housing at the beginning of the decade, fueled the expansion of the home loan industry. But experts agree that in the absence of any liability to control their actions, sub prime mortgage lending grew to touch $1 trillion.  It’s very likely that in the presence of assignee liability, Lehman Brothers and their ilk would have been more cautious about the kind of mortgage trading they indulged in.  But in the absence of any liability, the company and others like it, played Russian roulette with investor money, and the results are evident for all to see.

In our line of work, we see everyday how liability protects the common man, and acts as a restraining mechanism for those who might be willing to take chances with others’ safety or life.  Liability protects people who have been injured, made sick, or killed through the actions of another, and it would have protected hundreds of thousands of Americans from the financial black hole they are now looking into, from the avarice and recklessness of a few.

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