Tuesday, July 22, 2014

What The News Across The Nation(s), July 22, 2014


Stop me if you heard this story before.

Guy goes to a used car dealer to buy a car. He hasn't worked since 1991 and he has filed bankruptcy in the past. No problem says the salesman, "I can put you in that baby right over there for $$$$. Now sign right here."

Several months later, the guy's car is repoed by the bank partner of the used car dealer. The bank, you see, has an arrangement whereby they assume the loan (Interest on the loan is maybe 23/24%). These high risk loans have been bundled into tranches sold to investors like your pension fund or your mutual fund or insurance companies, heck maybe even the city you live in bought some. The problem is this is the same game played with sub-prime mortages and lead to the 2008 financial crises and the 'too big to fail' bail out.

New York Times reporters, Jessica Silver-Greenberg and Michael Corkery note that big investors buy these tranches which contain some toxic sub-prime loans because of the high returns on their investment. The higher the risk, the higher the payoff. But not to worry as the movers and shakers assure us, "... that the risks are not great, saying that they have indeed heeded the lessons from the mortgage crisis. Losses on securities made up of auto loans, they add, have historically been lo
w, even during the crisis."

Finally, remember when people were losing their homes and sleeping in their car? Well, "In the case 
of Marcelina Mojica and her husband, Jonathan", they are keeping their car and sleeping in a homeless shelter.

Again, stop me if you have heard this story before.

Owning People

There is a company out in California called Fantex that sells stock in professional athletes. It's just getting off the ground and so far has sold stock in two professional football players. I don't know much about this, but it's kind of a bet on future earnings of the athlete. These future earnings include salary, memoirs, movies, etc.


So two things are going on that the general public is not aware of and if they were aware, would have a difficult time in connecting what happens on Wall Street with the price of their can of corn.

Currently there is a coerced trend among firms to force employees into mandatory arbitration.  A recent and well covered case concerns the extensive and long history of sexual harassment by Dov Charney, CEO of American Apparel. Arthur Bryant reports on the case on the ACS blog article American Apparel Hides Sexual Harassment and More through Mandatory Arbitration. Mr. Bryant quotes Stephen Davidoff Soloman of the New York Times, "Corporate America has been ably aided by the Supreme Court, which has repeatedly upheld the right of companies to enforce arbitration agreements…".  It appears that while the Supreme Court may be leaning towards mandatory arbitration decisions to trump a person's day in court I can't tell if it is a settled question by the Court. The article by Mr. Soloman goes into much more detail than does Mr. Bryant's article regarding the sexual harassment history of Dov Charney.

The other new thing is a push by Wall Street firms to inhibit or stop whistle blowers from blowing the whistle.  The Dodd-Frank Bill encourages whistle blowing with monetary rewards should whistle blowers information prove corporate wrongdoing . Countermeasures being initiated by Wall Street firms include mandatory confidentiality agreements. So far as I know none of these mandatory confidentiality agreements that pertain to whistleblowing are being honored by the SEC. And I know of no specific court cases. However, the proliferation of such confidentiality agreements seems to indicate some emiment legal action.
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