Contrary to propaganda, there’s nothing modernistic about corporations. On the contrary, they’re a carryover phenomenon from feudalism.
This feudal vestige persisted through the early heyday of capitalism, soon becoming the preferred mode of organization to prevent the full textbook logic of capitalism from developing. The result was that the economy never evolved beyond a feudal-capitalist hybrid.
And once capitalism reached its terminal stage starting in the 1970s, where the combination of Peak Oil and the terminally declining profit rate threatened to attenuate forms of economic domination completely, the corporation became the basic unit of class war, and the anti-social, anti-political, anti-sovereign form around which full feudalism is intended to be restored.
The corporation originally arose out of medieval guilds and the monopoly charter. This charter was also called a “searching and sealing patent”. It had nothing to do with production. The charter-holder, generally some royal crony, didn’t produce or do anything but merely took a cut of some production process, nominally for “certifying the quality” of the product. We can compare today’s Food Control Bill, with its myriad FDA impositions, fees, and forced purchases of corporate electronic equipment for small and medium producers. On its face this isn’t to ensure better food quality (if it were, there would be rigorous enforcement of existing law against the big corporate producers, and a total ban on CAFOs), but to “certify” smaller producers and extract “searches and seals” from them. Or better yet, drive them out of business altogether….”
“One of the features of the Land Scandal has been the gutter sleaziness of the many of the bottom-feeder participants. According to Naked Capitalism, a lawsuit seeking class action status alleges that two leading mortgage service providers, Lending Processing Services and Prommis, in addition to all the usual crimes, also engaged in systematic fraudulent and illegal extraction of legal fees. The allegation is that when a mortgage mill retained by one of these service providers to do the legal work filed its fee request with the court, it would inflate the request and then kick back over two thirds to the service company. This is illegal fee-sharing and practicing law without a license.
Prommis has tried to pull the typical trick of claiming it’s just a holding company with no responsibility for its subsidiaries or contractors.
In another post Yves ponders how robo-signing, another typical piece of sleaze, became such a universal practice. After discussing how rampant it was at the Stern mill in Florida, she discusses the example of Fairbanks, a servicer who got very big very fast by buying a laundry list of other servicers along with their mortgage lists.
Tom Adams, a mortgage securitization expert, has suggested that the significance of miscreant servicer Fairbanks has not been recognized. Law professor Kurt Eggert provides a good overview in his 2007 article, “Limiting Abuse and Opportunism by Mortgage Servicers.” In 2003, Fairbanks had become the biggest subprime servicer in the US by acquiring other subprime servicers. Some of the servicers it had bought were affiliated with originators that had overstated property values and engaged in lax underwriting. That meant a lot of the loans were due to go bad. Fairbanks came under pressure, via litigation, downgrades in servicer ratings, FTC and HUD investigations, due to widespread evidence of serious servicing abuses.
So according to this interpretation Fairbanks undertook a rampage of M&As which no one could conceivably argue served any constructive purpose, solely in order to get big fast. Then when it inevitably found itself having bought all these junk loans perilously high, it was driven by the logic of its own criminality to undertake massive robo-signing binges. This, along with the same practice at dark slimy mills like Stern, contributed to the practice achieving critical mass and becoming the industry standard.
These are just two normal, everyday crimes in the MBS biz. Relatively minor details, really, of the overarching kleptocratic mortgage system. Here we see a similar mode of organization at a larger scale: The way (in theory, certainly seldom in practice) each loan had to go through the steeplechase of originator -> sponsor -> depositor -> trust. This was in order to ensure bankruptcy remoteness. In other words, participants were intending to go bankrupt and leave plenty of debt and liability on the table, while the assets would be long gone. IBGYBG. I’ll Be Gone, You’ll Be Gone. That’s how it’s meant to be. The banks were simply engaging in a shell game.
What’s the common organizational feature here? The corporate form enables a criminal to launder a criminal act or debt exposure through a series of corporate entities to push it as far away from his person as possible. He is personally the criminal, he is personally the debtor. But the corporation was formed to immunize him from these responsibilities, even as it multiplies his individual rights.
In particular, here we see examples of how the holding company, and the general policy of allowing one corporation to own stock in another, are meant to function. Probably most people think this practice is normal and natural. But it’s actually a radical innovation which was intended to revitalize the corporate form as a weapon of feudal privilege. Starting in the 1860s, this and several other key measures which empowered the hitherto weak and constrained corporation turned this musty antique vestige into a crypto-feudal dynamo. The comprehensive result of these radical policy changes over several decades can be summed up as a neofeudal coup against democracy as well as against capitalism according to classical economic theory. The result was to empower the corporate form as the vessel of rentier privilege and prerogative during the age of cheap, plentiful fossil energy and industrial abundance, forces which should have been aggressively egalitarian.
Before describing how this coup happened, let’s do a quick comparison of, in Ted Nace’s terms, the classic corporation (pre-1860) vs. the modern corporation (by 1900)….”