Tuesday, July 6, 2010

Regulating the Regulators

Wade Coye, Attorney
The "Great Recession" that started three years ago has affected (and continues to affect) everyone. The irresponsible activities of Wall Street didn't remain within one company's walls, or even within the borders of this country. The whole world has had to deal with the consequences of corporations acting in their own best interest. Ordinary people without millions of dollars to risk on speculative investing now want answers for why their mortgages are unaffordable, why their retirement savings are gone, why their jobs are no longer available, and why a wealth of other things have gone wrong.

Part of the massive financial problems on Wall Street were brought on because of government policies from nearly 20 years ago. In 1992, Congress eased their ability to regulate Fannie Mae and Freddie Mac. The Bush administration tried to limit the mortgage companies' spending limits by implementing stern suggestions as opposed to laws. When the Clinton administration came into office a few years later, there were no laws for them to enforce in regards to these federal loan companies. This misstep was just one of the ways that corporations were able to overstep their bounds without the government being able to exercise their oversight responsibilities.

Government regulation in a capitalist system needs to strike a balance. Too much regulation functions as a prescription for business and the economy. If there are too many standards in creating or conducting small businesses, then many business owners will function at these minimums because there is little incentive or permission to work above them. But too few government regulations can hurt the public interest, such as the food safety violations that Americans experienced in the early 1900's. No economic system is perfect; another system of holding businesses accountable needs to exist.

If someone acts without considering the consequences that other people will have to face, then that is negligence. Innocent people have lost their livelihoods as a result of big corporations making risky investments. When one thinks about this situation occurring between two people, the answer may seem obvious: file a lawsuit. One person can sue another if there is enough evidence to show that the defendant's negligent actions harmed the plaintiff. There is no doubt that a small group of speculative investors caused millions of people to lose their savings, jobs, or homes.

Citizens can file lawsuits against the American government or large corporations if there is justification, or in this case, a degree of negligence. Economic harm can cause as much damage as physical harm, and in a legal system based on justice, those responsible should be held liable. High-profile cases can take years and millions of dollars to resolve, so not many working citizens can successfully bring suit against a large corporation. Barbara Ann Radnofsky, a candidate for attorney general in Texas, is leading the charge to file a "sweeping lawsuit against Wall Street firms." She feels that Texas citizens can win a settlement from executives responsible for the economic collapse just like Americans did against tobacco companies in the 1990's. There's no telling if the suit will be filed or even successful, but her convictions are in the right place.

Lawsuits won't solve the problems caused by Wall Street, but they serve two valuable purposes. The opportunity to sue gives each consumer an outlet to recover damages incurred by the recession. It also shows these companies that they can't act recklessly with money that is not their own. A lawsuit shows a company that no matter how large they are, they cannot act with impunity. Regulation (as it stands now) lets corporations keep most of their profits, but share liability for losses with the public. Legal action sends the message that these actions have consequences, and that someone besides the average American should be the one to deal with them.

There is controversy over the number of lawsuits filed in America, and discussion of tort reform is a result. Setting a cap on the amount of money one can collect in a lawsuit settlement is controversial because it doesn't take into account the circumstances of a matter. The BP oil spill in the gulf is a perfect example. The Oil Pollution Act of 1990 sets a cap of $75 million in damages per oil spill plus removal costs. This means that if BP can't fix their mess in the Gulf of Mexico in one, five, or maybe even 10 years, then they only have to pay citizens for it up to $75,000,000, even if the economic impact is well over that number.

Now, if you're the head of a multi-billion dollar oil company and are only threatened with the possibility of having to pay 75 million dollars in damages, would that stop you from drilling? Maybe even violating a few environmental safety guidelines in the process? It probably won't, especially if you have a team of lawyers to limit your liability and award consumers low damages in a settlement.

Lawsuits and uncapped damages show corporations that they can't play by their own rules. Individuals can hold them responsible when government can't or refuses to. The events of the past year show that corporate governance and governmental regulations are no substitute for citizens in a free society having the right to file a lawsuit against someone who has caused or contributed to great economic harm.