Monthly Archives: September 2014

“The Catholic Church does incalculable good, providing immeasurable comfort – material as well as spiritual – to so many. But it contradicts and undercuts that mission when it fails to recognize what more and more parishioners do: that gay people deserve the same dignity as everyone else…

…certainly not what happened to the Montana couple. If Francis and his successors don’t get this right, all his other bits of progress and pretty words will be for naught.”, Frank Bruni, ‘I Do’ Means You’re Done, New York Times

 

The Opinion Pages | OP-ED COLUMNIST

‘I Do’ Means You’re Done

SEPT. 23, 2014

Frank Bruni

 

In and around Rome, the talk is of Pope Francis’ sage acceptance of the 21st century, of his empathy, of his departure from the stern moralizing on matters of the heart that his predecessors engaged in.

In Montana, a gay couple who have been together for more than three decades have been told that they’re no longer really welcome in the Catholic parish where they’ve been worshiping together for 11 years.

This happened last month, in the town of Lewistown. By all accounts, these two men, one of them 73, the other 66, had done no one any harm. They hadn’t picked a fight. Hadn’t caused any particular stir. Simply went to Mass, same as always. Prayed. Sang in the church choir, where they were beloved mainstays.

There was only this: In May of last year, without any fanfare, the men had traveled to Seattle, where they had met and lived for many years, to get married. And while they didn’t do anything after to publicize the civil ceremony, word eventually leaked out.

So in early August, a 27-year-old priest who had just begun working at the parish summoned them to a meeting, according to local news reports. And at that meeting, he told them that they could no longer be choir members, perform any other roles like that or, for that matter, receive communion.

If they wanted those privileges restored, there was indeed a remedy, which the priest and other church officials spelled out for them over subsequent conversations. They would have to divorce. They would have to stop living together. And they would have to sign a statement that marriage exists only between a man and a woman.

Translation: Renounce a love fortified over 30 years. Unravel your lives. And affirm that you’re a lesser class of people, barred from the rituals in which others blithely participate.

With those little tweaks, the body of Christ can again be yours.

In one sense there’s nothing revelatory here. For all the changes afoot in enlightened countries around the world, the church remains censorious of same-sex marriage — fervently so, in many instances — and Catholic teaching still forbids sexually intimate relationships between two men or two women.

But there are details to note, rue and reject. One is the hypocrisy (or whatever you want to call it) of punishing a same-sex couple for formalizing a relationship that was already obvious, as these men’s partnership was.

Such punishment has befallen many employees of Catholic schools or congregations since the legalization of same-sex marriage in many states allowed them civil weddings. Teachers long known to be gay are suddenly exiled for being gay and married, which is apparently too much commitment and accountability for the church to abide. Honesty equals expulsion. “I do” means you’re done.

I reached the Montana couple, Tom Wojtowick and Paul Huff, on the phone Tuesday, and Wojtowick expressed befuddlement. “We’re just two old men,” he said, and their relationship was no secret. “We’re only 5,900 people in this town, and Paul and I are really well known.”

He said that he and Huff had decided to get married not to make a statement but because they were getting on in years and didn’t want any confusion or challenge about beneficiaries, health care proxies and hospital visitation rights.

The Catholic Church does incalculable good, providing immeasurable comfort — material as well as spiritual — to so many. But it contradicts and undercuts that mission when it fails to recognize what more and more parishioners do: that gay people deserve the same dignity as everyone else, certainly not what happened to the Montana couple. If Francis and his successors don’t get this right, all his other bits of progress and pretty words will be for naught.

This tension was captured in a blog post Monday by Andrew Sullivan, who is both a leading gay marriage advocate and a practicing Catholic. He indicated that stories like the one from Montana are making those identities ever harder to reconcile. “There is only so much inhumanity that a church can be seen to represent before its own members lose faith in it,” he wrote.

A bishop in Montana conceded to a local newspaper that half the congregation was upset by the men’s ouster. Wojtowick told me that the choir had essentially disbanded, in solidarity with him and Huff, and that some congregants had stopped attending services, Huff among them.

Wojtowick still goes, but only for the first half of the Mass, before communion approaches. “Then I get up,” he said. “I make a profound bow to the altar. And I walk out.”

A version of this op-ed appears in print on September 24, 2014, on page A31 of the New York edition with the headline: ‘I Do’ Means You’re Done

“Do bigger loan files mean better loans? A fascinating article in the latest Mortgage Banking reviewed a study that showed the following: (a) 85% of all loan files contained 400-2,000 pages…

…(b) in 2010, only 3% of loan files had more than 800 pages, whereas 16% do today, (c) when looking at the number of loans with 500-900 pages, 52% of all conventional loans had them and 77% of VA loans had them.  What’s really eye-catching is that the 10 biggest loan files in the study contained more than 6,000 pages and the largest, for a jumbo self-employed borrower, had over 8,000 pages. Rules and regulations have led to fatter files, but the two obvious questions are these: (1) Is the borrower more protected now from bad lenders and bad loans, and (2) are these loans going to perform better?  Would anyone possibly answer yes to either question?”, Excerpt from September 2014 Mortgage Industry Newsletter

“This right (to a competent attorney) is so fundamental to the operation of the criminal justice system that its diminishment erodes the principles of liberty and justice that underpin all of our civil rights in criminal proceedings.”, Molly J. Moran, Acting Assistant Attorney General, U.S. Department of Justice

“How can anyone argue that providing poor Americans with proper legal representation in our government’s criminal proceedings is NOT a basic Constitutional right, when the outcome of those proceedings may result in loss of their life, liberty, and/or the pursuit of happiness (and the outcome is far more likely to be incorrect, without adequate legal representation)?”, Mike Perry

U.S.

Holder Backs Suit in New York Faulting Legal Service for Poor

By MATT APUZZO

Attorney General Eric H. Holder Jr. spoke Tuesday at New York University School of Law. Last year, Mr. Holder told colleagues that ensuring equal access to lawyers was “our moral calling.” Credit Julio Cortez/Associated Press

WASHINGTON — Attorney General Eric H. Holder Jr., who last year declared a crisis in America’s legal-defense system for the poor, is supporting a class-action lawsuit that accuses Gov. Andrew M. Cuomo and the State of New York of perpetuating a system that violates the rights of people who cannot afford to hire lawyers.

The lawsuit claims that public defenders in New York are so overworked and overmatched that poor people essentially receive no legal defense at all. It describes a system in which indigent defendants navigate courts nearly alone, relying on spotty advice from lawyers who do not have the time or money to investigate their cases or advise them properly.

Because of substandard legal aid, children are taken from their parents, defendants in minor cases are jailed for long periods and people are imprisoned for crimes for which they might have been acquitted, the civil rights lawyers who filed the suit said.

Although the United States is not a party to the case, Mr. Holder is using the same core legal arguments as the plaintiffs and the weight of the federal government to resolve what he sees as deep-seated unfairness in local criminal courts. His views will bring national attention to a case that has mainly been of interest in New York. After Mr. Holder weighed in last year in a similar case in Washington State, the judge strongly rebuked the public-defense systems in two cities there and ordered improvements.

If the New York lawsuit succeeds, the state could be forced to take over the public-defense system, which is now run by county governments. Such an outcome would also quite likely encourage similar lawsuits, and, in turn, additional intervention by the Justice Department.

Mr. Holder has made the right to legal representation part of a broad effort to address inequities in the criminal justice system. He has pushed to reduce harsh sentences that were adopted during the country’s crack epidemic, for example, and to eliminate mandatory-minimum sentences for nonviolent drug crimes.

“To truly guarantee adequate representation for low-income defendants, we must ensure that public defenders’ caseloads allow them to do an effective job,” Mr. Holder said in a statement. “The Department of Justice is committed to addressing the inequalities that unfold every day in America’s courtrooms.”

The lawsuit, which was filed by the New York Civil Liberties Union, has been winding through the courts for seven years and is set for trial on Oct. 7. It names three upstate counties — Onondaga, Schuyler and Washington — and Suffolk County on Long Island as defendants.

In some felony cases, according to the lawsuit, staffing shortages have meant that defendants spoke to their lawyers for less than one hour. Some lawyers said they had never spoken with their clients in person. Investigators, whose work might undermine the prosecution and offer reasonable doubt, were rarely hired.

While the Justice Department is not officially taking sides in the case, in court documents — called a “statement of interest,” similar to an amicus brief — to be filed in State Supreme Court in Albany on Thursday, government lawyers write that threadbare budgets and vast caseloads can “force even otherwise competent and well-intentioned public defenders into a position where they are, in effect, a lawyer in name only.”

Mr. Holder, who was once a Superior Court judge in Washington, D.C., has offered more federal money and training to support public defenders. But only state and local governments can make significant changes. The court filing on Thursday is part of a nascent Justice Department effort to piggyback on state lawsuits that aim to force those changes.

“It would be a revolution in how the public-defense system is operated,” Corey Stoughton, the lead lawyer on the case for the New York Civil Liberties Union, said. “The state thinks that the responsibility belongs to the county governments. But the counties don’t have the tax base or the political will.”

The Sixth Amendment guarantees the right to legal representation, but it was the landmark 1963 Supreme Court case Gideon v. Wainwright that forced states to provide defense lawyers to poor people charged with serious crimes. Two years later, New York created a public-defense system run by the counties, not the state.

In 2006, a commission appointed by the state’s chief judge, Judith S. Kaye, found that the patchwork system provided “an unconstitutional level” of legal defense, “based on no factor other than geography.” Civil rights lawyers filed the New York class-action lawsuit the following year.

The New York public-defender system has been “abusing low- and middle-class people in this system since 1965,” said Jonathan E. Gradess, the executive director of the New York State Defenders Association, who said he expected to testify at trial. “It’s broken. It’s just terrible. We’re just damaging people every single day.”

But Attorney General Eric T. Schneiderman of New York, the lead lawyer defending the state against the lawsuit, has argued in court documents that the plaintiffs in the lawsuit offer no proof that their rights were violated. Even if lawyers provided inadequate representation in some cases, Mr. Schneiderman said, that does not prove a systemic problem.

“Plaintiffs do not have a case,” Mr. Schneiderman wrote last year. “Their theories, as laudably intended as they may be, are just that — theories.”

In its filing, the Justice Department urges Justice Gerald W. Connolly, who is overseeing the case, to review the system as a whole, not individual cases, arguing that the right to a competent lawyer is central to American justice. “This right is so fundamental to the operation of the criminal justice system that its diminishment erodes the principles of liberty and justice that underpin all of our civil rights in criminal proceedings,” wrote Molly J. Moran, the Justice Department’s top civil rights prosecutor.

Civil rights lawyers said public-defender offices in New York received so little money that they were chronically understaffed. A public defender could handle hundreds of cases per year, in some instances hundreds at any one time.

In Suffolk County, where the Legal Aid Society takes on over 25,000 criminal cases a year, the agency’s five investigators lacked sufficient training and spent most of their time on administrative duties, the suit said.

In 2011, the state created the Office of Indigent Legal Services to help improve legal defense for the poor, but part of its budget has been transferred elsewhere. Several county leaders have called for the state to take over the public-defender system, but that would mean creating a costly new structure from scratch.

“This is a problem that’s going to require a substantial investment in reform,” said Ms. Stoughton, the civil rights lawyer.

Mr. Gradess said that, decades ago, he believed a county-based defense system could work, with the right structure and enough money. But he soon changed his mind. “It’s a really primitive system,” he said.

Last year, at a ceremony marking the 50th anniversary of the Gideon ruling, Mr. Holder told Justice Department colleagues that ensuring equal access to lawyers was “our solemn responsibility and our moral calling.”

“The devices, lawyers for borrowers argue, violate those laws because they may effectively repossess the car only days after a missed payment. Payment records show that Ms. Bolender, the Las Vegas mother with the sick daughter, was not in default in any of the four instances her ignition was disabled this year.”, New York Times

“While the technology is cool, this is not right. It’s abusive to lower income Americans. Consumer Financial Protection Bureau…where are you?”, Mike Perry

Investment Banking | Driven Into Debt

Miss a Payment? Good Luck Moving That Car

By Michael Corkery and Jessica Silver-Greenberg

The thermometer showed a 103.5-degree fever, and her 10-year-old’s asthma was flaring up. Mary Bolender, who lives in Las Vegas, needed to get her daughter to an emergency room, but her 2005 Chrysler van would not start.

The cause was not a mechanical problem — it was her lender.

Ms. Bolender was three days behind on her monthly car payment. Her lender, C.A.G. Acceptance of Mesa, Ariz., remotely activated a device in her car’s dashboard that prevented her car from starting. Before she could get back on the road, she had to pay more than $389, money she did not have that morning in March.

“I felt absolutely helpless,” said Ms. Bolender, a single mother who stopped working to care for her daughter. It was not the only time this happened: Her car was shut down that March, once in April and again in June.

This new technology is bringing auto loans — and Wall Street’s version of Big Brother — into the lives of people with credit scores battered by the financial downturn.

Auto loans to borrowers considered subprime, those with credit scores at or below 640, have spiked in the last five years. The jump has been driven in large part by the demand among investors for securities backed by the loans, which offer high returns at a time of low interest rates. Roughly 25 percent of all new auto loans made last year were subprime, and the volume of subprime auto loans reached more than $145 billion in the first three months of this year.

But before they can drive off the lot, many subprime borrowers like Ms. Bolender must have their car outfitted with a so-called starter interrupt device, which allows lenders to remotely disable the ignition. Using the GPS technology on the devices, the lenders can also track the cars’ location and movements.

The devices, which have been installed in about two million vehicles, are helping feed the subprime boom by enabling more high-risk borrowers to get loans. But there is a big catch. By simply clicking a mouse or tapping a smartphone, lenders retain the ultimate control. Borrowers must stay current with their payments, or lose access to their vehicle.

“I have disabled a car while I was shopping at Walmart,” said Lionel M. Vead Jr., the head of collections at First Castle Federal Credit Union in Covington, La. Roughly 30 percent of customers with an auto loan at the credit union have starter interrupt devices.

Now used in about one-quarter of subprime auto loans nationwide, the devices are reshaping the dynamics of auto lending by making timely payments as vital to driving a car as gasoline.

Seizing on such technological advances, lenders are reaching deeper and deeper into the ranks of Americans on the financial margins, with interest rates on some of the loans exceeding 29 percent. Concerns raised by regulators and some rating firms about loose lending standards have disturbing echoes of the subprime-mortgage crisis.

As the ignition devices proliferate, so have complaints from troubled borrowers, many of whom are finding that credit comes at a steep price to their privacy and, at times, their dignity, according to interviews with state and federal regulators, borrowers and consumer lawyers.

Some borrowers say their cars were disabled when they were only a few days behind on their payments, leaving them stranded in dangerous neighborhoods. Others said their cars were shut down while idling at stoplights. Some described how they could not take their children to school or to doctor’s appointments. One woman in Nevada said her car was shut down while she was driving on the freeway.

Beyond the ability to disable a vehicle, the devices have tracking capabilities that allow lenders and others to know the movements of borrowers, a major concern for privacy advocates. And the warnings the devices emit — beeps that become more persistent as the due date for the loan payment approaches — are seen by some borrowers as more degrading than helpful.

“No middle-class person would ever be hounded for being a day late,” said Robert Swearingen, a lawyer with Legal Services of Eastern Missouri, in St. Louis. “But for poor people, there is a debt collector right there in the car with them.”

Lenders and manufacturers of the technology say borrowers consent to having these devices installed in their cars. And without them, they say, millions of Americans might not qualify for a car loan at all.

"I have disabled a car while I was shopping at Walmart," said Lionel M. Vead Jr., the head of collections at First Castle Credit Union in Covington, La., who said that starter interrupt devices and GPS tracking technology had made his job easier.

A Virtual Repo Man

“I have disabled a car while I was shopping at Walmart,” said Lionel M. Vead Jr., the head of collections at First Castle Credit Union in Covington, La., who said that starter interrupt devices and GPS tracking technology had made his job easier.Credit Cheryl Gerber for The New York Times

From his office outside New Orleans, Mr. Vead can monitor the movements of about 880 subprime borrowers on a computerized map that shows the location of their cars with a red marker. Mr. Vead can spot drivers who have fallen behind on their payments and remotely disable their vehicles on his computer or mobile phone.

The devices are reshaping how people like Mr. Vead collect on debts. He can quickly locate the collateral without relying on a repo man to hunt down delinquent borrowers.

Gone are the days when Mr. Vead, a debt collector for nearly 20 years, had to hire someone to scour neighborhoods for cars belonging to delinquent borrowers. Sometimes locating one could take years. Now, within minutes of a car’s ignition being disabled, Mr. Vead said, the borrower calls him offering to pay.

“It gets their attention,” he said.

Mr. Vead, who has a coffee cup that reads “The GPS Man,” has been encouraging other credit unions to use the technology. And the devices — one version was first used to help pet owners keep track of their animals — are catching on with a range of subprime auto lenders, including companies backed by private equity firms and credit unions.

Using his computer or cellphone, Mr. Vead can monitor the movements of about 880 subprime borrowers, and if they are late in making a payment, he can disable their vehicles.

Using his computer or cellphone, Mr. Vead can monitor the movements of about 880 subprime borrowers, and if they are late in making a payment, he can disable their vehicles.Credit Cheryl Gerber for The New York Times

Mr. Vead says that first, he tries reaching a delinquent borrower on the phone or in person. Then, only after at least 30 days of missed payments, he typically shuts down cars when they are parked at the borrower’s house or workplace. If there is an emergency, he says, he will turn a car back on.

None of the borrowers or consumer lawyers interviewed by The New York Times raised concerns about the way Mr. Vead’s credit union uses the devices. But other lenders, they said, were not as considerate, marooning drivers in far-flung places and often giving no advance notice of a shut-off. Lenders say that they exercise caution when disabling vehicles and that the devices enable them to extend more credit.

Without the use of such devices, said John Pena, general manager of C.A.G. Acceptance, “we would be unable to extend loans because of the high-risk nature of the loans.”

The growth in the subprime market has been good for the devices’ manufacturers. At Lender Systems of Temecula, Calif., which sells a range of starter interrupt devices, revenue has more than doubled so far this year, buoyed by an influx of new credit union customers, said David Sailors, the company’s executive vice president.

Mr. Sailors noted that GPS tracking on his company’s devices could be turned on only when borrowers were in default — a policy, he said, that has cost it business.

The devices, manufacturers say, are selling well because they are proving effective in coaxing payments from even the most troubled borrowers.

A leading device maker, PassTime of Littleton, Colo., says its technology has reduced late payments to roughly 7 percent from nearly 29 percent. Spireon, which offers a GPS device called the Talon, has a tool on its website where lenders can calculate their return on capital.

Fears of Surveillance

While the devices make life easier for lenders, their ability to track drivers’ movements has struck a nerve with a number of borrowers and some government authorities, who say they are a particularly troubling example of personal-data gathering and surveillance.

At its extreme, consumer lawyers say, such surveillance can compromise borrowers’ safety. In Austin, Tex., a large subprime lender used a device to track down and repossess the car of a woman who had fled to a shelter to escape her abusive husband, said her lawyer, Amy Clark Kleinpeter.

The move to the shelter violated a clause in her auto loan contract that restricted her from driving outside a four-county radius, and that prompted the lender to send a tow truck to take back the vehicle. If the lender could so easily locate the client, Ms. Kleinpeter said, what was stopping her husband?

“She was terrified her husband would be able to find out where she was from the tow truck company,” said Ms. Kleinpeter, a consumer lawyer in Austin, who said a growing number of her clients had the devices installed in their cars.

Lenders and manufacturers emphasize that they have strict guidelines in place to protect drivers’ information. The GPS devices, they say, are predominantly intended to help lenders and car dealerships locate a car if they need to repossess it, not to put borrowers under surveillance.

Spireon says it can help lenders identify signs of trouble by analyzing data on a borrower’s behavior. Lenders using Spireon’s software can create “geo-fences” that alert them if borrowers are no longer traveling to their regular place of employment — a development that could affect a person’s ability to repay the loan.

A Spireon spokeswoman said the company takes privacy seriously and works to ensure that it complies with all state regulations.

Corinne Kirkendall, vice president for compliance and public relations for PassTime, which has sold 1.5 million devices worldwide, says the company also calls lenders “if we see an excessive use” of the tracking device.

Even though the device made her squeamish, Michelle Fahy of Jacksonville, Fla., agreed to have one installed in her 2001 Dodge Ram because she needed the pickup truck for her job delivering pizza.

Shortly after picking up her four children from school one afternoon in January, Ms. Fahy, 42, said she pulled into a gas station to fill up. But when she tried to restart the truck, she was not able to do so.

Then she looked at her cellphone and noticed a string of missed calls from her lender. She called back and asked, “Did you just shut down my truck?” and the response was “Yes, I did.”

To get her truck restarted, Ms. Fahy had to agree to pay the $255.99 she owed. As she pleaded for more time, her children grew confused and worried. “They were in panic mode,” she said. Finally, she said she would pay, and within minutes she was able to start her engine.

Borrowers are typically provided with codes that are supposed to restart the vehicle for 24 hours in case of an emergency. But some drivers say the codes fail. Others say they are given only one code a month, even though their cars are shut down more often.

Some drivers take matters into their own hands. Homemade videos on the Internet teach borrowers how to disable their devices, and Spireon has started selling lenders a fake GPS device called the Decoy, which is meant to trick borrowers into thinking they have removed the actual tracking system, which is installed along with the Decoy.

Oscar Fabela Jr., who said his 2007 Dodge Magnum was routinely shut down even when he was current on his $362 monthly car payment, discovered a way to circumvent the system.

That trick came in handy when he returned from seeing a movie with a date, only to find his car would not start and the payment reminder was screaming like a burglar alarm.

“It sounded like I was breaking into my own car,” said Mr. Fabela, 26, who works at a phone company in San Antonio.

While his date turned the ignition switch, Mr. Fabela used a screwdriver to rig the starter, allowing him to bypass the starter interruption device.

Mr. Fabela’s car eventually started, but it was their only date.

“It didn’t end well,” he said.

Government Scrutiny

"I felt like even though I made my payments and was never late under my contract, these people could do whatever they wanted," said T. Candice Smith, who testified before the Nevada Legislature that her car, which had a starter interrupt device installed, was shut down while she was driving on a Las Vegas freeway, nearly causing her to crash.

“I felt like even though I made my payments and was never late under my contract, these people could do whatever they wanted,” said T. Candice Smith, who testified before the Nevada Legislature that her car, which had a starter interrupt device installed, was shut down while she was driving on a Las Vegas freeway, nearly causing her to crash.Credit John Gurzinski for The New York Times

Across the country, state and federal authorities are grappling with how to regulate the new technology.

Consumer lawyers, including dozens whose clients’ cars have been shut down, argue that the devices amount to “electronic repossession” and their use should be governed by state laws, which outline how much time borrowers have before their cars can be seized.

State laws governing repossession typically prevent lenders from seizing cars until the borrowers are in default, which often means that they have not made their payments for at least 30 days.

The devices, lawyers for borrowers argue, violate those laws because they may effectively repossess the car only days after a missed payment. Payment records show that Ms. Bolender, the Las Vegas mother with the sick daughter, was not in default in any of the four instances her ignition was disabled this year.

PassTime and the other manufacturers say they ensure that their devices comply with state laws. C.A.G. declined to comment on Ms. Bolender’s experiences.

State regulators are also examining whether a defective device could endanger the borrowers or other drivers on the road, according to people with knowledge of the matter who spoke on the condition of anonymity.

Last year, Nevada’s Legislature heard testimony from T. Candice Smith, 31, who said she thought she was going to die when her car suddenly shut down, sending her careening across a three-lane Las Vegas highway.

“It was horrifying,” she recalled.

Ms. Smith said that her lender, C.A.G. Acceptance, had remotely activated her ignition interruption device.

“It’s a safety hazard for the driver and for all others on the road,” said her lawyer, Sophia A. Medina, with the Legal Aid Center of Southern Nevada.

Mr. Pena of C.A.G. Acceptance said, “It is impossible to cause a vehicle to shut off while it is operating,” He added, “We take extra precautions to try and work with and be professional with our customers.” While PassTime, the device’s maker, declined to comment on Ms. Smith’s case, the company emphasized that its products were designed to prevent a car from starting, not to shut it down while it was in operation.

“PassTime has no recognition of our devices shutting off a customer while driving,” Ms. Kirkendall of PassTime said.

In her testimony, Ms. Smith, who reached a confidential settlement with C.A.G., said the device made her feel helpless.

“I felt like even though I made my payments and was never late under my contract, these people could do whatever they wanted,” she testified, “and there was nothing I could do to stop them.”

A version of this article appears in print on 09/25/2014, on page A1 of the NewYork edition with the headline: Miss a Payment? Good Luck Moving That Car.

“However, the Court will briefly discuss the FDIC’s claim that the “Great Recession” was not only foreseeable, but was actually foreseen by the defendants. The Court discusses this claim only due to the absurdity of the FDIC’s position…In sum, the FDIC claims that defendants (former Officers and Directors of Cooperative Bank) were not only more prescient than the nation’s most trusted bank regulators and economists, but that they disregarded their own foresight of the coming crisis in favor of making risky loans. Such an assertion is wholly implausible…

…The surrounding facts, and public statements of economists and leaders such as Henry Paulson and Ben Bernanke belie FDIC’s position here. It appears that the only factor between defendants being sued for millions of dollars and receiving millions of dollars in assistance from the government is that Cooperative was not considered to be “too big to fail.” Taking the position that a big bank’s directors and officers should be forgiven for failure due to its size and an unpredictable economic catastrophe while aggressively pursuing monetary compensation from a small bank’s directors and officers is unfortunate if not outright unjust…The Court finds that defendants are entitled to the business judgment rule’s protection as a matter of law and indisputable fact. Therefore the Court enters judgment against plaintiffs claims for negligence and breach of fiduciary duty.”, United States District Judge Terrence W. Boyle, September 10, 2014 Order Granting Defendants’ Motion for Summary Judgment in FDIC, as receiver for Cooperative Bank v. Frederick Willetts III, et.al.

“Unlike my home state of California, I am heartened to see that The Rule of Law and Business Judgment Rule (for both directors AND officers) still exists in other regions of our Country. California’s Federal Courts allowed the FDIC to sue me civilly for simple negligence, and seek $600 million in alleged damages against me personally. The FDIC sued me as an officer only, because in California, the lower federal courts ruled that ONLY directors were protected by the BJR and the 9th Circuit Court of Appeals refused to hear my appeal of this matter, until after a costly and lengthy trial was completed. I was not a negligent banker, but I was inappropriately denied my right to protection under the BJR, as I would have had in every other state in America.”, Mike Perry, former Chairman and CEO, IndyMac Bank

“Nevertheless, the FDIC insisted on pursuing an equally baseless simple negligence claim, alleging that Mr. Perry should have had a crystal ball, seen the financial crisis coming and stopped making loans sooner than IndyMac did.” D. Jean Veta, Covington & Burling (M. Perry’s FDIC Settlement Statement #35 and M. Perry’s Resolution of All Government Matters Statement #39)

Key Excerpts from United States Eastern District of North Carolina, Southern Division, Judge Terrence W. Boyle’s September 10, 2014 Order Granting Defendants’ Motion for Summary Judgment in FDIC, as Receiver for Cooperative Bank v. Frederick Willetts, III, et.al.:

“Cooperative Bank…was a commercial banking institution charted under North Carolina law with deposits insured by the Federal Deposit Insurance Corporation. In June 2009, the North Carolina Commissioner of Banks declared Cooperative insolvent and named the FDIC as Receiver of the Bank….the FDIC succeeded to all rights, titles, powers, and privileges of Cooperative and Cooperative’s shareholders with respect to Cooperative, including, but not limited to, Cooperative’s claims against Cooperative’s former directors and officers for negligence, gross negligence, and breaches of fiduciary duty or other legal duties.”

“The FDIC filed this suit against former officers and directors of Cooperative for negligence, gross negligence, and breaches of fiduciary duty in connection with their approval of 86 loans made between January 5, 2007 and April 10, 2008. In approving the Subject Loans, the complaint alleges and the FDIC submits that the proof at trial will show that defendants deviated from prudent lending practices established by Cooperative’s loan policy, published regulatory guidelines, and generally established banking practices, such as obtaining and verifying current financial information, adhering to minimum loan-to-value (“LTV”) ratios and adhering to maximum debt-to-income (“DTI”) ratios.”

“As the Court held in ruling on the motion to dismiss in this case:The business judgment rule serves to prevent courts from unreasonably reviewing or interfering with decision made by duly elected and authorized representatives of a corporation. Robinson on North Carolina Corporations, § 14.06. “Absent proof of bad faith, conflict of interest, or disloyalty, the business decisions of officers and directors will not be second-guessed if they are ‘the product of a rational process,’ and the officers and directors have ‘availed themselves of all material and reasonably available information’ and honestly believed they were acting in the best interest of the corporation.”

“Now, however, the facts have been fully developed and the Court finds that the business judgment rule applies and shields defendants from liability on the ordinary negligence and breach of fiduciary duties claims. Under the business judgment rule, there can be no liability for officers and directors even when “a judge or jury considering the matter after the fact, believes a decision substantively wrong or degrees of wrong extending though ‘stupid,’ to ‘egregious’ or ‘irrational,’ … so long as the court determines that the process employed was either rational or employed in a good faith effort to advance the corporate interests.”

“The business judgment rule involves two presumptions. First, it establishes “‘an initial evidentiary presumption that in making a decision the directors [and officers] acted with due care (i.e., on an informed basis) and in good faith in the honest belief that their action was in the best interest of the corporation. Second, the business judgment rule establishes, absent rebuttal of the first presumption, a “powerful substantive presumption that a decision by a loyal and informed board will not be overturned by a court unless it cannot be attributed to any rational business purpose. Here plaintiff cannot rebut either presumption on the evidence before the Court.”

“The substantial discovery produced in this case, which includes voluminous records, 15 depositions of party, third party, and expert witnesses including Cooperative’s regulators at the FDIC, fails to reveal any evidence that suggests any defendant engaged in self-dealing or fraud, or that any defendant was engaged in any other unconscionable conduct that might constitute bad faith. Although the decisions of defendants to engage in various forms of lending and to make the particular loans challenged in the complaint, and the wisdom of such decisions raise interesting discussion points in hindsight, the business judgment rule precludes this Court from delving into whether or not the decisions were “good” and limits the Court’s involvement to a determination of whether the decisions were made in “good faith” or were founded on a “rational business purpose.” Considering the absence of any indication of bad faith, conflict of interest, or disloyalty, the Court now considers whether defendants employed a rational process in making the challenged loans.”

“Therefore the facts show that the process that defendants used to make the challenged loans were expressly reviewed, addressed, and graded by FDIC regulators in the 2006 ROE. The regulators assigned defendants a passing grade of “2” in the CAMELS system and to now argue that the process behind the loans is irrational is absurd. Further, each of the loans at issue was subject to substantial due diligence and an approval process that defies a finding of irrationality.”

“The Court therefore finds, as a matter of law, that defendants’ processes and practices for the challenged loans were rational and that plaintiff has failed to rebut the first presumption of the business judgment rule.”

“Therefore the Court moves to considering whether the challenged actions of the defendants can be attributed to a rational business purpose. The Court concludes they can be, as a matter of law. The burden of defeating the business judgment rule when the first presumption survives is extraordinarily high especially in conditions, as here, of a tumultuous market.”

“Cooperative’s pursuit of the challenged loans was in furtherance of Cooperative’s goal to grow to a $1 billion institution and stay competitive with other regional and national banks making substantial inroads into its territory. The record can simply not support a finding that the defendants’ business purpose fell so far beyond lucid behavior that it could not even be considered “rational.” Although there were clearly risks involved in Cooperative’s approach, the mere existence of risks cannot be said, in hindsight, to constitute irrationality. Further, corporations are expected to take risks and their directors and officers are entitled to protection from the business judgment rule when those risks turn out poorly. Where, as here, defendants do not display a conscious indifference to risks and where there is no evidence to suggest that they did not have an honest belief that their decisions were made in the company’s best interests, then the business judgment rule applies even if those judgments ultimately turned out to be poor.”

“The Court finds that defendants are entitled to the business judgment rule’s protection as a matter of law and indisputable fact. Therefore the Court enters judgment against plaintiffs claims for negligence and breach of fiduciary duty.”

“The FDIC has presented no evidence that any of the defendants approved the challenged loans and made policy decisions knowing that these actions would harm Cooperative and breach their duties to the bank. The FDIC cannot show that any of the defendants engaged in wanton conduct or consciously disregarded Cooperative’s well-being. As the FDIC can point to no evidence supporting such a finding, defendants are entitled to summary judgment on the gross negligence claim.”

“However, the Court will briefly discuss the FDIC’s claim that the “Great Recession” was not only foreseeable, but was actually foreseen by the defendants. The Court discusses this claim only due to the absurdity of the FDIC’s position.”

“The FDIC relies on several pieces of evidence to support its claim that defendants foresaw the downturn in the economy as early as October 2006. However, it ignores the unique historical factors happening at the same time including numerous economists and economic forecasters’ prognosis of a strong economy going forward at that time….Even as late as April 2007, the United States Treasury Secretary was pushing the idea that the economy was strong and healthy and that the housing market had reached its bottom….Further, throughout 2007 and into 2008, North Carolina and national economists continued to publish upbeat economic forecasts.”

“After the fact, Federal Reserve Chairman Ben Bernanke observed that “a ‘perfect storm’ had occurred that regulators could not have anticipated,” and former Chairman Alan Greenspan confessed that “it was beyond the ability of the regulators to ever foresee such a sharp decline.” Financial Crisis Inquiry Commission, Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States, January 2011. Further the Federal Crisis Inquiry Commission has concluded that “[c]laims that there was a general failure of risk management in financial institutions or excessive leverage or risk-taking are part of what might be called a ‘hindsight narrative.”‘(concluding this narrative to be false). In sum, the FDIC claims that defendants were not only more prescient than the nation’s most trusted bank regulators and economists, but that they disregarded their own foresight of the coming crisis in favor of making risky loans. Such an assertion is wholly implausible. The surrounding facts, and public statements of economists and leaders such as Henry Paulson and Ben Bernanke belie FDIC’s position here. It appears that the only factor between defendants being sued for millions of dollars and receiving millions of dollars in assistance from the government is that Cooperative was not considered to be “too big to fail.” Taking the position that a big bank’s directors and officers should be forgiven for failure due to its size and an unpredictable economic catastrophe while aggressively pursuing monetary compensation from a small bank’s directors and officers is unfortunate if not outright unjust.”

“CONCLUSION: For the forgoing reasons, defendants’ motion for summary judgment is GRANTED, plaintiffs motion for partial summary judgment is DENIED AS MOOT, the various motions to seal are GRANTED, Defendants’ motion to exclude is GRANTED, and plaintiffs motion to strike is DENIED AS MOOT. The clerk is directed to enter judgment accordingly and to close the file. SO ORDERED.

This the 10th day of September, 2014.

TERRENCE W. BOYLE

UNITED STATES DISTRICT JUDGE”

(Order Granting Summary Judgment: FDIC, as Receiver for Cooperative Bank v. Frederick Willetts, et. al.)

FDICvWilletts-SummaryJudgmentDecision

“Hefty overdraft fees are often imposed for transactions that are quite small, the Consumer Financial Protection Bureau found in a July study…

…For debit card transactions, for example, the typical overdrawn amount is around $24 and paid back to the bank in less than a month, yet overdraft fees for such transactions are about $30, that study found. In short, many banks can turn a tidy profit on customers who have trouble making ends meet.”, Anna Bernasek, “In Checking Accounts, the Less You Have, the More You May Pay”, New York Times

“I haven’t done the math, but “eyeballing it”, I believe that there is not much economic difference, to a consumer, between a payday loan and paying overdraft fees on a checking account. Yet one is despised and the other is a mainstay product of Too Big to Fail Banks.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Your Money | Datapoints

In Checking Accounts, the Less You Have, the More You May Pay

By ANNA BERNASEK

Inside

Financial complexity doesn’t happen only on Wall Street. Even a basic checking account is often no longer simple, because account rules and fees can vary widely — so widely, in fact, that the annual cost can range from zero to more than $700, according to the 2014 survey of checking account costs by WalletHub, a consumer finance information and social networking site.

The general rule is that the less money you hold in a bank, the more you pay the bank in fees. The biggest fees fall on consumers who overdraw their accounts, a common practice among less-well-off customers, whom WalletHub calls “cash strapped.” People in this category typically don’t have credit lines or savings accounts to cover them when their balances drop below zero, and their fees add up.

To assess the amounts paid by these customers, WalletHub examined the annual fees on a checking account for someone who overdraws 12 times a year, uses an out-of-network A.T.M. once a month and averages an end-of-month balance of $50. The range of costs was enormous: as low as $2.83 at Capital One and as high as $735 at M&T Bank. (Capital One’s costs were low largely because it charges an 11.25 percent annual percentage rate on the amount a customer actually overcharges, instead of charging a fixed dollar amount in overdraft fees, which is typical in the industry. In addition, Capital One doesn’t assess out-of-network A.T.M. fees.) Over all, the average annual cost of a checking account for consumers in this category was $499.02.

People with more money tend to pay lower fees. In fact, WalletHub found, the average annual cost for customers whose monthly balance never drops below $5,000 and who use only their own bank’s A.T.M. machines was just $17.85.

That’s why customers who are short on cash can be valuable for banks. Hefty overdraft fees are often imposed for transactions that are quite small, the Consumer Financial Protection Bureau found in a July study. For debit card transactions, for example, the typical overdrawn amount is around $24 and paid back to the bank in less than a month, yet overdraft fees for such transactions are about $30, that study found. In short, many banks can turn a tidy profit on customers who have trouble making ends meet.

A version of this article appears in print on September 21, 2014, on page BU7 of the New York edition with the headline: The Less You Have, the More You Pay

“Officials at the White House and the Federal Reserve point to tight credit as they flag worries about a soft housing recovery. Fed Chairwoman Janet Yellen last week labeled mortgage-market conditions “abnormally tight.”…

…The same day, the White House met with bank executives to discuss how they might safely ease standards that corrected sharply after the 2008 bust…….Right now, borrowers who can flash good credit, stable incomes and enough cash to make a 3.5% or 5% down payment can qualify for a loan. “If you have that, you’re going to get a mortgage,” said Alex Stenback, a mortgage banker at Alerus Mortgage in Minnetonka, Minn. “If that’s too tight, where do you loosen?””, Nick Timiraos “Should Mortgage Lending Standards Ease?”, Wall Street Journal

“With my tongue in my cheek once again, as I have said on this blog before: ‘Only wise government politicians and officials know when consumer and mortgage credit are Just Right!!!’ If this article is not clear evidence that the government directs housing and mortgage lending standards/policies to stimulate U.S. economic activity (and did so pre-crisis too), I don’t know what is?”, Mike Perry, Former Chairman and CEO, IndyMac Bank

ECONOMY

Should Mortgage Lending Standards Ease?

Policy Makers Face Tough Question: Is Drag on Housing Due Mainly to Tight Standards or Weak Demand?

By

NICK TIMIRAOS

Sept. 21, 2014 2:03 p.m. ET

Due partly to much tighter standards among mortgage lenders, new-home building is on a slow rise. WSJ’s Nick Timiraos discusses on the News Hub with Simon Constable. Photo:

Easy lending standards have helped set postrecession records for new-car sales. New-home building is barely rising, due in part to much tighter standards among mortgage lenders.

This disparity underscores the divergent paths the two sectors have taken in the years since the financial crisis.

So is it time to loosen up on mortgage lending? The answer is not that simple.

Officials at the White House and the Federal Reserve point to tight credit as they flag worries about a soft housing recovery. Fed Chairwoman Janet Yellen last week labeled mortgage-market conditions “abnormally tight.” The same day, the White House met with bank executives to discuss how they might safely ease standards that corrected sharply after the 2008 bust.

Easy credit fueled the home-price bubble of the past decade, which spurred overbuilding of homes and boosted consumer spending on everything from cars to college educations. Mortgage investors suffered huge losses after prices collapsed, and private lending markets have struggled to revive. Banks now are sharply limiting their mortgage offerings.

cat

Subprime auto lending, by comparison, contracted sharply during the recession but has roared back—at a pace nearly four times that of prime lending over the past four years.

Auto lending has rebounded in part because investors didn’t take the drubbing that mortgage investors did. Loans are smaller, cars can be repossessed faster than homes when borrowers default, and the collateral is easier to value. Car sales have also been fueled by an aging fleet that has resulted in pent-up demand.

So while car factories may be humming, the housing market’s uneven recovery means the economy isn’t growing at the clip experts hoped it would this year. New apartments are popping up at the fastest pace since 1989 as more young households rent, but single-family home building tends to have bigger knock-on effects for consumer spending and job creation.

That’s why fixing thorny issues in mortgage markets has taken on such urgency. White House officials believe improving access to credit is key to reviving not only housing but the broader economy.

The hard question for policy makers: Is the drag on housing due mainly to lenders’ conservative postures? Or is the real culprit weak demand because entry-level households have soft incomes, more student debt and little savings for a down payment?

“Credit is tight. That said, incomes for a lot of the country are not up,” said Austan Goolsbee, a former chief economic adviser to President Barack Obama.

Right now, borrowers who can flash good credit, stable incomes and enough cash to make a 3.5% or 5% down payment can qualify for a loan. “If you have that, you’re going to get a mortgage,” said Alex Stenback, a mortgage banker at Alerus Mortgage in Minnetonka, Minn. “If that’s too tight, where do you loosen?”

That is a top area of focus for policy makers and lenders. To guard against the risk that they will face unexpected costs if loans default, many banks have adopted standards that go beyond the basic requirements of loan giantsFannie Mae or Freddie Mac and federal loan-insurance agencies. Officials are looking at how to provide more clarity to lenders so they ease up.

Other aspects of the tight-credit problem will be harder to fix. Banks face higher costs associated with handling defaulted loans, and as a result, some are choosing to simply make loans to only the best borrowers.

Facing new regulations, lenders who once served riskier borrowers remain reluctant to make loans to all but the wealthiest customers. Some of these lenders served borrowers with credit blemishes. Others served those with incomes that are harder to document. The recession has created more of both classes.

“The people that are not middle-of-the-fairway borrowers are pretty much shut out today,” said Sean Dobson, chief executive of Amherst Holdings in Austin, Texas. Amherst owns a firm that has bought and rents out 5,000 single-family homes across the country.

Many borrowers haven’t recovered fully from the recession. “You need both liquid capital markets and a healthy, financeable borrower base, and we really don’t have either,” said Mr. Dobson. Mr. Stenback says the problem isn’t overly tight credit but rather the lack of income growth.

To be sure, any inflexible lending rules only exacerbate the weak-income problem. New data last week show incomes aren’t rising much. They were virtually unchanged from 2012 and 8% below their 2007 levels after adjusting for inflation.

The magnitude of the subprime-auto-lending expansion now is much smaller than it was for mortgages leading up to the housing crash. “But something has to give. Income growth needs to improve, or lenders will eventually shut off the credit spigot,” Amir Sufi, an economist at the University of Chicago, said before a Senate panel last week. Ultimately, he said, relying on easier credit won’t sustainably generate economic growth.

Easier credit may sound like a recipe for an automatic rerun of the housing crisis. It doesn’t have to be. But lenders and policy makers will have to walk a fine line.

Write to Nick Timiraos at nick.timiraos@wsj.com

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“I am going to give equal opportunity here. Below is a New York Times article from one the top experts concerned about climate change: Robert N. Stavins is a professor and the director of the environmental economics program at the Harvard Kennedy School…

…and a lead author of three reports by the Intergovernmental Panel on Climate Change.

He says that global temperatures have risen by 0.8 degrees Celsius since 1880 (to be fair he says 2/3rds of this rise is since 1975).

Okay, let’s say that’s right (probably right since 1975 but how in the heck do we know what global temps where in 1880? Doesn’t using 1880 temps call into question the science? It does to me.)

By the way, I was at a dinner this summer where a true-believing husband and wife said, “It’s absolutely true, you should have seen the fires when we were in Wyoming visiting our son.” The press make this same argument every day and yet the article below from their own expert essentially debunks these observations: “Making matters more difficult, climate change is essentially unobservable by the public. On a daily basis, we observe the weather, not the climate. This makes it less likely that public opinion will force action the way it did 50 years ago when black smoke rose from industrial smokestacks, and chemicals and raw sewage were dumped untreated into rivers, famously causing one to catch fire.”

Read the article below, even if you believe it is true (and I am not saying it’s not going to happen, just that is hasn’t been proven….the science is not settled)…..any objective reader of this article would have to conclude that reducing CO2 emissions materially worldwide is not a realistic goal. We can’t even agree on and get far more immediate and serious issues in our own country resolved. We can’t even fix the Middle East countries we invaded.

The reason that there are a lot of climate change rallies and articles right now is that the UN’s climate summit is this week. Another in the WSJ today points out that the Copenhagen summit six years ago (to get the world/major emitters to agree on strict restrictions) has been a failure. It notes that #1 China, #3 India, and #4 Russia are all not attending the U.N. event!!! And that #5 Japan is uncooperative, after Fukushima. The article also notes that CO2 emissions increased to 35.1 billion metric tons in 2013, a new record and a 29% increase over a decade ago. Further it notes, if the EPA implements its mandatory targets (which will be very costly to the U.S…..the article below from the expert, clearly lays out the economic cost….huge and it might be double huge he says unless new technologies that have yet to be invented are invented!!!)…..EPA’s own estimate shows we would reduce worldwide carbon emissions by a mere 0.18%.

By the way, the WSJ article reminds us that global warming has not occurred for the last 16, 19, and 26 years (based on three different measure of global warming), while CO2 emissions have climbed 25% in the last decade….the pro global warmers don’t deny this, but they say it’s because the oceans have absorbed this heat (but lack the evidence to prove that).

Just some thoughts. mp

SundayReview | OPINION

Climate Realities

By ROBERT N. STAVINSSEPT. 20, 2014

CAMBRIDGE, Mass. — ON Tuesday, world leaders will converge at United Nations headquarters in New York for a summit meeting on the climate that will set the stage for global negotiations next year to reduce greenhouse gas emissions and the threat of global climate change. The summit is titled “Catalyzing Action,” a decidedly hopeful characterization.

I wish I were so hopeful.

It is true that, in theory, we can avoid the worst consequences of climate change with an intensive global effort over the next several decades. But given real-world economic and, in particular, political realities, that seems unlikely.

There are emerging hints of a positive path ahead, but first let’s look at the sobering reality.

The world is now on track to more than double current greenhouse gas concentrations in the atmosphere by the end of the century. This would push up average global temperatures by three to eight degrees Celsius and could mean the disappearance of glaciers, droughts in the mid-to-low latitudes, decreased crop productivity, increased sea levels and flooding, vanishing islands and coastal wetlands, greater storm frequency and intensity, the risk of species extinction and a significant spread of infectious disease.

The United Nations has set a goal of keeping global temperatures from rising by no more than two degrees Celsius above preindustrial levels. (The average global temperature has increased by about 0.8 degrees Celsius since 1880, with two-thirds of the warming occurring since 1975.) Meeting this goal would require a worldwide reduction in greenhouse gas emissions of 40 to 70 percent by midcentury, according to the Intergovernmental Panel on Climate Change. That’s an immense challenge.

The reality is that 300 years of economic growth in the industrialized countries have been fueled by the combustion of fossil fuels — coal, petroleum and natural gas. We still depend on these. And the large emerging economies of China, India, Brazil, South Korea, Mexico and South Africa are rapidly putting in place new infrastructure that is also dependent on burning fossil fuels.

Two points are important to understand if we’re going to be serious about attacking this problem.

One, it will be costly. An economic assessment might be “difficult, but not impossible.” And two, things become more challenging when we move from the economics to the politics.

Doing what is necessary to achieve the United Nations’ target for reducing emissions would reduce economic growth by about 0.06 percent annually from now through 2100, according to the I.P.C.C. That sounds trivial, but by the end of the century it means a 5 percent loss of worldwide economic activity per year.

And this cost projection assumes optimal conditions — the immediate implementation of a common global price or tax on carbon dioxide emissions, a significant expansion of nuclear power and the advent and wide use of new, low-cost technologies to control emissions and provide cleaner sources of energy.

If the new technologies we hope will be available aren’t, like one that would enable the capture and storage of carbon emissions from power plants, the cost estimates more than double.

Then there are the politics, which are driven by two fundamental facts.

First, greenhouse gases mix globally in the atmosphere, and so damages are spread around the world, regardless of where the gases were emitted. Thus, any country taking action incurs the costs, but the benefits are distributed globally. This presents a classic free-rider problem: It is in the economic self-interest of virtually no country to take unilateral action, and each can reap the benefits of any countries that do act. This is why international cooperation is essential.

Second, some of these heat-trapping gases — in particular, carbon dioxide — remain in the atmosphere for centuries, so even if we were to rapidly reduce emissions, the problem would not be solved immediately. Even the most aggressive efforts will take time to ramp up.

These realities — the global nature and persistence of the problem — present fundamental geopolitical challenges.

Reducing greenhouse gas pollution will require the unalloyed cooperation of at least the 15 countries and one region (the European Union) that together account for about 80 percent of global carbon dioxide emissions. This will mean resolving deep divisions between industrialized nations and developing countries, which argue they should be able to build their economies, just as the West did, without having to reduce or slow the growth of their emissions. This dispute has prevented progress internationally.

In the United States, the issue is mired in partisan politics, and the outlook is not promising for an effective national climate policy that would encourage carbon-friendly innovation and cost-effective emission reductions by putting a price on carbon emissions — either by taxing them or using a national cap-and-trade system that would make it more expensive to pollute. Rather than rewarding today’s voters with benefits financed by future generations, as Congress typically does, solving the climate problem will require costly actions now to protect those who will follow us.

Making matters more difficult, climate change is essentially unobservable by the public. On a daily basis, we observe the weather, not the climate. This makes it less likely that public opinion will force action the way it did 50 years ago when black smoke rose from industrial smokestacks, and chemicals and raw sewage were dumped untreated into rivers, famously causing one to catch fire.

Similarly, in China, which leads the world in carbon emissions at 29 percent of the total, the prospect in the near term for a meaningful climate policy appears dim, because of the country’s predominant focus on economic growth.

China may achieve its goal of reducing the carbon intensity of its economy (the ratio of carbon dioxide emissions per unit of output) by 45 percent below its 2005 level by 2020. But the country is growing so fast that its coal consumption and greenhouse gas emissions are expected to continue to increase. China is expected to add the equivalent of a new 500-megawatt coal-fired electric plant every 10 days for the next decade, according to projections by the United States government.

The dispute between the developing and developed world over carbon-emissions reductions has its roots in a series of international agreements in the 1990s, when the industrialized nations alone, but not the large emerging economies, agreed to reduce their greenhouse gas emissions. As a result, since 1990, emissions have been flat or declining in the industrialized world, while increasing rapidly in the large, emerging economies, particularly China.

In the face of current United Nations efforts to develop a promising new approach that would require emissions reductions by all nations, most countries in the developing world continue to insist that these reductions should be made only by industrialized countries.

Despite these obstacles, a developing convergence of interests of the two key emitting countries — China and the United States — offers hope for progress.

While America’s annual emissions in 1990 were almost twice the level of Chinese emissions, by 2006 China had overtaken the United States. And China will surpass the United States as the top cumulative global emitter of carbon dioxide over the coming decades.

The Chinese government is deeply concerned about worsening local air pollution, which contributed to an estimated 1.2 million premature deaths in 2010. Most actions to improve local air quality will also curb carbon dioxide emissions.

Both countries are moving forward with regional, market-based programs to reduce emissions. China expects to link its local and regional cap-and-trade programs together in a nationwide system. In the United States, the failure in 2009 of a meaningful carbon-pricing policy in Congress led the Obama administration to turn to regulatory action, including its June announcement of carbon dioxide regulations for existing power plants, which are likely to be met in many states through cap-and-trade systems. The linkage of such systems both within countries and across international borders holds promise as an environmentally effective and cost-effective approach to reducing emissions in coming years.

If the 20th century was the American Century, then leaders in China anticipate (or at least hope) that the 21st century will be the Chinese Century, one of global leadership, not obstruction.

Of course, the political climate in the United States presents its own challenges. It will require immense effort — and profound good fortune — to find political openings that can resolve the debilitating partisan divide on climate change. But if destructive politics have been at the heart of the problem, the best hope may be that creative politics and leadership can help provide a solution.

Robert N. Stavins is a professor and the director of the environmental economics program at the Harvard Kennedy School and a lead author of three reports by the Intergovernmental Panel on Climate Change.
A version of this op-ed appears in print on September 21, 2014, on page SR6 of the New York edition with the headline: Climate Realities

“Congress should eliminate federal corporate income taxes, which in 2012 contributed only 9% of federal tax revenues. After all, corporations pay no taxes; their customers pay them in higher costs for products and services.”, Jon Titus, Herriman, Utah

“I could not agree more. It makes no economic sense.  And designation of “for-profit” and “not-for-profit” is really farcical, when you have executives like the NFL (a not-for-profit) Commissioner making $44 million a year and not-for-profit college executives and coaches making millions a year.  Taxing the individual only and not the artificial entities legal structure is absolutely the way to go. And It doesn’t affect anyone’s views about taxing the rich more or less either. And it’s much simpler to administer (reduced legal and accounting fees). The only complexity is that all income at the entity level must be passed through to the individual owners/shareholders, without regard to whether or not it was paid by the entity in cash (a dividend). In other words, treat for tax purposes all corporations as S-corps (no retained earnings allowed for tax purposes). An ancillary benefit might be that it helps eliminate the bias (these days in some circles) that working for a for-profit entity is less noble than working for a not-for-profit or the government.”, Mike Perry, former Chairman and CEO, IndyMac Bank

LETTERS

We Should End the Corporate Income Tax

Congress should eliminate corporate income taxes.

Sept. 17, 2014 3:42 p.m. ET

Anti-inversion legislation will go nowhere because it makes no sense (“Lew Urges Congress to Curb Inversions,” Marketplace, Sept. 9). To avoid these moves, Congress should eliminate federal corporate income taxes, which in 2012 contributed only 9% of federal tax revenues. After all, corporations pay no taxes; their customers pay them in higher costs for products and services.

Eliminating federal corporate income taxes would cause many overseas companies to move to the U.S., which would greatly improve our economy with more jobs, more income, lower corporate operating expenses and lower costs for consumers. I suspect company valuations would increase as would dividends, both of which would improve the financial health of retirement accounts and 401(k) plans.

Jon Titus

Herriman, Utah

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“There are now 10,000 lawyers in the Department of Defense. The legal staff assigned to Gen. Dempsey alone could fill a law firm. No one goes to war in this country until those DoD lawyers – plus lawyers at the Justice Department and White House – define in detail the parameters of battle…

…The U.S. military has become a giant Gulliver wrapped in a Lilliput of lawyers…. The hyper-legalization of war since Vietnam has been mainly about diminishing the U.S.’s ability to act, that is to say, its superpower status. That movement will soon remobilize to tie down the effort to defeat ISIS.”, Daniel Henninger, “G.I. Joe In Lilliput”, Wall Street Journal

“However, from the standpoint of the U.S. combat soldier, Ranger, SEAL, Green Beret, or whatever, these ROE (Rules of Engagement) represent a very serious conundrum. We understand we must obey them because they happen to come under the laws of the country we are sworn to serve. But they represent a danger to us; they undermine our confidence on the battlefield in the fight against world terror. Worse yet, they make us concerned, disheartened, and sometimes hesitant. I can say from firsthand experience that those rules of engagement cost the lives of three of the finest U.S. Navy SEALs who have ever served. I’m not saying that, given the serious situation, those elite American warriors might not have died a little later, but they would not have died right then, and in my view would almost certainly have been alive today.”, Marcus Luttrell, excerpt from “Lone Survivor” (Marcus Luttrell is a former United States Navy Seal, who received the Navy Cross for his actions in June 2005 facing Taliban fighters during Operation Redwing. He is the co-author of New York Times bestseller “Lone Survivor: The Eyewitness Account of Operation Redwing and The Lost Heroes of Seal Team 10”.)

WONDER LAND

G.I. Joe in Lilliput

The U.S. military is a giant Gulliver tied down by Washington lawyers.

By

DANIEL HENNINGER

Sept. 17, 2014 7:28 p.m. ET

A sense of déjà vu all over again descends as Congress debates President Obama’s commitment to fight the Islamic State terrorists in Iraq, or ISIS. If the United States ever loses its status as global superpower, historians in search of the triggering event can start with the Vietnam War.

After Vietnam, the belief took hold in some quarters—Democrats, midtown New York media, northeastern law schools—that the military and presidency could no longer be trusted with the war-making powers. Notwithstanding that “commander in chief” is embedded in the Constitution, Washington for some 40 nonstop years has defaulted repeatedly to the same, wrong solution: Send in the lawyers. The law is about many things, some of them good. Taking action isn’t one of them.

Listen to the ISIS debate closely, and what you’ll notice is not the sound of U.S. soldiers planning how to defeat the people who killed James Foley, Steven Sotloff and thousands of others but the language of lawyers.

On Tuesday, two newsmaking statements emerged about the U.S.’s mindset in the war—or whatever it is—to defeat the Islamic State terrorists.

Gen. Martin Dempsey, the Joint Chiefs Chairman testifying to Congress, said that “if we reach the point where I believe our advisers should accompany Iraqi troops on attacks against specific ISIL targets, I will recommend that to the president.” The White House pushed back, calling Gen. Dempsey’s remark a “hypothetical.”

The first statement was the voice of a soldier. The second was the sound of lawyers.

Both the White House’s proposal to arm and train the Syrian opposition and Republican House Armed Service Chairman Buck McKeon’s amendment to the authorization bill say Syrian groups and even individuals will be “appropriately vetted.” That is lawyers waving their world of words onto the chaos of the battlefield. How are people swarming the Syrian war zone going to be “appropriately vetted?” Will FBI agents interview friends and business associates?

The complex elements of modern American warfare include not only sophisticated ground-based troops but air power, unmanned drones, electronic surveillance, and the capture and interrogation of enemy combatants. Every one of those elements of U.S. military power has become a litigation battleground.

Whenever these national-security controversies erupt in the news—the CIA’s interrogation techniques, terrorist targeting in the drone wars, the National Security Agency’s metadata sweeps—they look like free-standing political fights. It’s more like a mudslide.

Some get settled with new congressional legislation. On Sept. 2—the day news emerged of Steven Sotloff’s murder—Attorney General Eric Holder sent Democratic Sen. Patrick Leahy a letter supporting his bill to restrict the NSA’s ability to collect telephone data.

Sometimes the executive branch binds itself. Last year President Obama said anti-terrorist drone attacks had to establish a “near certainty” of not harming civilians, an impossible legal standard in war.

A major post-Vietnam phenomenon is courts rewriting the rules of war, such as the Supreme Court’s 2006 Hamdan decision on trials before military commissions and its 2008 Boumediene decision on the habeas corpus rights of captured terrorists.

However intellectually interesting these disputes over our rights and values, each adds another thicket of legal consideration before, or even during, military action. There are now 10,000 lawyers in the Department of Defense. The legal staff assigned to Gen. Dempsey alone could fill a law firm. No one goes to war in this country until those DoD lawyers—plus lawyers at the Justice Department and White House—define in detail the parameters of battle.

The U.S. military has become a giant Gulliver wrapped in a Lilliput of lawyers.

There is an intricate debate in legal blogs now over whether it is legally correct to call ISIS our “enemy.” As its authority for the recent airstrikes on ISIS, the Obama administration has cited Congress’s 2001 Authorization for Use of Military Force, or AUMF. Some lawyers say the language of the AUMF applies to original al Qaeda, and that because ISIS officially broke from al Qaeda, the government must seek new legal authority to wage war on ISIS. This dispute puts in play whether the administration must conform to the War Powers Resolution of 1973 and its 60-day limit on military action not approved by Congress.

Pentagon lawyers are also wrestling with another ISIS conundrum: What happens when, inevitably, U.S. forces capture some of these guys? Then what? No homicidal ISIS jihadist will be going to Guantanamo. President Obama stopped Gitmo admissions. Give them to the Iraqis? We didn’t do that during the Iraq war and won’t now. Maybe they’ll all end up in lower Manhattan. Until the lawyers rule, any U.S. soldier in Iraq or Syria has no incentive to capture and hold an ISIS terrorist.

The hyper-legalization of war since Vietnam has been mainly about diminishing the U.S.’s ability to act, that is to say, its superpower status. That movement will soon remobilize to tie down the effort to defeat ISIS. No serious member of Congress should be a party to this toxic legacy.

Write to henninger@wsj.com

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