Giant Corporations Use Legislative Exemptions That Damage Customers

     The horrific incident on a major airline on 4-9-17 where a passenger was evicted by being violently dragged off an airplane to make room for others even though he did nothing illegal are a reason to think about our legal system and how corporations have gotten special laws that exempt them from fair practices. The airline industry apparently has special laws that exempt them from contract rights thus enabling airlines to cavalierly break a contract with a customer at their whim.
For another industry example, the Broker-Dealer securities industry usually makes customers go through mandatory arbitration if they have a dispute. The arbitrators until recently were industry insiders, so it was a rigged game with petty settlements paid out to victims. Recently that industry has started to use outside arbitrators so hopefully that problem will be part of the past.
Another industry that has special exemptions are non-profit medical practices which can’t be sued because they are non-profit. The Post Office is an organization that can’t be sued. Claimants simply have to petition them for redress and hope the management decides to be fair.
But the biggest injustice tied to unfair legal exemptions was the 2008 housing bubble crash where the ratings agencies had legislative immunity from lawsuits so they were able to cavalierly offer dishonest ratings on dangerous subprime loans which were marketed to banks as AAA quality bonds secured by home loans. Eventually a waive of foreclosures resulted in millions of people getting evicted by armed force. Unlike the evicted airline passenger, these ex-homeowners had no place to go, no other house, maybe no job. They were dragged out of their homes.
It would have been less likely to happen if the ratings agencies realized there would be consequences, including getting sued for causing the great crash of 2008 that cost the government billions to bailout banks that had made a windfall making bad loans. In contrast to the unlucky homeowners, the banks that made the bad loans were not punished for causing the great crash. They had a fiduciary duty to review loans purchased to see if they were truly AAA quality. Instead they acted dumb on purpose and let the ratings agencies do their thinking for them, resulting in a wave of homeowner evictions.
This means that investors and people planning for retirement need to realize they can’t count on the government to save them from bad financial outcomes. In the case of real estate, a property owner should avoid buying an overpriced property during a bubble. In the case of a stock and bond portfolio an investor must be aware that the government is doing nothing to detected and stop stock market bubbles. Indeed, the government has aided and ignored these bubbles in 1997-2000, in 2003-07, and again after 2009. Investors need to study the fundamentals of valuation and the history of how bubbles can decide people. Investors need independent financial advice about the risks of being fooled by bubbles. Investors should be grateful for the sad news stories about corporate abuse of corporations’ special legislative exemptions because these news stories will make people become aware of the risks that big corporations may be willfully opposed to doing the right thing. Thus investors should realize that they need to be the alert for trouble and watch carefully that they don’t get mistreated by giant corporations that have exemptions.

2017-04-13T22:05:17-07:00 April 13th, 2017|mayflowercapital blog|Comments Off on Giant Corporations Use Legislative Exemptions That Damage Customers

About the Author:

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Donald Martin has a B.A. in Accounting and M.B.A. Finance, and has passed the rigorous CFP® exam and met the experience requirements needed to become a CERTIFIED FINANCIAL PLANNER™ professional. He has been employed in the financial services industries for 30 years and has been investing for his own account for 38 years. Donald Martin’s 19 year career in lending prepared him for fixed income analysis, Securities analysis, and macro-economic analysis used for investing. Donald Martin founded Mayflower Capital in 1993 to provide independent financial advice and implementation of advice about loans. In 2005 Donald Martin changed the company’s mission to providing independent financial advice about investments and financial planning and stopped providing loan services. Donald Martin has a B.A. in Accounting and M.B.A. Finance, and has passed the rigorous CFP® exam and met the experience requirements needed to become a CERTIFIED FINANCIAL PLANNER™ professional. He has been employed in the financial services industries for 30 years and has been investing for his own account for 38 years.