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While watching a show on TV called “the Human Experiment” I was reminded about the four dog defense that was created in the 1950’s as growing awareness about the significant damage to health and early deaths were being tied to Tobacco. Shortly afterwards the four dog defense was adopted by the Chemical Industry and by others dealing with “crisis management.” But it has been in use for the last 10 years as the primary playbook of Wall Street. The only thing I would add is that there might be a fifth dog — “OK we did it, but we are not paying anything and we reject any punishment or rescission of the illegal transactions.”
As many health and consumer advocates have found out by personal experience, the most pernicious part of this strategy is that it works — for decades, which is is what we are dealing with on the latest round of Wall Street malfeasance. You hear someone on TV saying that “the loan products were within industry guidelines and posed no significant threat to the consumers or the economy when they were approved.” And because we who live in the United States want to believe that if it’s on the shelf at the store or the bank, then it’s safe and has been tested for efficacy.
Thus the Tobacco industry, the chemical industry, and the financial industry have taken advantage of the misapprehension that their next purchase, their next financial transaction is safe and they used that wrong presumption as part of their marketing. They made it appear as thought they were in competition with each other to give you a 3% loan. If true, they were flat out pedal to the metal trying to lose money.
Nobody asked why they would spend hundreds of millions of dollars and create entities like DiTech and Quicken Loans that seemingly had more money than the Banks. Somebody somewhere, close to the levers of power, should have noticed. Either they didn’t or they ignored it — until the crash came. At that point it was most important that people cover their behinds and least important to actually fix the problem without dumping a $20 Trillion dollar invoice on people who had the misfortune of buying contaminated loan products.
THE FOUR DOG DEFENSE
Someone complains about a product (tobacco, chemicals, or loans). In the PR context, this is compared to someone complaining that the seller or manufacturer has a dog that bit them and hurt them.
1. My dog doesn’t bite. So Tobacco industries and chemical industries and banks all tell us that what they are selling is harmless and attack the contrary claims as based upon “junk science” or conspiracy theorists. They completely deny that any harm exists much less that it caused harm to anyone by their tobacco, chemical or loan. Proprietary “independent groups” looking very official release reports that say there is no real harm in tobacco or chemicals and that the proliferation of more than 400 loan products from a starting point of just 5 different loan products was actually good for the consumer, good for the marketplace and good for the country. The corollary to this in the mortgage market is the denial that they even had a dog. Remember back in 2001-2009? There were no trusts. It was just a “Standard loan” with a “Standard foreclosure.”
2. My dog didn’t bite you. So after some years of information and data coming to light, perhaps with the help of the press, the next step is to admit what was no longer deniable (remember the famous phrase “previous statements on this subject are inoperable”?). In this context the company says that its tobacco, chemical or loan can cause damage but it didn’t cause damage to you. And as usual the regulators are actually members of the industries they are supposed to regulate. In the arena of the financial markets look back at comments from Treasury Secretaries Paulson and Geithner under Presidents Bush and Obama and Fed Chairmen Greenspan and Bernanke, we see that they sought to reassure the public that the toxic waste masquerading as triple AAA investments and “standard loans” were well contained within the subprime crisis — leaving those of us who knew otherwise wondering if they were all stupid or just lying. In foreclosures, this translated, as “OK we lied, there are trusts but that doesn’t concern you or hurt you.” We also had various pronouncements that there was nothing illegal.
3. My dog bit you but didn’t hurt you. More years have passed and now it is obvious that the toxic tobacco, chemicals and loans (and MBS) may have had some impact on you, but it isn’t serious and nothing significant is expected to happen (see above). The recurring refrain is that the release of these toxic substances and toxic financial products could cause harm, but the use of them was within restricted environments in which you would not be effected and you were not effected. No harm, no foul. And we have added bonus that the invisible hand of the marketplace will make any necessary corrections inevitable. So maybe the loans were mostly predatory (predatory per se if they were part of a pattern of conduct of table funded loans); but you were not harmed — the investors got their investments and are getting paid (see link above) and the borrowers received their loans — so what is the harm? Why should a little thing like violation of public policy announced by Congress and the Federal Reserve make a difference — you got the loan, you didn’t make the payments, so ANYONE could step in and collect, enforce or foreclose. What difference does it make if nobody in the chain ever had an economic interest? You failed or refused to make the payments and the fact that the “servicers”, “banks” or “trustees” couldn’t answer basic questions about the loan is irrelevant. 90 seconds per case was plenty on the rocket docket.
4. My dog bit you and hurt you but it’s not our fault.
This is the classic ultimate defense of shifting responsibility to the victims. The investors should have known better than to believe the investment banks. The borrowers should have known better than to take toxic loans. If they were injured it was their choice to smoke, their choice to ingest skin products, water, food and other substances that caused cancer, killed you or killed your life savings and took away your home, your lifestyle and your job. It was your choice to smoke, to drink toxic water and buy into a toxic loan. So any injury is YOUR fault. In the foreclosure context this translates as “OK, the Trust never acquired the loan, the servicer therefore has nothing to service, nobody has any right to collect except the investors whose money was used in ways they never imagined. It doesn’t matter that we can’t show you proof of funding or proof of purchase because you didn’t make your payments. This is eroding now as more judges are asking the question “what difference does it make if the borrower is alleged to have stopped making payments, when the party alleging it had no right to collect, enforce or foreclose?”
Which brings us to the fifth dog which is that even if the behavior of Wall Street executives and employees was illegal we must allow them to keep their ill-gotten wealth and we must maintain the big banks because if they are required to report the truth on their financial statements they will all fail, leaving 7,000 community banks and credit unions to pick up the pieces. So various PR settlements, fines and even “damages” have been the subject of agreements. None of them address the essential fact that the homes were not free to anyone, that the homeowners invested heavily in maintaining the home, and that the homeowner and the investors — the only two real parties in interest — have been excluded from both the litigation and the settlement process.
The parallel strategy is intimidation. If the Banks convince you that worse things will happen if they are made accountable for all the damage they created, then government, courts and people will back off. It’s the one strategy that works nearly all the time: “scare the s**t out of them!”
Filed under: foreclosure |