Tuesday, January 31, 2012

2012 Foreclosures Expected to Rise

With banks in “full-delay” mode in connection with foreclosures during 2011, California homeowners can expect a change—for the worst—in 2012 as banks look to aggressively pursue seriously delinquent mortgages this year. The foreclosure rate is expected to rise significantly, based on the second-half surge of initial default notices sent in 2011, but the rate should remain below the peak of 2010. Nonetheless, it remains disconcerting.

The Federal Reserve is working to stabilize the housing market. The Fed has urged Congress to help underwater borrowers by reducing their loan principal and it has requested that Fannie Mae and Freddie Mac rid themselves of the backlogged foreclosures in bulk sales. With increased foreclosures comes decreasing home values.

According to the Los Angeles Times: “California and other states are likely to see an enormous wave of long-delayed foreclosure action in the coming year as banks deal more aggressively with 3.5 million seriously delinquent mortgages. And experts said that dealing with the foreclosure process, from issuing notices of default to selling repossessed homes, is likely to push housing prices lower this year before the real estate market has a chance to recover."

Friday, January 27, 2012

Proxy Season Promises to Challenge Executive Pay

The Wall Street Journal reports that in a year where executive compensation has plateaued, Wall Street firms can still expect challenges from shareholders during the upcoming proxy season. According to the WSJ: "Investors ranging from charitable foundations to large state pension funds are preparing to challenge large financial firms on their pay practices. As a result, this year's 'proxy season'—the period, usually in the spring, when companies hold annual shareholder meetings—promises to be an eventful one in the financial sector, compensation consultants and corporate-governance experts say."

Activist shareholders in recent months have filed proxy proposals asking large Wall Street firms to study the potential negative impact that exorbitant executive compensation policies might have on the firm's reputation and growth potential. Again, according to the WSJ: "In December, the Nathan Cummings Foundation—a private charitable organization and institutional shareholder—filed proposals asking that directors at Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. address potential reputational damage that big pay packages could bring to the banks, said Laura Campos, director of shareholder activities at the foundation. The proposals also request that they study how such awards could reduce banks' ability to spend money on other areas, and report those findings to shareholders."

The upcoming proxy season promises to be an interesting one as recent Dodd-Frank legislation requires firms to hold nonbinding shareholder votes on their executive pay policies (once every three years). Six of the largest Wall Street firms held these votes last year (J.P. Morgan, Wells Fargo, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America), with all six receiving symbolic shareholder approval for their pay packages (as indicated in the chart above, courtesy of the Wall Street Journal). Each expects to hold nonbinding votes again this year.

Wednesday, January 25, 2012

"Three Years After Lehman" Symposium

Three years after Lehman Bros. filed the largest Chapter 11 bankruptcy in U.S. history, world financial markets are still wobbly, unemployment in the U.S. remains stubbornly high, and Europe may be on the brink of financial disaster. On February 24, 2012 the University of Utah S.J. Quinney College of Law will host a special symposium, “Three Years after Lehman: Assessing the Regulatory Reforms of the Next Financial Crisis,” that will consider the role Lehman Brothers’ failure played in the current economic downturn and whether reforms enacted in the wake of the failure are adequate to protect economic markets going forward.

"Symposium organizer Christian Johnson, Professor of Law at the College of Law, said, 'The conference attempts to put into perspective the Lehman failure (and the crisis generally) and to understand the effectiveness of the reforms that were enacted in the crisis’s aftermath. Given the general state of the U.S. and the global economy, such reflection and analysis becomes critical as regulators and policy makers further consider their options and responsibilities.'"

Corporate Justice Blog contributors Steven Ramirez and andré douglas pond cummings will be featured speakers at the symposium.

Friday, January 20, 2012


A favored argument by market fundamentalists is that capital markets are efficient, and will find equilibrium if left unfettered. For this argument to find root, issues of inequality, discrimination and racism must be ignored (or pushed aside), because, as the argument goes, efficient markets will themselves deal with discriminatory participants by eventually sifting them out of the system as inefficient market players. Additionally, law and economics proponents favor "post-racial" rhetoric that suggests that in 2012, the United States has entered a colorblind era of post-racialism. With an African American President and markets more advanced than at any time in history, issues of economic inequality and continuing racial division are simply no longer important considerations, per the post-racialist.

Several events in the past few weeks belie this post-racial sentiment, the following being one of the most egregious:

In Georgia this week, third and fourth grade students at Beaver Ridge Elementary School were given math problems, MATH PROBLEMS, that asked students to consider if a slave was beaten twice per day, how many beatings would the slave receive in one weeks' time? Another question on the elementary students' math homework asked them to calculate how many bushels of cotton Frederick picked? Outraged parents are meeting with school officials, who were quick to claim that nothing "malicious" was intended by these math questions, though they have opened an investigation into which teachers drafted the questions.


Thursday, January 19, 2012

Childhood Poverty in America 2012

The above chart graphically depicts the relative standing of the U.S. in terms of childhood poverty.  The U.S. simply cannot lay claim to economic greatness nor to being the land of economic opportunity in the face of this reality. With nearly 25 percent of our children living in poverty we are more on par with Bulgaria and Mexico than economically advanced nations such as Denmark, Australia, Luxembourg and Norway.

Interestingly, those advanced nations also sport far higher per capita income (in U.S. dollars) than the U.S.: Denmark produces $63,000 per capita, Australia $67,000, Luxembourg $122,000, and Norway $97,000 per capita. The U.S. suffers weak per capita GDP of $48,000 (and holding for about 15 years). While one can always nitpick the data (for example, should we really count incarceration costs as GDP, as we currently do, which fattens the weak U.S. performance) the picture suggests the creeping third world reality gripping the U.S., due largely to its laissez faire economic policies and corrupt politics where money rules over law.

Thus, Dr. King's commitment to fight against poverty and in favor of economic opportunity is as relevant today as ever, and is both morally and economically compelling. The U.S. cannot be either a moral or economic leader of the world with one in four children impoverished. Perhaps our new claim should be land of childhood poverty.

Professor Steven A. Ramirez
Loyola University Chicago
School of Law