Reply #2: Ratigan. Intelligent and well spoken as almost always. [View All]

[JDPriestly]

Very interesting.

Somehow, we need to change our understanding of what business is about. Yes. It is about making profit. But it is also about being a social force for progress and improvement.

OK. I hate to say it here at DU. But somehow, capitalism needs to be ethical. If society is to survive, business can't be run by financial cannibals.

The underlying problem is greater, however, and difficult to solve:

Adam Smith commented on the national debt of the English in his time:

A great empire has been established for the sole purpose of raising up a nation of customers who should be obliged to buy from the shops of our different producers all the goods with which these could supply them. For the sake of that little enhancement of price which this monopoly might afford our producers, the home-consumers have been burdened with the whole expense of maintaining and defending that empire. For this purpose, and for this purpose only, in the two last wars, more than a hundred and seventy millions has been contracted over and above all that had been expended for the same purpose in former wars. The interest of this debt alone is not only greater than the whole extraordinary profit, which, it ever could be pretended, was made by the monopoly of the colony trade, but than the whole value of that trade, or than the whole value of the goods, which at an average have been annually exported to the colonies.6

http://www.econlib.org/library/Enc/bios/Smith.html

As at the time of Adam Smith, our empire is a monster that is devouring us. My friends who are honest owners of small business are having a really tough time surviving. Capitalism is not working, not for working people, not for small business. The cost of maintaining the international markets, fighting pirates and terrorists, etc. to protect big business is higher than the profits being acknowledged and taxed in our country. Ratigan's suggestion for a solution is good. But I disagree on one point. The fraud should be punished.

And, in my opinion, the sub-prime mortgage market was what you call fraud -- "3. The suppression of that which is true, by one having knowledge or belief of the fact." (See below the California Civil Code for this definition.)

Those who sold the sub-prime mortgages knew full well that many of the buyers would not have the means to make the monthly payments once the interest rates rose. They also knew or should have known that the houses were not worth the amounts being paid for them. How could they have known? My neighbor and I used to laugh at the amounts of money being paid for houses in our neighborhood. Small, modest houses built in the 1920s and 1930s (in an area of L.A. under gang injunction) that had sold 15-20 years earlier for $125,000 to 135,000 were suddenly going for $600,000 - $700,000. Meanwhile, wages had not risen five-fold. It doesn't take much to look at a chart of housing prices and wages and see a problem. The mortgage companies and banks defrauded not just the home-buyers but the U.S. government.

California Civil Code

1571. Fraud is either actual or constructive.

1572. Actual fraud, within the meaning of this Chapter, consists in
any of the following acts, committed by a party to the contract, or
with his connivance, with intent to deceive another party thereto, or
to induce him to enter into the contract:
1. The suggestion, as a fact, of that which is not true, by one
who does not believe it to be true;
2. The positive assertion, in a manner not warranted by the
information of the person making it, of that which is not true,
though he believes it to be true;
3. The suppression of that which is true, by one having knowledge
or belief of the fact;
4. A promise made without any intention of performing it; or,
5. Any other act fitted to deceive.

http://www.leginfo.ca.gov/cgi-bin/waisgate?WAISdocID=0954311349+1+0+0&WAISaction=retrieve