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Bad Guys of the Foreclosure Crisis

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Posted on Oct 22, 2010

By Eugene Robinson

Don’t blame the lawyers. The crisis over faulty or fraudulent paperwork in mortgage foreclosures—which is either a big deal or a humongous deal, depending on which experts you believe—is the fault of arrogant, greedy lenders who played fast and loose with the basic property rights of homeowners.

Banks and other lenders, it seems, made statements in courts of law that turned out not to be true. Because judges have such an underdeveloped sense of humor when it comes to prevarication, this mess may be with us for a while.

The mortgage industry would love to blame the whole thing on predatory, opportunistic lawyers who are seizing on mere technicalities to forestall untold numbers of foreclosures that should legitimately proceed. The bankers are right when they complain that the delays are gumming up the housing market, as potential buyers for soon-to-be-foreclosed properties are forced to bide their time until all the questions about documentation and proper title are answered.

But it’s the bankers’ own fault that there are so many instances of foreclosure documentation with legal loopholes big enough to drive a moving van through. During the years of the real estate boom, lenders cut corners with paperwork in order to make as many loans as they could—and sell them to other lenders, who often sliced and diced them into securities that were then sold to investors—as quickly as possible. This haste and inattention to detail, now coming to light, are partly responsible for the current crisis.

Laws vary from state to state, but all accept the principle that borrowers who fail to meet the contractual obligation to pay their mortgages can be subject to foreclosure and eviction. The process is devastating for families and for neighborhoods. In many cases, I believe, all parties would be better off if some way could be found to avoid foreclosure—modifying the terms of the loan, say, by lowering the interest rate or even reducing the principal to reflect the fall in housing prices. I recognize, however, that there are many other cases in which foreclosure is the preferable option or perhaps the only option.

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But it’s also necessary that the mortgage holder have the legal right to foreclose. Anyone who has ever bought a house is familiar with the inches-thick stack of documents that have to be signed, sealed, initialed and notarized. It turns out that financial institutions often didn’t dot every I or cross every T—meaning that in some cases, it may not be clear that the nominal mortgage holder has the clear and undisputed right to take possession of the property.

These may be technicalities, but there’s nothing mere about them. For one thing, if borrowers are expected to play by the rules, lenders should be expected to do the same. For another, there can’t be a functioning real estate market without the ability to establish clear title. Lawyers probing this aspect of the foreclosure crisis are doing the system a favor.

The other big problem is that lenders have been processing foreclosures with assembly-line speed, eliminating delay wherever possible—sometimes substituting electronic signatures for the ink-on-paper kind, for example. In the information age, some of this qualifies as sensible streamlining. But what doesn’t make sense is moving the foreclosure documents along so quickly, and in such overwhelming volume, that the person signing them—whether by computer or quill pen—couldn’t possibly have time to read them. We now know that some individuals, working as processors, have been signing off on up to 10,000 foreclosure documents a month.

In 23 states, every foreclosure must involve a court hearing. Sharp-eyed attorneys, representing delinquent homeowners, have unearthed cases in which high-volume “robo-signers” submitted affidavits attesting that they reviewed all the loan files personally—when, in fact, they had not. This is just the sort of thing that puts judges in a really bad mood.

The Obama administration has declined to call for an official moratorium on foreclosures. This is understandable: In most cases a moratorium would just delay the inevitable, while impeding any momentum the housing market might otherwise be able to build.

But maybe the crisis will make the banks realize that they ought to be doing fewer foreclosures and more loan modifications—sensible adjustments that allow deserving families to stay in their homes. And if this happens, we’ll have the lawyers to thank.

Eugene Robinson’s e-mail address is eugenerobinson(at)washpost.com.
   
© 2010, Washington Post Writers Group


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By Inherit The Wind, October 26, 2010 at 1:56 pm Link to this comment

The Framers had great misgivings about giving the
direct vote to the people.  Today, those misgivings are
justified.

************

But who you gonna give it to? The Koch Brothers? The guy who owns Blackwater? The guys running Goldman, or the Carlyle Group? Only people with $5 million or more in assets? College professors?

Look what happened: Scalia, Thomas, Kennedy, Roberts and Alito GAVE the greatest power to sway votes to faceless, unanswerable donors who don’t even have to be AMERICAN!  They can be competition, even enemies and their money can swing our elections.

While you might think your neighbor is a dope, and he may BE a dope, but who are you or me to say he doesn’t have a right to a say, however removed,in the decisions that are made that affect his life?  That’s the problem.  Democracy and free elections suck but all the other systems suck far, far worse.

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By felicity, October 26, 2010 at 11:01 am Link to this comment

Good one, Inherit, but don’t forget it was the now
champion of the people, America’s three-minute-egg
electorate who now bow and scrape in adulation of
William J. Clinton who SIGNED Phil’s bill into law.

The Framers had great misgivings about giving the
direct vote to the people.  Today, those misgivings are
justified.

Report this

By Dickinseattle, October 25, 2010 at 9:18 pm Link to this comment
(Unregistered commenter)

A recent book excerpt form Michael Hudson’s “The Monster” on Alternet pretty well spelled out just who the “Bad Guy”(s) was in the Sub-Prime mortgage scam, and what it amounts to is that our investment banking industry turned into a criminal Ponzi scheme and, thanks to largely Republican opposition to any and all regulation, remains largely so and unpunished except for the disaster they created which has engulfed us all including them as well.  It will get worse, like all crimes that go unpunished and protected by the Establishment media such as JFK, and 9/11 to name the two largest and most notorius political crimes still covered up by our complicit media, alternative and mainstream alike.  Predatory evil and greed need only be provoked to rise to the surface in this country.  Watch after November.

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By Inherit The Wind, October 25, 2010 at 8:03 pm Link to this comment

I got it! Let’s follow the Teaparty lead and all blame Barney Frank for his actions in the late 90’s!  That’s whose fault it is!

It doesn’t matter that the House was in tight control of the GOP, as was the Senate.  It doesn’t matter that Phil Gram slipped in something at midnight so nobody’d notice.  It doesn’t matter that this was bought and paid for by the mega-banks.

no, it’s all Barney Franks’s fault.  Him and all those unscrupulous lower class borrowers who shouldn’t have bought houses when they couldn’t afford the payments when the economy tanked.

Yeah. It’s all THEIR fault!  (Not the crooks who sweet-talked people into mortgages they couldn’t afford.  Not the crooks who rebundled high risk loans into packages that made them look gilt-edged. Not the former Goldman boss who, as treasurer, found a way to “kill” Goldman’s worst enemy, Lehman.  Not Phi Gram seeking to secretly end Glass-Steagle.  No, it was all Barney’s fault)

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By tedmurphy41, October 25, 2010 at 8:16 am Link to this comment

Why are these criminals not exposed? Is it because the laws of your Country favour the Rich and Powerful?

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By cripes, October 24, 2010 at 1:33 pm Link to this comment

Yeah, what’s not to like?

The prevailing propaganda from the establishment is that “consumers,” i.e., desperate, gullible, ill-informed simple homebuyers, failed to do their due diligence, aren’t financially literate, and are the root cause of the continuing financial meltdown.

And the brilliant, master-of-the-universe bankers, who created the toxic products, rammed through the bubble and the bailout, just cut a few corners cause they were twyyying soooo haaaard to get all those dang foreclosures processed, it was just too much work. And they were victimized by the…consumers! Especially all those no good minority types from Fannie and Freddie May.

Sure.

And the sad part is, too many of the dupes—especially those on whom the hammer hasn’t fallen on yet, sitting on their underwater mortgages they can barely pay—buy this transparent crap because they’re hoping it can’t happen to them, and anyway, they like to blame stuff on negroes and messicans.

God, what gluttons for punishment most Americans are. Ignorant, trembling cowards.

Sorry I’m so angry, but who can stand this?

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By felicity, October 24, 2010 at 12:46 pm Link to this comment

cripes - I agree. In 2004, thirty-percent of sub-prime
mortgagees couldn’t even make their first house
payment.  And no one noticed?

Of course fraud was committed, daily and across the
financial services industry.  Goldman was even called
out for its traders touting certain investments to its
clients, knowing full-well that the stuff was toxic,
driving up the price of the stocks and then when they
got sufficiently high selling them short. A clear,
unadulterated case of fraud.

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By ardee, October 24, 2010 at 12:10 pm Link to this comment

When an administration chooses which laws it wishes enforced and which it wishes ignored the entire system of justice topples. That is precisely what happened here. If one stretches ones memory back a bit one might remember the times that our Attorney General was told to back off investigations by the White House.

No one here should pretend to have been fooled about this entire matter when reflecting upon Obama’s appointments of financial community bigwigs to so many administration posts. From the first breaking news of this crime against our nation and its economy the facts were skewed, the explanations overly complex and the blame never really, or pointedly, assigned.

I do not wish to infer that Barack Obama is any more in the pocket of Wall Street and the Banks than his predecessors, but he, and his party as much as the GOP, are deeply indebted to these greedy and irresponsible individuals who provide the seed money for the increasingly expensive political campaigns necessary for them to gain ,or remain in, office.

“Institutions are, in a moral sense, impotent unless they are supported by the sense of responsibility of living individuals.”
Albert Einstein

Until and unless the Dept. of Justice investigates, prosecutes and convicts these wealthy CEO’s, unless and until the power of money is removed from our election process, unless and until the American people recognize that Main Street, not Wall Street, holds all the real power in this nation we will stumble from one such crisis to the next. Until we the people understand the extent to which our representation has failed us we will continue to be ruled by the wealthy few for their own benefit and to their own purpose.

“I wish I could love my country and justice too.”  Albert Camus

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By madisolation, October 24, 2010 at 8:19 am Link to this comment

“Cut corners” indeed. Eugene Robinson is fast becoming the administration’s—and therefore, the mortgage industry’s—chief apologist.
In September, he wrote:
“In the punditry business, it’s considered bad form to question the essential wisdom of the American people. But at this point, it’s impossible to ignore the obvious: The American people are acting like a bunch of spoiled brats.”
Not the bankers, mind you. They just “cut corners,” while we throw tantrums. Go eat another cocktail wienie, Eugene.

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By Lafayette, October 24, 2010 at 5:21 am Link to this comment

From the Economist, April, 2008 (sic!):

EVERYBODY wants it.

Nobody understands it. Money is the great taboo. People just won’t talk about it. And that is what leads you to subprime. Take the greed and the financial misrepresentation out of it, and the root of this crisis is massive levels of financial illiteracy.”

For years John Bryant has been telling anyone who will listen about the problems caused by widespread ignorance of finance. In 1992, in the aftermath of the Los Angeles riots, he founded Operation HOPE, a non-profit organisation, to give poor people in the worst-hit parts of the city “a hand-up, not a handout” through a mixture of financial education, advice and basic banking. Among other things, Operation HOPE offers mortgage advice to homebuyers and runs “Banking on Our Future”, a national personal-finance course of five hour-long sessions that has already been taken by hundreds of thousands of young people, most of them high-school students.

That many poor people do not have a bank account—and that few of them understand why this puts them at a disadvantage (let alone other essentials of personal finance)—is at the heart of “the civil-rights issue of the 21st century”, says Mr Bryant.

Prescient, isn’t it ... ?

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By cripes, October 24, 2010 at 3:56 am Link to this comment

And this character won a Pulitzer? No wonder, he’s pimping for the Washington Post, but to call this bald-faced propaganda journalism is an insult to high school mimeograph editors everywhere.

Honestly, Truthdig (?) should do better than this.

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By cripes, October 24, 2010 at 3:48 am Link to this comment

Your columnist delivers a mealy-mouthed variation on the “dog-ate-my-paperwork” theme being peddled by the bankers and their mouthpieces:

“legal loopholes,” “cut corners,” “haste and inattention to detail,”... “are partly responsible for the current crisis.”

Oh Bullcrap. The mortgage originators, servicers and forclosure mills were and are engaged in massive, systemic fraud, with employees routinely committing hundreds of felonies daily, in their quest to steal and defraud the american public.

Say it: Fraud, crime, felony.

The FBI knew it. They joked that the number of Red Bull cans in a bank office dumpster let them know a mortgage fraud boiler room was operating. Where twenty-somethings working 14 hour days bought high-res scanners and office supplies to forge entire mortgage files, swapping signed fixed-rate contracts for forged variable-rate garbage and tracing customer signatures. But Bush sent them out to chase Bin-Laden at Wal-Mart.

The whole industry knew it, Ameriquest and Countrywide knew it. The rating agencies knew it, but this “journalist” knows nothing.

The “industry” is now stealing 50 billion in HAMP “modification” bailout money, while throwing homebuyers out on their ass, many of whom didn’t miss any payments.

And he’s hoping the “crisis will make the banks realize that they ought to be doing fewer foreclosures and more loan modifications(!!!)”
Oh, jesus, have I got a bridge for you. HEY, Smart guy, THE BANKS ARE USING HAMP MODIFICATION TO RUIN CREDIT AND DENY RELIEF AND FAST-TRACKING FORCLOSURES—FOR PROFIT.

Wake the hell up.

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By felicity, October 23, 2010 at 6:33 pm Link to this comment

Greed, or as some term it just-making-a-living, was
operating full tilt during the years of the sub-prime
mortgage boondoggle.  The point being that everyone
along the transaction line of a sub-prime’s journey
collected a fee in passing by passing it on, not
holding it. 

A lot of little people generating a lot of fees for
themselves and no one, finally, being responsible. 
Of course, the guy at the ‘end’ of the line took it
in the neck only because there was no one he could
pass it on to.

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By LillithMc, October 23, 2010 at 1:34 pm Link to this comment

The balance for the mortgage market is that while the buyers are checked for ability to pay the loan, the investors are sensible in not funding what looks like a poor choice.  When I first saw rampant fraud in real estate offers in 2006, the answer I got from my real estate community was that investors were funding the loans.  No one understood that investors were buying on faith.  They had no idea what they were buying and what they were told was false.  If I had acted in a like manner as a real estate agent, I would now be in jail, I hope.  The essential flaw was that the market failed because investors could not understand what they were buying and the underlying note was used as money (through inventions like CDO’s etc) in a massive casino that produced billions in cash for the players and collapse for the global economy.

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By G.Anderson, October 23, 2010 at 1:26 pm Link to this comment

Property rights form the basis of our system of law. Since the very beginning. They also  
Form the basis of our system of money, and contract law. 

Basically we now have a corporate system which has said to our government, that we
the financial plutocracy no longer need to be bound by the rule of law. 

We are above the law, and not bound to any limits. We are free to enter into fraudulent
agreements with anyone, and since we own the government we can enforce those
larcenies, using any means necessary.

We can imprison debtors, administratively seize wages, property, and enjoin
free speech and litigation, without public redress. 

Thus by their larcenies they have created a society without any rule of law, except
money, yet because they have destroyed property rights that money will become
worthless.

Next they will tell us that only their fascism will restore order.

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By mack894, October 23, 2010 at 12:31 pm Link to this comment

I wonder why so many people woke up one day and decided not to make their
mortgage payment?  Typically, a mortgage payment is the one you make first
before anything else.  But now, all of a sudden, we have more foreclosures than
ever before in the history of the housing market.

The outrage over the robo-foreclosures is about more than just the technical
process.  It’s about totally unfair advantages. You have banks that screwed the
process up from the very beginning—to make money. Crashed the economy as
a result, throwing people out of work and depressing wages of those who
survived the massive, unprecedented layoffs, demanded taxpayer money to
keep afloat on condition that they help distlressed taxpayers stay in their
homes, reneged on that when they saw that they could make more money
selling cheap housing rather than modified loans, so then they come up with
another sleazy way to do business as they see fit.

I think people have a fairly good reason to be pissed off over business practices
that have only taken money from them to save a system that screwed them in
the behind from day one. 

Personally, I would want as few foreclosed houses out in the market as possible
if I were a homeowner. In my homeowners association, we have 6 houses for
sale—4 are listed at market prices, 2 are foreclosures available at 30% less than
the comparables.  I’ve just lost 30% of my asking price, maybe even more. But if
the owner can stay in his house and keep it off the foreclosure market, I can
sell my house at a reasonable price—at least close to what I paid for it.

Why does that not make any sense?

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By mack894, October 23, 2010 at 12:08 pm Link to this comment

I don’t want to go back to the public housing as I’ve gotten to like my nice, quiet
neighborhood so I get a cheap lawyer and fight.  There are all natural and normal
things for a human to do.##############


Are u saying that all these foreclosed properties are due to buyers who lived in the
ghetto being given a chance to buy a home for the first time in their lives?  Can
you provide the study that shows all the delinguincies come from first time buyers
who used to live in public housing?

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By Inherit The Wind, October 23, 2010 at 7:36 am Link to this comment

CC:

You are right of course, but it was, even in YOUR words, still a scam and the borrowers were the pigeons. Yeah it was a “Nigerian eMail” scam, and, of course, as W.C. Fields used to say:

“You can’t cheat an honest man, but never give a sucker an even break and don’t wisen up a chump!”

And, as you put it, somebody who wants their kids to grow up to be professionals and not gang members, drug dealers, pimps and prostitutes will do ANYTHING to get their kids out of the projects.  Those that bought early and sold on the upward curve who THEN re-bought wisely are the lucky ones.

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By C.Curtis.Dillon, October 23, 2010 at 3:47 am Link to this comment

It’s always the same.  The righties always point to the little guy and talk about personal responsibility.  The lefties always point to the heartless bank and how they rape and plunder for personal gain.  They are both right ... and both wrong.  The reality sits somewhere in the middle, as always.

For those who demand personal responsibility, consider what happens when you’re living in crappy, crime infested public housing and some guy comes along and tells you that you too can be living the good life in a beautiful house in the ‘burbs.  You can do it for nothing down, no closing fees and the payments are less than your current rent.  You may be smart enough to ask the simple question of how this is possible but you don’t want to spoil the illusion.  You know that sometime in the future you won’t be able to afford the escalating payments but, at least for a few years, you can provide your kids a nice house in a good neighborhood.  Would you take the bait?  If I was in that situation, I probably would go along because I love my kids and want them to be happy, even if only for a while.  And, according to the banker, when the time comes that I can’t afford the payments anymore, the house will be worth more than I paid and I can pocket the difference.  Not a bad investment, all things considered.

Now it’s a few years later and time to bail on the house.  Only the property is under water and there’s isn’t any equity to be squeezed out.  The bank is all over me to give up the place so they can dump it and get whatever money is still there.  I don’t want to go back to the public housing as I’ve gotten to like my nice, quiet neighborhood so I get a cheap lawyer and fight.  There are all natural and normal things for a human to do.

What went wrong?  The buyer probably shouldn’t have bought the house.  Any reasonable person would have figured out it was not wise to take on so much debt.  And the banker should have never approved the loan because he was smart enough to know the borrower couldn’t make the payments.  But that wasn’t the idea.  Making the loan to create more fodder for the securitization system was the intention and bad loans were just as good a good ones.  In fact, bad loans were even better because hedge funds could bet against the bad ones (with fraudulent AAA ratings).

So, it is stupid to point at the borrower for doing what he did because it was in his best interest to buy the house.  That’s the free market, isn’t it?  The buyer took the bait and enjoyed his time in the house.  The banks got what they wanted and everything would have been wonderful for them too except for that pesky bubble bursting and house prices going in the crapper.  Suddenly the bankers were in deep dog doo because the equity bounce they expected wasn’t there.  So the whole system went to hell and now we have a mess to clean up.

Guys ... lefties should be angry because bankers let their greed get the best of them and the housing bubble blew up.  Righties should be angry because people made decisions they couldn’t afford.  But everyone should be angry at a system that was so crazy it threw all prudence to the wind and went for broke without any concern for the consequences for the rest of the country (or the world for that matter).  We (meaning that pesky government) should have never allowed this to happen.  Free markets cannot be allowed to get so out of hand that they threaten the rest of us.  That’s unfair and, as we have seen, disastrous for all of us.

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By Inherit The Wind, October 22, 2010 at 11:54 pm Link to this comment

Lying on an affidavit is perjury.  Where are all the right-wingers who were screaming that Bill Clinton lying about an irrelevant sexual infidelity was “perjury”?  Where are they? Blaming the borrowers!

It’s a simple rule of law: You have to play by the rules.  If the lenders don’t play by the rules in foreclosing, the risk and loss is THEIRS, not the borrowers’. 

If you can’t establish beyond a doubt that you own the loan then you don’t own the loan and you shouldn’t be able to foreclose—you don’t own the property.

If you commit perjury to be able to foreclose, then your whole foreclosure suit should be dismissed WITH PREJUDICE!

Contract law is contract law.  You cannot enforce the punishment/seizure clauses of a contract if you cannot prove you are a party to that contract or if you perjured yourself.

Let the chips fall where they may.  And if an undeserving family or two gets to stay in their home another year, well, that’s the price of violating the legal process.

I think EVERY state should re-establish the practice that ONLY the Sheriff’s Department can evict someone. Period.  No surrogates, no bozos busting locks—that’s a shot-to-death repo man waiting to happen.

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By SoTexGuy, October 22, 2010 at 9:32 pm Link to this comment

The banksters are the bad guys, I get it! .. and, the paper-mills set up to build the hedge-funds represent the worst of capitalism.. I agree!

But just for the sake of clarity.. mistakes and personal financial emergencies do happen.. yet the way a property ends up in foreclosure is that the borrower defaults on the loan contract. The homeowner who makes the agreed payments is not the target of any foreclosure ‘epidemic’. It’s contracts in default that are at risk of foreclosure.

If there’s a problem with the paperwork backing legal foreclosure then people should exploit that.. comeuppance for the paper-pushers!

It still seems completely unfair and irrational to in any way bail out, en masse, bad mortgages. As sad as it may be on a personal level lenders have the right to call in bad loans.. all together, these transactions are ‘too big to fail’?

Let me know a little in advance of this big new bailout, please.. I’m going to go sign some papers on a property loan I know I can never pay out (unless real estate goes back to double digit inflation).. So I can get a free pass!

Speaking of doubles.. what’s the chance this whole push for mortgage relief is about the Fed wanting to double-dip the taxpayers on the last bailout? .. the way it works is they pump more tax payer money into salvaging ‘broken homes’ thereby underwriting the toxic mortgage assets they are stuck with from floating Goldman Sachs via the truckloads of cash they gave AIG? .. Too obvious? .. if it’s not that, it’s something else that will smell just as bad.

Adios!

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By G.Anderson, October 22, 2010 at 6:55 pm Link to this comment

Bad guys? Or bloody Crims?  I wonder how millions of Americans feel about it..trying
to use semantics to hide criminality, larceny done in broad daylight. Only the
brainwashed will believe this. We only blame because the is no one to take
responsibility. Anywhere. The corporations own the government but they can’t govern
so we have no government.

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