Contract law alternative to bailout: Unconscionability

Since Credit Default Swaps (CDSs) are the reason for this bailout (see Ben Stein's article linked below), that means it's a matter of contract law. That's what CDSs are - contracts. Ok then... I've been taking a deeper-than-usual interest in the foreclosure crisis this year b/c I'm on the edge myself and also worked for the largest mortgage servicing bank, so I researched into something which might be useful now regarding the bailout...

The Doctrine of Unconscionability has already been used by some judges (notably in Ohio) to overturn foreclosures more and more in the last few years. Congress could declare Credit Default Swaps void, on the grounds of unconscionability (and fraud). Let the gamblers take the loss, winners and losers alike on both sides of it. Delete CDSs from the banks' balance sheets, and any which have to go into receivership then, so be it. We don't have to pay their gambling bets.

DU thread on Ben Stein's recent comments on CDSs:
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4068418#4068479

Definition of the Doctrine of Unconscionability:
"It has long been held that if a contract is unconscionable in its terms, equity will not enforce it. But what exactly unconscionability encompasses is not easily described. In one of the earliest and most famous descriptions of unconscionability, Lord Hardwicke explained, "an unconscionable bargain is one such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other." One contract scholar described unconscionability as whatever the court can't stomach. Although these two descriptions provide some guidance, they are far from conclusive and serve only to provide a general theme of the doctrine. In the modern era, much scholarly ink has been spilt attempting to uncover and clarify the doctrine of unconscionability. This paper proposes that unconscionability is a doctrine about fairness, and the ultimate success or failure of a case involving the doctrine generally hinges on the status of the parties and their relationship with one another."

http://wzus.ask.com/r?t=p&d=us&s=a&c=a&l=dir&o=0&ld=3117&sv=0a30050d&ip=cdbc740d&id=560EAFE48D136007F9DC564D7302F9DB&q=unconscionability+defense%2C+definition%3F&p=1&qs=0&ac=3&g=67e0xGetvCCNIO&en=te&io=0&ep=&eo=&b=alg&bc=&br=&tp=d&ec=10&pt=SSRN-The%20Old%2C%20the%20Ignorant%2C%20and%20the%20Downright%20Shameful%3A%20A%20Study%20of%20...&ex=tsrc%3Dtxtx&url=&u=http%3A%2F%2Fpapers.ssrn.com%2Fsol3%2Fpapers.cfm%3Fabstract_id%3D650822

... is like buying fire insurance on your wood pile ... and then burning it to keep warm. Everyone's hustling everyone ... and everyone's lying.

Hell ... next thing they'll do is write cut-rate life insurance on terminal cancer patients with the hospital as beneficiary. It'll be part of the admissions paperwork.

These are fraudulent on the face of it. That makes all parties complicit.

The banks are not doing workouts as they claim, and CDSs are why. I know this anecdotally from work, and also from the numbers of foreclosures - that many people (millions) are not cheats, nor were those I spoke to at the bank, who were seeking workouts and not getting them.

Their loans' terms were unconscionable, but that's not the biggest part of it. If the banks bet against themselves with these CDSs (which seems clear from what Stein said) then they are involved in creating a massive fraud. That needs to be looked into immediately, before any of them are paid anything.

But whatever we agree to pay could be overturned later too, because fraud "voids all contracts" (or agreements etc). Only thing is, it's always harder to recover money after-the-fact than to refuse paying in the first place. Yes, this is "thinking outside the box" on this bailout, but declaring the CDSs void would be a lot cheaper than paying off all of the criminal players. We all can "feel" this is a scam, but maybe fraud and unconscionability would be a way to legally classify it as such.

Even though it's a lot of CDSs and a lot of money involved, it still has to come down to whether these contracts are legal and enforceable. Maybe that should be thought about FIRST?

I'm going to send it to a few people to look at.

:kick: