Have you ever been a member of a settlement class in a settled class action suit? Did the award satisfy you or did you find it to be grossly inadequate? Did it make you suspicious of such suits?

In 1996, Epson America announced a settlement of a class action suit over its practice of engineering its printers to monitor ink levels and incorrectly read cartridges as empty and therefore unusable even though there is still ink in the cartridge. It provided a $45 credit for eligible American customers for each purchased and registered printer. But the credit could be used only at Epson's online store, where prices are considerably higher than in most discount stores such as Wal-Mart. The settlement did not require Epson to modify cartridge software and technology so that ink cartridge readings reflect the true level of ink in a cartridge, so Epson could continue the deceptive practice. Epson also agreed to pay the Plaintiff's Attorney's fees, usually one third of the amount awarded. I doubt that many owners of Epson printers took advantage of this credit. I didn't! Instead, I junked my two Epson printers and vowed never again to buy anything manufactured by Epson.

My wife was a member of the settlement class in a settled class action suit that awarded her two dollars and some cents. Unfortunately, I lost this suit's details. But I do remember that to receive the award, she had to download, fill out, and mail a form to the suit's administrator. The expense of doing that would have reduced the award's value to less than a dollar. I remember telling her to forget it.

Recently I was a member of the settlement class in an ERISA suit against ACS. ACS was accused of violations of its fiduciary responsibilities in its 401(k) program. Three law firms ended up representing the plaintiffs (the Belek Law Firm of Houston, TX, Giney & McKenna of NY, and Stull, Stull, and Brody of NY). These firms settled this suit for $1,500,000. $566,482.99 went to the attorneys for expenses and fees; $933,517.01 was awarded to members of the settlement class. But the settlement class consisted of 24,777 members, so that if the award had been distributed equally, it would have been a mere $44.60, hardly anything to get excited about. (The similarity of this number to the credit offered by Epson is interesting. Do these law firms know something about what companies are usually willing to settle for in the same way that those in marketing know that people are more likely to buy something if it is priced under $20?)

But the award wasn't distributed equally. The distribution was based on a negotiated formula that calculated the actual losses in ACS stock ownership over the defined period. The result was that 32% received distributions of approximately 26% of their losses, 29% received a minimal award of $20, and 39% got nothing at all.

I found this to be curious. If ACS violated its fiduciary responsibilities in accordance with ERISA, it did so in to ways: it paid matching contributions in ACS stock, which encouraged employees to put all of their eggs in one basket, and it always employed firms that charged high transaction fees to manage its 401(k) accounts. During the period of time involved (7/1/2001 to 12/20/2007), ACS stock rose steadily until January, 2006, when began to fall. At the end of 2007, the stock price was still slightly higher than it was on July 1, 2001. So whether or not the class members made or lost money depended entirely on how they managed their holdings. ACS' practices had nothing to do with it. Wiser members who sold their holdings when the stock was up made money while those who neglected to manage their accounts effectively lost money. But ACS' practices affected all of the members of the class. In fact, it is likely that those who managed their holdings effectively lost more than those who actually experienced losses. A department of Labor study compared two 401(k) plans with starting balances of $25,000 earning 7 percent over 35 years without additional contributions. A plan with fees and expenses of 0.5 percent annually compared to a plan with fees and expenses of 1.5 percent yields $64,000 or 28% more. So the people who were selling stock when the price was up more likely than not had to pay more transaction fees than those who neglected their holding. So astute attorneys should have known that the formula negotiated to calculate the amounts to be awarded should have been based on transaction fees rather than profits.

The question is why didn't they do that? Why did they settle this suit for such a meager amount? And why did a federal judge (Barbara G. Lynn) approve this settlement? Why do attorneys negotiate any of these meager settlements and why do judges routinely approve them?

Well, the answer is apparent. Attorneys take on class action suits on a contingent fee basis. If the case goes to trial and the defendant prevails, the attorneys don't get paid and lose the resources they have expended in pursuing the suit. So the incentive is for them to settle. Defendant companies know this, and offer meager settlement terms. Accepting these terms is an easy way for the plaintiff attorneys to make one-third of the award without ever having put anything at risk. The three firms involved in the ACS ERISA suit netted a cool half million dollars just for filling out some papers and negotiating with ACS' attorney; most members of the settlement class got pocket change. And oddly enough, it took three firms to negotiate this settlement. Sound suspicious?

Why judges approve these settlements is a mystery. Perhaps is just because the law does not exist for you and me. (Most members of our corrupt Congress are also lawyers.)

So if any reader is thinking about filing a class action suit, find an attorney who understands that if s/he is unable to negotiate a substantial award for each member of the settlement class, that you will insist that the suit be taken to trial. And before you settle on a lawyer, analyze the settlements s/he has negotiated. Make sure that his/her settlements amply award all the members of the settlement class; otherwise, you are merely involving yourself in a lawyerly boondoggle in which the lawyers will use your misery to enrich themselves. If your lawyer isn't going to get you and your colleagues substantial awards, at least make sure that s/he doesn't get any either.

The legal profession in the Western world has never had an honorable reputation. As early as the fifteenth century, Erasmus wrote, "Lawyers are jackals." Shakespeare in Henry VI wrote, "The first thing we do, let's kill all the lawyers." And even Benjamin Franklin wrote, "A countryman between two lawyers is like a fish between two cats." Lawyerly jokes are almost as prevalent as dumb blonde jokes. One of my favorites is this: A man says, "Boy was it cold today." His friend asks, "How cold was it?" The man says, "It was so cold, lawyers were seen coming out of the Court House with their hands in their own pockets."

American courtrooms often have statues of the Roman Goddess Iustitia in them. She is always blindfolded. The reason, contrary to what people are led to believe, is that she must be prevented from seeing what goes on in them.

©2009 John Kozy

As an elderly, former university professor, I am deeply anguished whenever I come across shameful academic writing. Such writing not only exposes the inability of the writer but it exhibits the extent of decline in American university teaching and is a symptom of a decadent civilization.

I recently came across a piece titled Future Prospects for Economic Liberty which was published by Hillsdale College. The piece's author is Walter Williams, the John M. Olin Distinguished Professor of Economics at George Mason University. He writes, "The Founders understood private property as the bulwark of freedom for all Americans, rich and poor alike." Well, perhaps, but not likely. A few founders, some founders, many founders, or all founders? They certainly didn't put any such statement in the Constitution. There is but one instance of the phrase "private property" in the Constitution. It occurs in the Fifth Amendment and reads, "nor shall private property be taken for public use, without just compensation," which clearly allows the government to take private property. As a matter of fact, the Constitution institutionalizes no economic principles as Justice Holmes, dissenting in Lochner vs the People of the State of New York, recognized when he writes, "a Constitution is not intended to embody a particular economic theory, whether of paternalism and the organic relation of the citizen to the state or of laissez faire.  It is made for people of fundamentally differing views, and the accident of our finding certain opinions natural and familiar, or novel, and even shocking, ought not to conclude our judgment upon the question whether statutes embodying them conflict with the Constitution of the United States." And although I assume a few poor people own private property, historically the poor were property less and known as slaves or serfs.

Williams also writes, "the Constitution restricts the federal government to certain functions. What are they? The most fundamental one is the protection of citizens' lives. Therefore, the first legitimate function of the government is to provide for national defense against foreign enemies and for protection against criminals here at home." Well what can one make of this claim? Certainly the Constitution's Preamble lists provide for the common defense as one of the things the Constitution was expected to do, but nowhere in the Constitution is there any reference to "saving lives." Defending the nation against foreign enemies isn't a life saver. People die defending nations. The Constitution also doesn't say anything about protecting citizens against criminals, although it does say, again in the Preamble, insure domestic tranquility and promote the general welfare. Making specific acts criminal doesn't insure or promote either of these.

Of course, saving lives is a good thing, and if Williams believes that that is a governmental function, he'd better start advocating universal healthcare, safe working environments, higher wages, market regulation, and a host of other programs not enumerated in Article 1, Section 8 of the Constitution. All of these programs, and many others, save lives.

Williams also writes, "the free market system is threatened today not because of its failure, but because of its success. Capitalism has done so well in eliminating the traditional problems of mankind—disease, pestilence, gross hunger, and poverty. . . ." Well, I know of no disease that has been eliminated. Certainly cures for some exist, and some can be controlled, but I defy him to name a single one that has been eliminated. And "gross hunger and poverty" certainly exist in the America I live in. It has recently been reported that one in six Americans live in poverty and that food stamp assistance currently is at an all-time high of about 36 million.

These claims of Mr. Williams certainly are dumb, but he makes even dumber claims. For instance, "if I offer my local grocer three dollars for a gallon of milk, implicit in the offer is that we will both be winners. The grocer is better off because he values the three dollars more than the milk, and I am better off because I value the milk more than the three dollars." Not only is this statement nonsense, it is based on a gross misuse of English diction. Consumers in grocery stores don’t "make offers" to "local grocers." There are places commonly called "farmers markets" where that kind of offer may take place, but not in any grocery stores in the communities I have lived in for more than seventy years. The local grocery stores are massive corporations. How could any consumer make them an offer for a gallon of milk? The managers of these local grocery stores are often even hard to find. How would a checkout clerk respond to an offer to pay so-and-so for a gallon of milk?

But the dumbest claim is this: "Another common argument is that we need big government to protect the little guy from corporate giants. But a corporation can't pick a consumer's pocket. The consumer must voluntarily pay money for the corporation's product." In a sense, but what if the consumer has no alternative? And what about products that don't work as advertised? That's certainly a way of picking a consumer's pocket. Our local Fox television station regularly runs a feature called "deal or dud" during which it tests highly advertised products. I presume that Mr. Williams would be shocked to learn that most are duds. Corporations certainly use such products to pick consumers' pockets.

Mr. Williams is a shameful example of a university professor who has adopted an ideology, parrots it, and has never had an original thought of his own. His references to the Constitution are asinine and his reasoning ability is far weaker than sophomoric. What's worse, however, are the two institutions mentioned above—Hillsdale College and George Mason University and others like them. They can be likened to Mideastern madrasses—pure purveyors of ideology. These institutions have abandoned the classical educational ideals of truth, goodness, and beauty for belief, greed, and exploitation. And not only Americans but the whole world is paying a horrid price for it.

How people can so easily be taken by so-called honors has always puzzled me. The press regularly touts Pulitzers, for instance, but why? Joseph Pulitzer was not interested in truthful journalism. After purchasing the New York World, he changed it to focus on human-interest stories, scandal, and sensationalism. Excellent journalism was never a priority of his, and the prizes reflect it. So does the mainstream press which is yellower than ever in both the conventional journalistic sense and the colloquial sense of cowardly.

Even worse, however, are the Nobels. Alfred Nobel established the prizes in his will after having been called a "merchant of death" by a French newspaper. Although mostly remembered today as the inventor of dynamite, Nobel was mainly an arms manufacturer. Apparently he established the prizes to assuage his guilt, which is reminiscent of the Emperor Constantine's conversion to Christianity on his deathbed in hopes of escaping eternal punishment for his many horrid deeds.

And the prizes have not been distinguished. Nobels are political prizes. They are almost always given to those committed to Western civilization and Capitalism. When given to non-westerners, the recipients are always those who are critical of the non-western civilizations they live or lived in. From the Nobel Committee's point of view, nothing is prize worthy that isn't Western.

Most of the economics prizes have gone to conventional American economists, and look at the mess they have gotten the world-wide economy in. And the Peace Prize recipients are a study in themselves. Arafat, Peres, Rabin, Wiesel, Sadat, Begin, Kissinger, Chamberlain all received it. If you survey the complete list of ninety recipients, you will not even recognize most of the names. If anything distinguishes these people, it is their failure to produce peace. In fact Alfred Nobel didn't even call it a peace prize: "the fifth prize is to be given to the person or society that renders the greatest service to the cause of international fraternity, in the suppression or reduction of standing armies, or in the establishment or furtherance of peace congresses [emphasis mine]." The attainment of peace is not one of the criteria. Mother Teresa received the prize; she had nothing whatsoever to do with war and peace.

So now Obama has gotten the prize. Big deal! Why was it awarded to him? Because he, like all Western diplomats, talks the talk but doesn't walk the walk. He talks change but implements none. He appointed people with deep ties to the banking industry to the treasury who then bailed out the bankers and protected their bonuses. When the treasury bailed out the auto industry, it reduced the wages and benefits of workers. He reappointed a Bush holdover to Secretary of Defense (read perpetual war) and is in the process of expanding the war in Afghanistan and extending it into Pakistan. He continues America's unqualified support for Israel which is the main destabilizing circumstance in the Middle East. His healthcare reform has turned into an insurance industry, medical provider, and pharmaceutical company income enhancement bill. He is a protector of the economic status quo and a hegemonist—a true child of a decadent civilization, exactly what the Nobel Committee looks for. The deadly arms manufacturer would be highly pleased.

Have you ever wondered why the standard terms for mortgages are 15 and 30 years rather than 10 and 20 or 25 and 50?  I have, but was never able to find a satisfactory answer. Then I discovered something interesting. Since this country was founded, downturns in the economy have occurred on an average of once every 14.5 years. This similarity may, of course, be sheer coincidence. But I'm suspicious.

Why?

Well, if you amortize a standard 30 year mortgage at six percent interest, you'll discover that the lender gets all of the money it has invested back in 13 years and 11 months.

Now look at what happens to a home buyer who takes out a mortgage just after an economic downturn, pays on it for 14 years, a downturn strikes, and then for whatever reason cannot sell his home and defaults. The lender gets the house and the buyer has lost all the money he/she has put into it.

But look at what happens to the lender. It has already gotten its initial investment back, so in reality it loses nothing. But now it has a house to sell. How much has the lender paid for this house? Nothing! So it sells the house to another buyer by providing another mortgage. Now if the initial buyer had continued to pay the loan to term, the lender would have earned about as much as the initial investment. But now everything the second buyer pays is pure profit, not just the computed interest. In reality, the total amount of the mortgage loan is earned interest on an investment of zero. Wouldn't you like to find a way of doing that?

Of course, such situations don't come about often. Although the average time between economic downturns is 14.5 years, downturns happen at varied intervals. And even in downturns, many people forced to sell their homes usually can. But it doesn't take many who can't to make lenders a lot of money. Just five people forced into the situation described with $100,000 loans would net a lender a hefty one million free dollars. If the loans are larger, the lender nets even more. And, of course, the numbers are different for different interest rates. But the principle is the same. Lenders almost always get their initial investments back in half a loan's term or less.  

Last week, ABC announced that John Stossel is leaving 20-20 for a position at Rupert Murdock's Weasel News. Perhaps that's where he and all weasels belong.

 Some week's ago, I sent the following message to his e-mail address. It was deleted unread. Apparently John reads messages from only people he knows. The message's text follows:

John Stossel, ABC's preeminent 20-20 video journalist, is as shallow as the water in a rill that has not been rained on in a fortnight. Last week he filled an hour with pure right-wing propaganda based on a selection of governmental actions that have not, to say the least, been beneficent in order to justify an unstated but implied conclusion that governmental attempts to ameliorate malevolent conditions should be curtailed if not entirely prohibited so that people could be left alone to solve their own problems. Ah, if only they could!

Although his examples of governmental ineptitude ring true enough to gain the assent of many people, the conclusion John draws is a gigantic non sequitur.

Indeed, bad governments do bad things. So do bad surgeons. But the fact that bad surgeons injure, maim, and often kill patients, doesn't mean that surgeons should be limited to performing only minor procedures or that surgery should be eliminated. Eliminating bad surgeons is the best way of curtailing the injuries and deaths bad surgeons inflict. The same conclusion holds for bad government. No government is not a solution to bad government; good government is. Would John deny that bad journalism doesn't have bad consequences? Wasn't bad, yellow journalism the cause of the Spanish-American War, perhaps even the current wars in the Middle East? Should journalists then be limited to merely reporting events objectively? If so, John's out of a job.

But John and most mainstream economists have an unreal view of economies. What would one say of meteorologists who claimed that the laws of meteorology apply to all weather conditions except tornadoes and hurricanes? What kind of meteorology would that be? Yet John and most mainstream economists totally ignore a vast amount of economic activity about which they have no qualms about governmental attempts to regulate, curtail, and even eliminate. Burglary, robbery, purse-snatching, fraud, the manufacture and sale of so called illegal substances, loan sharking (except when done by banks), prostitution, bribery—all are economic activities. But somehow or other, the invisible hand which is supposed to keep the economy honest without governmental regulation doesn't apply to this hidden, underground economy. How come? Isn't that just like saying that the laws of meteorology don't apply to tornadoes?

Although the evil, greedy, lying, and corrupt may populate government, such people exist in all human endeavors. There is no reason to believe that the proportion is greater in government than in business or (do tell) journalism or the Cosa Nostra. If someone truly believes in liberal and neoliberal free-market economics, shouldn't all of these be unregulated? Shouldn't all be left to the invisible hand?

But the truth is that the invisible hand is the hand of a pickpocket, and it should be treated exactly like we treat ordinary pickpockets. Of course, bad government is unlikely to do that, but no government won't do it either.

And finally, John, a propagandist is not an honest man. Although everyone (perhaps) is entitled to his own opinion, no one has a right to present it as fact. Not even you.