“Code is law.” Literally.

By Lambert Strether, who blogs at Corrente.

The Law is the true embodiment
Of everything that’s excellent.
It has no kind of fault or flaw,
And I, my Lords, embody the Law.

–The Lord Chancellor, Iolanthe, Gilbert and Sullivan

We can look at the foreclosure crisis as the pre-emininent law enforcement crisis of our time: Elite impunity for crimes committed and still being committed by lenders and servicers (“banksters”) on a massive scale. We can also look at the foreclosure crsis as an issue of jurisprudence, where a revolutionary oligarchy seeks to change the nature of law itself.

Let’s start with “code [“the stuff that software writers write”] is law,” a terrific meme successfully propagated by Lawrence Lessig in the ’90s. From The Industry Standard:

The single most significant change in the politics of cyberspace is the coming of age of this simple idea: The code is law. The architectures of cyberspace are as important as the law in defining and defeating the liberties of the Net. Activists concerned with defending liberty, privacy or access must watch the code coming from the Valley – call it West Coast Code – as much as the code coming from Congress – call it East Coast Code.

Lessig revised and refined his thinking here in Version 2. From his keynote presentation to the ABA-Tech conference in 2011 starting at 10:36:

The lesson of code is law is not the lesson that we should be regulating code, the lesson of code is law is to find the right mix between these modalities of regulation to achieve whatever regulatory objective a government might be seeking.

I’d like, respectfully, suggest that Lessig has the right meme, but the wrong content backing up the meme. As I hope to show, code is indeed law — and, increasingly, literally — but not in the clean, elegant, hip, candy-colored (and triumphal) world of “the Valley” and the Internet, but in the world of huge honkin’ crufty proprietary information systems run by major corporations. Especially those used by banksters (including MERS and LPS).

Is the foreclosure crisis a law enforcement crisis?

Yes. Yves Smith:

The word “predatory” is not adequate to describe Wells’ conduct. The bank is not simply willing to steal from consumers, via blatant, institutionalized violations of its own agreements on mortgages and later on bankruptcy plans. It has absolutely no respect for the law, whether it be contracts or court procedures.

Yes. Abigail Field:

The mortgage settlement signed by 49 states and every Federal law enforcer allows the rampant foreclosure fraud currently choking our courts to continue unabated.

Yes. Barry Ritholtz:

The fraud is rampant, self-evident, easy to prosecute. The only reason it hasn’t been done so far is that this nation is led by corrupt cowards and suffers from a ruinous two-party system.

We were once a great nation that set a shining example for the rest of the world as to what the Rule of Law meant. That is no more, as we have become a corrupt plutocracy. Why our prosecutors cower in front of the almighty banking industry is beyond my limited ability to comprehend.

Well… Maybe. Before deciding, let’s look at law and code together. Here’s an extract from The Honorable Elizabeth W. Magner’s recent decision busting Wells Fargo [PDF], In Re Jones. It starts:

In this case, Wells Fargo testified that every home mortgage loan was administered by its proprietary computer software.

That is, code. I’ve reformatted Magner’s text into a table with two columns, which can be read left to right, top to bottom.

  • Column A (“Code should follow law”) contains content from the world of the judical system: Testimony, evidence, orders, plans, contracts, judgements, “the record,” and last but not least, the note and the mortgage.
  • Column B (“Code is law”) contains content from the world of information systems: Databases, coding, online forms, software manuals, and data entry procedures set up by Wells Fargo.
  • Note especially the key at the bottom of the table.

Table I: Extract from In Re Jones

(A) Code should follow law

(B) Code is law

In this case, Wells Fargo testified that every home mortgage loan was administered by its proprietary computer software.

The evidence established:

1. Wells Fargo applied payments first to fees and costs assessed on mortgage loans, then to outstanding principal, accrued interest, and escrowed costs.

This application method was directly contrary to the terms of Jones’ note and mortgage, as well as, Wells Fargo’s standard form mortgages and notes. Those forms required the application of payments first to outstanding principal, accrued interest, and escrowed charges, then fees and costs.

The improper application method resulted in an incorrect amortization of loans when fees or costs were assessed. The improper amortization resulted in the assessment of additional interest, default fees and costs against the loan.

The evidence established the utilization of this application method for every mortgage loan in Wells Fargo’s portfolio.

2. Wells Fargo applied payments received from a bankruptcy debtor or trustee to the oldest charges outstanding on the mortgage loan ….

rather than as directed by confirmed plans and confirmation orders.

This resulted in the incorrect amortization of mortgage loans postpetition. Again, the improper
amortization resulted in additional interest, default fees and costs to the loan.

3. When postpetition fees or costs were assessed on a loan in bankruptcy, Wells Fargo applied payments received from the bankruptcy debtor to those fees and charges without disclosing the assessments or requesting authority.

The payments were property of the estate, they were applied contrary to the terms of plans and confirmation orders, and in violation of the automatic stay.

This practice resulted in the incorrect amortization of mortgage loans postpetition. Again, the improper amortization resulted in the addition of increased interest, default fees and costs to the loan balance.

The evidence established the utilization of this application method for every Wells Fargo mortgage loan in bankruptcy.

Wells Fargo’s practices led to the following conclusions:

1. Applications contrary to the contract terms of Wells Fargo’s standard form notes and mortgages…

…resulted in an incorrect amortization of the loan.

As a result, monetary defaults claimed by Wells Fargo on the petition date were incorrect.

2. Misapplication of payments received postpetition resulted in incorrect amortization of Wells Fargo loans ….

…. and threatened a debtor’s fresh start, as well as, discharge.

3. Application of postpetition payments to new, undisclosed postpetition fees or costs….

… also threatened a debtor’s fresh start and discharge.

The Partial Judgment on Remand and Accounting Procedures were crafted to remedy the above problems. They were designed to protect debtors from …

incorrectly calculated computed proofs of claim, …

… to verify that loans were …

properly amortized…

… prepetition in accordance with the terms of notes and mortgages, and to ensure that postpetition amortizations were in compliance with the terms of confirmed plans and orders.

Because the evidence established that the problems exposed with the Jones’ loan were…

… systemic, …

Administrative Order 2008-1 and the Partial Judgment on Remand required corrective action on existing …

… loans …

in bankruptcy…

… for past errors, …

as well as, ongoing future…

… performance.

There is nothing in the record supporting Wells Fargo’s assertion that it has corrected its past errors. There is nothing in the record to assure future compliance with the terms of notes, mortgages, confirmed plans or confirmation orders. Therefore, Wells Fargo’s request for judicial notice of compliance is denied.




First, this arrangement of Magner’s text makes one possible “theory of the case” clear: The incentives for fraud — the costs, the fees, and the interest — are all coded green, and are all in column B; the world of Wells Fargo’s proprietary information system. Follow the rents. Every time Wells makes a “mistake,” Wells makes money! After mistakes were incentivized, mistakes were made! (Could Wells Fargo’s home mortgage loan administation system actually have been a profit center?) Now, it is true that this scheme — if it is a scheme — does not conform to William Blacks’ “recipe” for optimized accounting control fraud, but it’s a nice little revenue stream all the same, and it falls within Black’s definition: “Control fraud is a term that criminologists use to refer to cases in which the persons controlling a seemingly legitimate entity [here, Wells Fargo’s proprietary computer software] use it as a weapon to defraud.”

Proprietary information systems like Wells Fargo’s do not magically appear. These systems are not purchased in shrink-wrapped boxes. They are custom-coded and glued together with immense effort by people in cubes, and they cost money. Lots of money. They are also risky to develop. For these reasons, corporations establish formal processes for systems development, deployment, and maintenance of information systems. These processes are heavy-weight. “Agile” they will not be. Scrums will not figure largely in them. There are many methodologies for such processes, but there will be two common feature shared by all: They will be documented, each step of the process will be documented, and major documents — for example, accepting a requirements analysis or a decision to deploy — will be agreed and signed off on at the executive level. CYA is the order of the day. (And if none of that is true, so much the better.)

So, if I were a lawyer and looking to sue Wells Fargo for accounting control fraud (or better, a prosecutor who wanted to see banksters in orange jumpsuits doing the perp walk) I’d make sure to include all software development documentation in my discovery, including all email and conversations with outside contractors and consultants, as well as training materials and documentation for end users. Because, from the 30,000 foot level, Wells Fargo executives signed off on a ton of documents while building a proprietary software system that enabled and incentived fraud, and fraud took place. Lots of fraud. So, the executives either signed off knowingly (book ’em under, say, RICO) or they signed off unknowingly (book ’em under, say Sarbanes Oxley). Like I said, I’m not a lawyer. But the systems development process just could be the banksters’ soft underbelly, and I’d like to see a smart legal team with a penchant for software forensics try to rip it open.

All this is bad (or good) enough. But what if things are worse? What if the appropiate frame were not law enforcement, but jurisprudence? That is, what if the stakes were not “the rule of law,” but the nature of law itself, and hence the nature of the State?

Let’s take another look at Table I. Suppose I were a bankster, or a bankster’s lawyer, and I liked the green stuff in column B and wanted to keep what I’ve taken and take more of it. I might see Magner’s decision as a sort of “one from column A, one from column B” mish-mash that prevents me from doing God’s work. So why not get rid of that Column A entirely? Why not make code, law? That’s a clean solution, since all those pesky accountability issues go away. “Incorrect amortization” would become “incorrect amortization,” “misapplication of payments,” “misapplication of payments,” and so on and so forth. After all, if I were an oligarch, that’s exactly the kind of system I would want, right? Rent extraction without accountability. And there’s… not a precedent, exactly, that’s oldthink legalese, but a prior example, and in the same industry, too: MERS. Christopher Peterson, a law professor at the University of Utah, wrote of the “wholesale transfer of mortgages to a privatized database” [code] in Harpers:

What’s happened is that, almost overnight, we’ve switched from democracy in real-property recording to oligarchy in real-property recording. There was no court case behind this, no statute from Congress or the state legislatures. It was accomplished in a private corporate decision. The banks just did it.

With MERS, code replaced law. Going forward, code is law.

Returning to In Re Jones, this layperson can see two ways forward to the same happy, oligarch-friendly outcome as with MERS. The first: Wells Fargo’s failed, first shot: Just call it good. In a third-world country, such tiresome bureaucratic obstacles as judges are easy to clear away. But Magner wasn’t having any: “There is nothing in the record supporting Wells Fargo’s assertion that it has corrected its past errors.” The second: Suppose Wells Fargo’s proprietary system just can’t support Judge Magner’s order? What happens then? Obama’s mortage “settlement” allows a certain percentage of illegal title transfers. From a systems perspective, that suggests that Wells Fargo couldn’t build a “Column A-legal” without a huge budget and several years. In a clash like that, who wins? Courts have “no influence over either the sword or the purse” (Federalist 78). Most likely, the Court would back down. Code would become law.

In summary, I’ve suggested there are two ways to look the foreclosure crisis: 

  1. As a law enforcement problem, where banksters have committed illegal acts; 
  2. and as a jurisprudence problem, where the oligarchs who own proprietary software systems have changed the nature of law itself: Code is law, not metaphorically, but literally. 

In the latter case, what we understood the law to have been, in Civics 101, is then rewritten or crippled to conform to the code. Statutes, rules, regulations become vestigial. Code is the driver. (I can’t think another word for this than “revolutionary,” even if a revolution is “an overthrow or repudiation and the thorough replacement of an established government or political system by the people governed,” and not the people doing the governing.)

That’s a rather unpleasant notion. Is there another, prior example of code replacing law? Yes. FISA reform.

Step One: Code the software system:

AT&T provided National Security Agency eavesdroppers with full access to its customers’ phone calls, and shunted its customers’ internet traffic to data-mining equipment installed in a secret room in its San Francisco switching center, according to a former AT&T worker cooperating in the Electronic Frontier Foundation’s lawsuit against the company.

Mark Klein, a retired AT&T communications technician, submitted an affidavit in support of the EFF’s lawsuit this week. That class action lawsuit, filed in federal court in San Francisco last January, alleges that AT&T violated federal and state laws by surreptitiously allowing the government to monitor phone and internet communications of AT&T customers without warrants. … 

Klein’s job eventually included connecting internet circuits to a splitting cabinet that led to the secret room. During the course of that work, he learned from a co-worker that similar cabinets were being installed in other cities, including Seattle, San Jose, Los Angeles and San Diego.

“While doing my job, I learned that fiber optic cables from the secret room were tapping into the Worldnet (AT&T’s internet service) circuits by splitting off a portion of the light signal,” Klein wrote.

The split circuits included traffic from peering links connecting to other internet backbone providers, meaning that AT&T was also diverting traffic routed from its network to or from other domestic and international providers, according to Klein’s statement.

The secret room also included data-mining equipment called a Narus STA 6400, “known to be used particularly by government intelligence agencies because of its ability to sift through large amounts of data looking for preprogrammed targets,” according to Klein’s statement.

Step Two: Rewrite the law to legalize the system retroactively, and immunize everybody:

The Senate today — led by Jay Rockefeller, enabled by Harry Reid, and with the active support of at least 12 (and probably more) Democrats [including Obama], in conjunction with an as-always lockstep GOP caucus — will vote to legalize warrantless spying on the telephone calls and emails of Americans, and will also provide full retroactive amnesty to lawbreaking telecoms, thus forever putting an end to any efforts to investigate and obtain a judicial ruling regarding the Bush administration’s years-long illegal spying programs aimed at Americans

In broad outline, although not in the technical detail, the FISA process is identical to that being followed in the foreclosure crisis. We’ve seen the Step One, the coding, above. Obama’s mortgage “settlement” is Step Two:

We’ve now set a price for forgeries and fabricating documents. It’s $2000 per loan. This is a rounding error compared to the chain of title problem these systematic practices were designed to circumvent. The cost is also trivial in comparison to the average loan, which is roughly $180k, so the settlement represents about 1% of loan balances. It is less than the price of the title insurance that banks failed to get when they transferred the loans to the trust. It is a fraction of the cost of the legal expenses when foreclosures are challenged. It’s a great deal for the banks because no one is at any of the servicers going to jail for forgery and the banks have set the upper bound of the cost of riding roughshod over 300 years of real estate law.

(With FISA, the immunization was formal; here, it’s informal, a Get-Out-Of-Jail-Almost-Free card. The fines are just a cost of doing business.) Readers can no doubt suggest other examples of this play; I would guess it’s taking place wherever large-scale proprietary databases are to be found. (Electronic voting systems, for example.)

Step one: Code the system. Step two: Rewrite the law to match the code, and grant immunity. It is, after all, better to ask for forgiveness than permission.

Code is law.

It’s really not a matter of regulatory “modalities,” as Lessig would have it.

* * *

I’d be very happy if we turned out to face only a law enforcement crisis, and not a crisis in jurisprudence driven by a revolutionary oligarchy. However, if the latter is true, that must mean that the nature of the State, whose legitimacy, at least in the American tradition, depends on “the rule of law,” will have changed as well. Such a conclusion could be of interest to a broad range of actors in political economy, from MMTers, who wish to harness “the state” for public purposes, through legacy party advocates, who play “capture the flag” for what they conceive of as “state” power, through the libertarians who want “the state” to be as small as possible, through anarchists, who would wish to know their enemy.

Interesting times!

Cross-posted at Corrente.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. Damian


    it keeps getting worse than you can possibly believe – there are no rules – its just make it up as you go along

    cant fight this system – too long, too expensive and it goes nowhere – must be why there are so few whistleblowers – even though thousands were involved at every level-

    only solution – tune out /drop out !

    1. Lambert Strether Post author

      I believe that one should deny rentiers rents whenever possible, and so in that sense, tuning out from Big Media, buying local and avoiding Big Food, using a credit union instead of Big Money, minimizing your dependence on Big Oil, practicing information hygiene with Big Data — [hi, Mark! waves] — is a good thing. These are something “political” that anybody can do. I don’t think the situation is hopeless at all, though it’s one of Big Media’s functions to make you think it is. (“I have seen the fnord!” is, I think, the term of art). There are many ways to be involved, many ways to build social capital.

      1. bluntobj

        Indeed, an opt-out strategy that includes community building and interdependence on local and neighbor resources will be the way to deny rents, as you put it.

        I wholeheartedly endorse such a strategy, as it is the most non-violent means to wither and destroy the plutocracy.

      2. Crazy Horse

        Sigh— must be wonderful to be a liberal and believe that the ruling class can be wished out of existence.

        ‘When you meet your enemy, lift his scalp!’ Anonymous Sioux Warrior

        “Power grows out of the mouth of a gun” Mao Tse-Tung

        ‘Under the Socialism of the Working Class the state will wither away’ Karl Marx

        ‘Liquidate the Kulaks and seize their farms for the State’ Joseph Stalin

        ‘Losing production from desperate workers jumping out of windows at FOXCON? Put nets under the windows.’ Steve Jobs

        ‘It is the God-given right of every American to drive an SUV, and it is the mission of Halliburton to enforce that right’ Darth Vader Cheney

        ‘Global Warming has nothing to do with the fact that the Northwest Passage is now seasonally ice free for the first time in human history’ Republican Tea Drinkers everywhere

        ‘If we vote the bad guys out of office and replace them with Democrats we can drive our Explorer XXL back to the suburbs and live happily ever after’ Liberals everywhere

        “There is a sucker born every minute” P.T. Barnum

        “Delusion is the normal state of human consciousness” Crazy Horse

        1. SidFinster

          For those who care, I believe that I.V. Stalin recommended the liquidation of kulaks “as a class.”

  2. Crazy Horse

    Fascinating post. Brings to mind certain anomalies in the voting patterns of the election that ensconced little bush in his second term.

    Ohio was believed to be a pivotal state should the election come down to the wire. After the hanging chad farce in the previous presidential “election”, Diebold voting machines were installed throughout the state. These devices were widely known to be easily hacked by the average 13 year old geek. Fast forward to the election. On the basis of exit polls, the MSM calls Ohio for Kerry. Suddenly the tide of votes shift, and in the end Shrub is the winner. In individual districts the official vote tally and the results of exit polling routinely differ by 10%.

    In our God-given role of promoters of Democracy, we often send election observers (like ex-president Carter) to monitor elections in Banana Republics. When the exit polling differs from official results by more than a few percentage points it is considered grounds for suspicion. When the difference is 10% it is prima-facie evidence of fraud. Perhaps we need to import unbiased election observers from Cuba or Absurdistan for our next election.

    Still think your vote for Obummer or Mittens matters?

    1. PQS

      You read my mind.

      How easy to just write the code for the Selected Leader and make it happen. They are nearly indistiguishable as it is.

  3. Susan the other

    Lambert, this was a great analysis. I’ve been wanting someone to tackle the issue like this. Prof. Peterson has been almost a lone-voice on the audacity of the mortgage industry. Certainly a virtually ignored voice. And to compare the mortgage settlement and its future implications to how FISA was established by the subversive use of computer code to undermine jurisprudence is a very disconcerting angle on our paralysis of democracy. Thank you for putting it this way. I’m sick all over again.

    1. Lambert Strether Post author

      Thanks, Susan the other. This took me a long time to write because it was hard for me to get my head around the idea that there was an alternative to the universal “lawless banksters” trope, which was that the banksters are operating according to a completely different theory of jurisprudence about which the peasants have not been informed. Now, in some ways that’s good news, because it means that the “sociopathic banksters” trope might need revision in favor of a “revolutionary oligarchs” trope.

      Yves, Abigail, Barry: You’re abolishing a chain of title system that goes all the way back to other the Magna Carta without any public input!

      Banksters: Yes. And your point would be?

      1. Susan the other

        Actually, I’m all for a revolution guided by the rule of do-no-harm and as long as it preserves social equity, and protects the environment. But this lunatic financial mess seems like a revolution of the last stages of the utter confusion of the 20th century; it cannot possibly be controlled by rational guidelines. Or, if it can, what will they be? A rhetorical question for now. Nice to know, however, that often the rhetorical becomes the material.

  4. Min

    This is important information to get out into the open. Especially the part about rewriting the law to fit the software. The claim that it would be too expensive to rewrite the code, instead, is an excuse.

    I first noticed this kind of thing several years ago, when dealing with various companies. Some minor problem would arise, and had to be dealt with by a human. This happened early enough in the computerization process that I remembered when those problems did not come up. Why? Because the human bureaucrats acted sensibly. I chalked these experiences up to poor programming.

    There is a saying that 80% of programming is dealing with exceptions. I imagined the executives who wanted the software built to say what they wanted it to do, and say little about how to handle exceptions. Then the programmers, who were not known for their people skills, would deal with the exceptions that they could imagine, and come up with software that, unlike the humans who did the tasks before, did not deal adequately with the social exceptions. Computerization made customer service and companies’ interface with humans worse.

    Now, software is always being maintained. There are still people programming in COBOL, not to write new software, but to maintain very old software. What could have happened, but largely did not, would have been for the executives to tell the programmers to alter the software to deal with the social exceptions that were coming to light. But customers, although sometimes irritated, came to accept lower standards of service.

    Remember, software is always being maintained, changed to meet changing conditions and demands. If “Wells Fargo applied payments received from a bankruptcy debtor or trustee to the oldest charges outstanding on the mortgage loan” and that was illegal, and therefore the software needed to be changed, well, changing the software is what the programmers do every day. To claim that it would be too much trouble to comply with the law is simply an excuse.

    1. LucyLulu

      “Wells Fargo applied payments received from a bankruptcy debtor or trustee to the oldest charges outstanding on the mortgage loan” and that was illegal, and therefore the software needed to be changed, well, changing the software is what the programmers do every day. To claim that it would be too much trouble to comply with the law is simply an excuse.

      This is exactly right. I looked and can’t find a source right now, but I believe this is more on target than perhaps realized. If I’m not mistaken the way that Wells is applying payments used to be the industry standard. A few years ago laws were changed requiring that payments first be applied towards principal and interest charges and then to penalties and fees, thus reducing the snowballing of late fees and penalties. It appears that Wells Fargo, and most likely other institutions never changed their software to reflect the new required practices. Of course the software could have been modified! The changes would have been relatively trivial, merely reordering a few lines of code in the main module of a well-designed program (assuming not still written in Cobol, and if it is, high time its updated).

      Its ridiculous that Wells would even try to use the excuse that their “software misapplied payments” and expect that would be considered acceptable. Should I write a commercial financial spreadsheet that misapplies borrowers’ mortgage payments to the borrowers’ advantage?

      1. Lambert Strether Post author

        “Should I write a commercial financial spreadsheet that misapplies borrowers’ mortgage payments to the borrowers’ advantage?”

        Of course you should. The elite does, so what’s not to like?

  5. Code is Law?

    Richard Stallman:

    ‘To have the choice between proprietary software packages, is being able to choose your master. Freedom means not having a master. And in the area of computing, freedom means not using proprietary software. ‘

    1. b.

      I understand what Stallman is trying to say, but I still don’t buy it. As a long term Linux user – oh, the tyranny of “pure” distributions – you are still choosing a master most of the time, you just pay in hours wasted, not dollars spent. Plus, a lot of the so-called “free speech software” writing amounts to free beer software consumption – this is not a commons by any means except near-zero replication cost. The two-step to “all data wants to be free beer, too” is all too common.

      Stallman, like Lessig, would not want to see standardization or regulation of code. If your pacemaker runs software (firmware), you might be in favor of open source for transparency, accountability, and peer review, but you might not be in favor of running the latest Debian on it.

      1. Mon Buoy

        You haven’t understood the terms as you’ve used them. You’re a long time GNU user presumably so get with the program and refrain from first person, gross.

      1. Mark P.

        {1] HFT enables far worse crimes than front-running to be committed. (i.e. price-stuffing and market-manipulation on unprecedented scales)

        On the other hand, the legal case could be made — and fairly easily won, IMO — that HFT “front-running” is no such thing.

        [2] Again, as with “warrantless wiretapping” and FISA, the essential technical infrastructure/paradigm has transformed. Critics mount their attacks, however, using terms that people understand. Again, too, as with “wiretapping”/FISA, neither the critics nor HFT companies/trading desks is prepared to have an honest discussion of the issues involved.

  6. Mcmike

    The “code” is nothing more than accounting procedures translated into data processing instructions.

    The software manifests a flow chart that fully and perfectly reflect the choices and priorities of the person that drafted it

      1. Mark P.

        [1] Yeah. You’re entirely right about the banks and the mortgage-industrial complex simply _choosing_ to re-write existing and functional code law as code that suited their extractive purposes. It’s a stunningly obvious point (and you should look at modern accounting software systems next) but apparently people cannot get their heads around it.

        [2] But that’s also why your comparison with FISA is an awkward, inappropriate one. There, no choice was involved. The whole “warrantless wiretapping” controversy was a sham: the authorities literally cannot do “wiretapping,” whether with warrants or “warrantless”, because the underlying infrastructure of global telephony has been transformed over the last two decades.

        Everything now travels over fiberoptic in internet packet mode, with hundreds of thousands of messages routed around the planet and mixed together in any one stream, and all of them only surveillable at all via data mining of call/billing records. Except over the last mile there are no more “wires” left to wiretap”: it’s a different world.

        Neither the government agencies nor the privacy advocacy industry wanted to have a discussion about that, however. And, honestly, when the American public and the media are mostly so ignorant about the basic technical infrastructure underlying their civilization, why would one bother trying to educate them?

    1. citizendave

      Well said.

      The impression I got from reading the court papers was that Wells F was sort of shrugging their shoulders as if to say “What are we going to do, it’s our software?!” as though their software is not doing precisely what it was designed to do.

      To my wife I read aloud the part about the software taking the blame, and she rolled her eyes up skyward. We’ve both worked for a company that chose to develop proprietary code, instead of buying off-the-shelf. In-house development takes blood, sweat, and tears, from the code developers down to the lowest users in operations — years of it — and lots and lots of money — to get a proprietary system working satisfactorily. After all that time, and money, and misery, and trying to get it to work as envisioned, I could imagine that Wells would love to have their monumental code project enshrined as law.

      The judge could require Wells to furnish their code with complete line-by-line documentation, to make it more convenient for forensic auditors to discover what trickery was embedded in the code. As an alternative, Wells could be required to furnish old-fashioned ledger books.

      As a conceptual alternative to the concept that the code could be enshrined as law, perhaps the code could be found to be in violation of the law, having deliberately embedded contraventions of Generally Accepted Accounting Practices, if not outright defiance of a court order.

      1. Mcmike

        Sorta like blaming a gun for pulling its own trigger.

        Some one some where made the choice of payment sequence. I suspect an overzealous low level staffer, or maybe rogue contract programmer.

        1. citizendave

          As a (former) IT support type, I am familiar with how code is created. I was thinking more along the lines of corporations as persons. Code as violator of the law. Code personhood? Of course the code was designed and written by corporate persons.

          Maybe we can work Alan Turing into the conversation. The Wells cheating thieving bankster software is a Turing Machine. Is it human? Or is it a machine? Can a machine be found to be culpable? Probably not, so it must be the humans who own and operate the machine who are culpable.

          1. Min

            “The Wells cheating thieving bankster software is a Turing Machine. Is it human? Or is it a machine?”

            It’s a reverse Turing test. Bankers acting like machines.

        2. reslez

          On the contrary, “choice of payment sequence” would be made at the very highest level, since it directly impacts the bottom line. That is not a decision you leave to a $40k/year H1-B contract worker from Mumbai.

        3. SidFinster

          Come on!

          As noted, in a system like this, every line of proprietary code has to be documented and signed off on. Rogue coder my ass.

          Rather, this is more like unto a defendant who disclaims responsibility after when he pointed a loaded gun at the victim and pulled the trigger. After all, if the gun had jammed, the shooter would not be facing a murder beef.

          1. Mcmike

            Nevertheless, the “independent underling” defense is precisely what they’d use – with the media and prosecutors playing along.

            The very opposite of Nuerembourg; where the system was condemned from the top down. Now individuals are carved out in a vacuum to be thrown to the wolves.

      2. jsn

        “As a conceptual alternative to the concept that the code could be enshrined as law, perhaps the code could be found to be in violation of the law, having deliberately embedded contraventions of Generally Accepted Accounting Practices, if not outright defiance of a court order.”

        Yes but who might make such a finding since 49 of 50 states top enforcement authorities have already said they don’t want to look for this kind of thing and the Fed’s are making every effort to make these “violations” function as the law.

        1. citizendave

          Their fancy software is just an axe. From first blush to careful analysis, it’s still just a tool. Judge Magner appears to understand that, and she appears to be unimpressed. She seems to be saying that Wells understands they are using a faulty tool (faulty in the sense that it is not following proper procedures, whether by design or incompetence) and they have continued to use the faulty tool even after being instructed to cease and desist.

          Even if that’s not an accurate characterization, the point is that the judicial system could find that it is irrelevant to consider any technical details of how the fraud was committed. The question should be whether or not the bank’s actions were fraudulent, or criminal, or however the impropriety should be described. They defied the court when they continued to use their axe to cheat their customers.

          1. Lambert Strether Post author

            It would be nice if this post rippled out to some judges, since after all it is their view of jurisprudence that is under assault. “Literally” is there in the headline to highlight what’s at stake.

            Anybody remember Judge Sirica?

          2. ambrit

            Mr Strether;
            Yes indeed. How about Archibald Cox? I remember someone on Dick Cavetts show remarking; “Dick Nixon has become a Cox Sacker.” To round it all out, Ferdinand Pecorra. They had Brass in the old days.

  7. Gerard Pierce

    While mostly correct, this analysis does not take into account how code actually works. It makes the problem larger than it really is.

    The code that determines the order in which payments are applied is about 0.001 percent of the code that makes up the system. In real world terms, this might amount to at most 500 lines of code. (Depending on the language, it might be as little as 50 lines of code.)

    If legal discovery includes a request for this code, it should be possible to challenge the idea that this block of code is proprietary. There is nothing secret here that a reasonably skilled programmer could not create on the back of several napkins during his lunch hour.

    1. Lambert Strether Post author

      Could be. And it would sure be nice to know who signed off on that, eh? Also, that incorrect information is cascading through the system, which seems awfully brittle. Where was the validation that the assessments further down the pipeline were correct, for example? What was the testing procedure? Is the documentation at odds with the code? And so on. “It is the little rift within the lute. That by-and-by will make the music mute…”

      But I’m not sure it’s that small, when you think about the banking system as an ecology, and through LPS and MERS into the mix. All these systems are inter-related, and that is the technical basis of accounting control fraud.

    2. Walter Wit Man

      You’re probably right that much of this code is relatively simple.

      But I get the sense that writing code is becoming demystified.

      Ten years ago a judge may have been more likely to rule this type of code is unique and a trade secret, etc., because writing code seemed like magic.

      Unfortunately, judges are probably ten years behind the times–like a teenager in Nebrasksa trying to keep up with New York fashion!

      And, they really, really, respect fascist elite bankers, for the most part. That’s how they got the job in the first place!

      1. Mel

        I really can’t believe that. Even ten years ago the law may still have had some self-respect. I’m thinking about a couple of examples from twenty or thirty years ago, which the code in Google is not helping me much to recall.

        A British police superintendent (ISTR) came back from his holiday in Spain and found that a large amount of money was gone from his bank account. He reported the error to the bank. The bank charged him with criminal fraud, claiming that no money was missing, and that he was just trying to steal some. The bank claimed that their procedures were fully computerized, and that money could not just be missing. After a long, expensive trial with a great deal of technical testimony, it was established that the bank’s computer systems could indeed cause money to go missing from a customer account. The police superintendent was acquitted, and ISTR, got his money back.

        There was a well publicized case of an American insurance company that implemented a computer system to cook up life insurance policies on non-existent customers, in a Madoff-ish kind of way. These polices were sold off to other insurance companies; in due time the fictitious policy holders would die, and the inventive company would collect. Charges were laid and convictions were obtained.

        I wish I could find the documentation. But it’s not as though the law was simple and primitive in those ancient days. It could take care of itself, and take care of us back then.

        1. Min

          “There was a well publicized case of an American insurance company that implemented a computer system to cook up life insurance policies on non-existent customers”

          Equity Funding? They sold people a package consisting of a life insurance policy and mutual fund shares, with the idea that the returns from the fund would pay the insurance premiums. When the market stopped going up (and possibly before) they turned to fraud.

    3. Stufmp

      While I can’t confirm a line count (I wouldn’t be surprised if it was a few thousand lines), it is a relatively small part of relevant systems. Lambert, you write “Proprietary information systems like Wells Fargo’s do not magically appear. These systems are not purchased in shrink-wrapped boxes….These processes are heavy-weight. “Agile”* they will not be.” I actually know a few people who used to work at CheckFree, which is a big software provider to banks for software for settlement and online banking, including Wells Fargo. CheckFree was an Agile shop, probably still is, and were for a while a desirable place to work – not heavy weight. I can confirm that they did indeed write transaction-reordering code for their customers to optimize fees. They even had a plug-in architecture if the customer wanted to roll their own for what was described to me as “Extra Evil”.

      * For those not involved in software development, “Agile Process” describes software development defined by short intervals of work called iterations, with constantly shifting goals and product to suit the customers changing and evolving needs. This would be in contrast to old-style “Waterfall” development, where first the product is completely spec’d out, then developed, then delivered. Agile puts a little bit of each of these into each short (a few weeks, tops) iteration. Lambert may have been tempted by the rhetorical desire to link old-school, dark, mainframe type development with exploitative and authoritarian code. But surely he knows evil code doesn’t care where it is running, or how it was written – there’s arguably evil in every iPhone, as it tracks you from location to location, logging your location and uploading that data to a central server.

      1. Lambert Strether Post author

        Thanks for the correction. Perhaps my experience in the cube is a bit dated now. That said, the larger point is that the process is documented, and I take it the steps in the process are documented, and are therefore available for discovery.

        Is there any wrinkle to agile development that would make enable discovery or make a software forensics effort easier?

        1. Stufmp

          I apologize for being a bit of a pedant – it goes with the geek territory.

          I think the good news about the source code obtained in discovery – be it written in COBOL by a greybeard, or Ruby by a 20 year old – is there are going to be damning comments, variable names, or structures in there. Where an attorney would be circumspect, programmers are blunt. The smoking guns to be had here would be utterly damning – at least to the correct expert witness, and probably even to the lay reader. So I agree with you – it would be a worthwhile effort.

          I’ll invent something for flavor, to give you a taste of what I imagine might be found

          // 22 USC 4229B? Snort.
          if (accountPaidButFeesAssessedAnyhow)
          .. evil here ..

          1. LucyLulu

            From my reading of the case before Magner, the pseudocode looks more like this:

            if(monthlyPaymentMade) {
            subtract any past penalties and fees owed from payment;
            apply new amount to current monthly payment due;
            if (current payment is not paid in full)
            add new penalties and fees for failure to pay in full;

            Instead the payments should be applied first towards paying current principal and interest, then penalties and interest, so that penalties won’t continue to snowball when full mortgage payments are made.

        2. citizendave

          I would say that it is by no means certain that the process — ie any of the code — is documented. Even in the best of times, hiring a technical writer to write documentation is a luxury, at least where I worked. Wells probably has money to burn, but a lesser organization would be stingy. Maybe a polite coder on a team would add comments at various places to aid others on the team. But in a lean environment, we don’t need no stinkin’ documentation. No time for that.

          1. SidFinster

            Maybe it is just me, but I strongly suspect that Wells Fargo has the ca$h to pay for proper documentation.

            Say what you like about MBA types, but they do surely dig on things like structure, metrics, and yes, documentation of everything.

  8. bmeisen

    Thanks for working hard at a tantalizing angle. I’m thinking: electronic checking, for some reason.

  9. Walter Wit Man

    Good luck convincing judges to enforce broad discovery requests re the banks’ proprietary software.

    I wouldn’t hold my breath . . . although it would be nice.

    During the anti-trust cases against the payment card associations, as well as the data processors, from a decade ago, and involving the interchange rates, these Big Boys were very protective of their proprietary systems.

    Being associations, entities like Mastercard and VISA needed to share information among the 10,000 banks in America that were its members (this number is probably dated now though).

    I can’t recall what the judge determined about what was discoverable in those cases, but I’m guessing the court was very responsive to the banks’ requests to protect the data. Most banks/insurance companies will go to great lengths to keep this stuff hidden.

    Interesting to think the banks were working on so much proprietary software in the late 90s/early 2000s; the efforts involved 1) the electronic payment system involving the roughly 2-3% the banks skim off the top of all card payments, as well as, 2) implementing the alternative real estate title recording system, MERS, and 3) the proprietary software used to service mortgages which this post discusses.

    So from the late 90s we have the big banks revolutionizing the card payment system and the real estate recording and servicing systems.

    The banks caught an anit-trust case in one of those areas but easily sneezed it off. The other two areas the banks have had free reign.

    1. Lambert Strether Post author

      If that’s true, then, it proves the point! (That it’s not law enforcement, but jurisprudence. It’s almost as if those proprietary databases were sovereign.)

      However, I also don’t believe that there’s no procedure in software forensics to handle the legalities. If there’s a technique to reverse engineer entire systems in a clean room, which there is, there will be a technique for this.

      1. Walter Wit Man

        Oh, discovery is the procedure. Judges should allow discovery on this stuff. I didn’t read the sister opinions to the linked case so I don’t know how much discovery the plaintiff was able to do in this case.

        I would expect the lawyers to be sanctioned before they hand this stuff over though. As well as an appeal as high up as it can go.

        Once the code is handed over though, as you say, it would simply be a matter of proving what surmise above. I would bet your suspicions are totally accurate, and the code is written to extract illegal rents.

        Then it’s a matter of simplifying the case and proving it. These perps have made these things appear complicate, when they’re not, to hide their crimes. Just like with MF Global–these perps have a hug complicated cover story for some simple wrong. Like paying the costs and fees before the principle. They probably wrote the code in a convaluted why to give themselves some cover. Who knows.

        The only problem with discovery procedures is that our justice system is broken. The DoJ and regulatory bodies are filled with perps. Many of the potential litigants, like the investors on the MBS, are complicit and won’t assert their rights. And judges are more likely than not to be fascists.

    2. Walter Wit Man

      Here’s just one example of a proprietary system involving interchange rates:

      “Optimized Payments uses proprietary software to sift through these Interchange fees and identify areas of potential pricing optimization. For instance, if your business has 50 stores, we identify the locations that are experiencing downgraded transactions and paying higher Interchange fees due to hardware/software issues or employee errors.

      We’ll use our industry knowledge to increase your profitability, and we’ll manage all details, so you stay focused on core business operations”


      Of course this is on the merchant side. On the bank side they have their own systems. Which are better.

      So we are all paying a few points in rent so that our banking masters can use computers to better harvest money from us. Any efficiencies provided by our electronic payment system are eaten up by predatory behavior.

  10. Eric L. Prentis

    Every country has a form of capitalism, even China. It is not our form of capitalism that beat communism and the USSR, as the right is quick to claim. Instead, Democracy and the Rule of Law beat communism.

    Proper Democracy (not the electronic Diebold voting type) and the Rule of Law, requiring due process and trial by a jury of your peers (not computer code masquerading as proper law—which is passed by honestly elected representatives—nor rendition and/or the President unilaterally passing a death sentence on you).

    Without proper Democracy and the Rule of Law, everyday life is just survival of the most powerful.

    1. Lambert Strether Post author

      Just paste in the link to the Faceborg post. FB will take a minute to recognize it, but the image and the lead paragraph or so of the post should appear. Then submit.

  11. R Foreman

    This is awesome.. I can write computer code too, and if mistaken theft is now legal then I’ll be rich by the end of the year!

    Of course if this goes to court, then which code does the judge side with, Wells Fargo’s which says my principle increased by 15% just last month, or my code which says my house just got paid off last month?

  12. K Ackermann

    This is amazing. I’ve never thought of it this way.

    It’s the perfect higher authority to deflect to. It can’t be checked for accuracy because it is “propritary”. It can’t answer questions. It just has spokeshumans who attest to its accuracy.

    Of course, it can’t handle money because it doesn’t have any hands. We should help it by sending digital pictures of money instead of the real thing.

  13. kevinearick

    and the global IC chip becomes more transparent every day, rendering the participants, the majority, even more immobilized…”thinking”…

    the margin is where all the action is. choose wisely to whom you decide to reduce rents, beyond the perception of the empire…

    it is always the best of times and the worst of times, the end of times and the beginning of times, for genetic lines. Sometimes, they intersect to produce quantum results.

    and the exodus accelerates…leaving only tyranny.

    that’s what happens when we look the other way as legacy interests choose who will and will not be able to raise a family…

    time buys money, which buys income, which is why the droids work harder and harder for time, falling farther and farther behind time, and why student loan debt, which now exceeds credit card debt, is a prison, a fiction of money.

    funny, the statey’s were afraid to go into Comptche just a few years ago. Now, they own the place, but can’t do anything with it. seems like just the other day, life prospered in the canopy..

  14. indio007

    The “law” is the agreement of the parties.
    What do we have in a mortgage?
    Not a contract. Banks don’t sign the Deed of Trust and they only endorse the note to make it negotiable to a 3rd party.

    There is no contract to break and therefore no law.
    The banks duties are all as a trustee.
    It has been quite obvious over history that trusts are the perfect vehicle for theft.

  15. shtove

    Interesting. I’ve been looking for legal analysis of how IT shapes the administration of justice, but not much luck.

    In the UK for the past decade countrywide electronic systems have been up for mortgage litigation.

    There’s a central land registry system, where entries have been steadily dematerialised over the years ie. proof of title, charges & encumbrances is given by electronic record, which is deemed by statute to be as good as the original. In practice this works smoothly, but I have come across some judges who object to a copy of a copy ie. a pdf of a pdf! But the best evidence rule is almost history in the UK. (As is the rule on hearsay in civil matters.)

    The system of mortgage litigation appears to me much smoother than in the US. In the first place, securitisation in the UK retains the mortgage originator as legal owner on behalf of the beneficiary bond holders – the former administers the mortgage and has standing to litigate. Also the UK hardly ever uses foreclosure, but almost always relies on orders for possession, which fall short of a trial. All litigation is chanelled through a second electronic system set up by the courts service – PCOL. It has quite a few glitches – again, some judges make a fuss, but most don’t.

    In this regard I think the NC article is getting at something useful, because the battery-farm lawyers’ firms who dominate this area of litigation have a tendency to insist that their methods are correct – anything else is an aberration. If a judge throws their electronically generated paperwork back in their faces, that gets marked down simply as a failure to meet target, and punishment is meted out to the poor buggers who have to administer the system.

    So I still see this as an administrative influence, rather than jurisprudential. My biggest annoyance is at the domination of the targets-philosophy, which overrides discretion and judgment. That is a function of systematisation, but I don’t think it approaches a “code is law” transformation.

    However, the UK is the global centre for banking fraud!

      1. shtove

        The electronic systems in the UK are state-run.

        I guess the US federal system will go that way.

  16. ScottS

    No mention of DMCA? The Digital Millennium Copyright Act literally makes code into law. The rights you had previously under the Copyright Act of 1976 exist only at the whim of the publisher. All the publisher has to do is make an effort enforce copyright protections using a technical mechanism (code, typically), and you only have the rights the protection mechanism allows. No first sale rights, no lending, no copying for education, news, debate, no mashing up into substantially new work, etc.

    It’s illegal to use copyright protection circumvention tools, as well. You can’t legally use circumvention tools to exercise your Fair Use rights. You don’t even have to violate copyright to run afoul of the DMCA since it’s illegal to make or sell such tools. Ask Norwegian DVD protection-breaker Jon, who was fortunately acquitted though had to go through two trials to be so. His acquittal happened only because what he did wasn’t illegal in Norway. Now, that “loophole” (national sovereignty) will be crushed by ACTA (https://en.wikipedia.org/wiki/Anti-Counterfeiting_Trade_Agreement), the DMCA for the rest of the world.

    1. K Ackermann

      And the fact that the ACTA text is not available to the public is beyond outrageous.

      It feeds into the patent troll business where a company quietly purchases the rights to IP and makes it difficult for a company to do an honest search. Then they use tools that look for possible infringements and drop the hammer on them. They are heat-seeking parasites with the law on their side. The law encourages rent-seeking parasitism.

    2. Nathanael

      Of course, the result of this is NOT for the absurd, draconian laws to be ENFORCED, but for the entire legal system to fall into disrepute and be generally ignored. On the rare occasions when the legal system is used for purposes of selective enforcement, people then simply treat it as an armed extortion gang.

      This sort of armed extortion gang operation isn’t sustainable when you’re preying on the vast majority of the population; it’s only sustainable when you’re preying on a minority of the population. Unless you have a really-well-treated elite of enforcers, but our elites refuse to treat their enforcers particularly well, too….

  17. PSP

    The mortgage servicers have been telling the Bankruptcy Bench and Bar for decades that their software is not set up for Chapter 13s. The lawyers preparing payment histories for stay motions, etc, manually manipulate the numbers to properly show post-petition payments.

    I recently had a chapter 13 client go to his local bank branch to pay his mortgage. He freaked when the amount he was told was due equalled far more than he thought. The lawyers checked, and he was current post-petition.

    If you really want to be scared, ask how often the banks seek stay relief claiming not to have been paid, and then the Debtor shows up with cancelled check proving payment.

    1. LucyLulu

      “The mortgage servicers have been telling the Bankruptcy Bench and Bar for decades that their software is not set up for Chapter 13s. The lawyers preparing payment histories for stay motions, etc, manually manipulate the numbers to properly show post-petition payments.”

      They haven’t been able to set up their software to handle Chap. 13 for decades? Why ever not? Lack of motivation?

        1. LucyLulu

          That’s alright, Lambert. Everybody has an off day now and then. We’ll let you off this time.

          Today’s trivia: Shortly after WWII, Admiral Grace Hopper, a computer pioneer at Harvard was having difficulties with a program, on an early version of computers, the Mark computer. After spending considerable time trying to determine the problem, she sent one of her coworkers down to inspect the computer hardware. He found a moth trapped in one of the electromagnetic relays. Hence the term “bug/buggy” was coined to describe glitches in software programs. They taped the moth to an entry in their log book. The moth along with accompanying log entry are displayed today in the Smithsonian.

  18. b.

    Not to leave anything to chance with Lessig-originated memes:

    “The lesson of code is law is not the lesson that we should be regulating code, the lesson of code is law is [for the perps] to find the right mix between these modalities of regulation to achieve whatever [profit-extracting] objective a government might be seeking.”

    Regulation, bad. Banish the thought crime. Code, good! In other words, Lambert appears to make the point that Lessig was read as a presciption by the authors of the “codes” he lists as examples? Self-disproving meme, then?

    1. Mark P.

      Do you mean Lessig was read in the same way as during the early 1970s Michael Hudson’s book was read at DoD and State as a prescriptive “how to” text?

      I don’t think that was the case here and Lessig merely anatomized the existing situation. That said, I don’t thinkl it makes any difference, either.

  19. Up the Ante

    “Elite impunity for crimes committed and still being committed by lenders and servicers (“banksters”) on a massive scale. We can also look at the foreclosure crsis as an issue of jurisprudence, where a revolutionary oligarchy seeks to change the nature of law itself. ”

    Reads like a description of the Bolshevik Revolution, and that part about “still being committed” is the most relevant in that the Bolshevik Rev is alive as their shills will remind you it is alive.

    “Is the foreclosure crisis a law enforcement crisis? ” Yes, federal judges are now ‘lending’ justice to each other,
    and have become shills foisting spectacles upon the people.

    Ritholtz: “The fraud is rampant, self-evident, easy to prosecute. The only reason it hasn’t been done so far is that this nation is led by corrupt cowards ..”
    These Bolsheviks are revolutioning, and do not appear to be cowards.

    And I assure you I was not plagiarizing w/the above, good as it is to see the perspective is a logical conclusion,

  20. citizendave

    At the risk of veering off topic, science fiction fans might enjoy “Halting State” by Charles Stross. There is a likeable character, Elaine, who is a forensic accountant. She’s brought into a case, by a constable in Edinburgh, after a bank in an online gaming world is robbed. Elaine is unfamiliar with that particular gaming world, so she hires a guide, in the person of a l33t programmer…

    I enjoyed it.

  21. falun bong

    As we dig deeper and deeper for the root cause of the overall “crisis” it seems to come down to values. The people who signed off on this fraud, and approved and bought the code to support it, should have had a little voice go off in their heads that said “I know this is wrong and I won’t do it”. Instead, a different voice sounded, one that said “I know this is wrong and I will do it anyway”.
    I trace it back to a subtle turning point we reached sometime in the last decade, when notions of the “collective good” died and gave way to “screw you, my individual (and corporate and national) interests are all that matters”.
    The collective good will be a very hard thing to revive on a national scale, and we will struggle to embody it again in our laws, and then our code. Maybe the only hope is to spawn it locally. Or move somewhere where it hasn’t died yet.

    1. Ralph Crown

      There is a point in every civilization where it crosses its own lines. That is when it begins to destroy itself.

      Our civilization has reached that point. If climate change doesn’t wipe us out, we’ll do it on a more personal level.

      The banksters, in their worship of money, have put aside all morality. There is no right or wrong, only the pursuit of profit.

      1. Up the Ante

        As citizendave implies in his comment it’s science fiction to believe the banksters care about other classes. They are celebrating the separation of classes.

    2. Mcmike

      The commons will indeed be difficult to revive.

      I have been struggling for a while to visualize how this gets fixed. Layers and layers of bad laws. Piles and piles of corrupt people. …

      I have a hard time picturing a rennaisance – without an old testament flood or plague first.

      Stalin, Mao, Pol pot….

      1. Nathanael

        The recipe for reviving the commons when the government is under the stranglehold of crooks was written during the French and Russian Revolutions; unfortunately nobody’s found a better recipe yet, but we should still try.

    3. Mark P.

      falun bong wrote: “Instead, a different voice sounded, one that said “I know this is wrong and I will do it anyway”.’

      You’re a optimist, I’m afraid, because I believe no such voices sounded in the minds or among those who created and advanced the MERS scam. Instead, all that was said and heard was: “what can we do to build on the already existing processes of mortgage-securitization to extract further profits?”

      The more practical thing would be to anatomize just how few steps it took to get from Lew Ranieri’s original pioneering of mortgage-backed securities in the late 1970s-80s to this farcical banana-state America we have today.

  22. readerOfTeaLeaves

    Brilliant post.
    Some enterprising lawyer should read it 20 times, and then pursue the ideas it contains.

  23. S Simmons

    There’s a lot to think about here. But the bottom line appears to be that banksters wrote code which they used to systematically rip-off people. There’s nothing inherently mysterious about using code to commit fraud. So, yea, do discovery correctly and get some folks who can explain this correctly in a courtroom setting.

    Regarding jurisprudence, writing code to assist your committing fraud is not necessary in order to gain retroactive protection from wrongdoing.

    Also, we are currently observing some twisted versions of ‘code is law’: for example, the authorities are about use MegaUpload’s own code to prosecute them for past transgressions. So, obviously, code can be used by the authorities in multiple ways.

    It seems that, ultimately, it’s simply that the rule of law has been thrown out the window.

      1. Walter Wit Man

        Just to tie the Promis article to Lambert’s post, here’s the description of the potential powers of a system like Promis:

        “What would you do if you possessed software that could think, understand every language in the world, that provided peep holes into everyone else’s computer “dressing rooms,” that could insert data into computers without people’s knowledge, that could fill in blanks beyond human reasoning and also predict what people would do – before they did it? You would probably use it wouldn’t you? But Promis is not a virus. It has to be installed as a program on the computer systems that you want to penetrate. Being as uniquely powerful as it is this is usually not a problem. Once its power and advantages are demonstrated, most corporations, banks or nations are eager to be a part of the “exclusive” club that has it. And, as is becoming increasingly confirmed by sources connected to this story, especially in the worldwide banking system, not having Promis – by whatever name it is offered – can exclude you from participating in the ever more complex world of money transfers and money laundering. As an example, look at any of the symbols on the back of your ATM card. Picture your bank refusing to accept the software that made it possible to transfer funds from LA to St. Louis, or from St. Louis to Rome.

        The other thing to remember is that where mathematics has proved that every human being on the earth is connected to every other by only six degrees of separation, in covert operations the number shrinks to around three. In the Promis story it often shrinks to two. It really is a small world.”

        1. Up the Ante

          You could also toy with other nations’ banking apparatus(es).

          Who will verify you did it or it’s been done to your computers?
          The demons have been loosed and is probably the best explanation for the Justice Dept’s. inactivity. They’re serving.

          The ultimate power struggle tool.

          1. Up the Ante

            My, since adding the comment above a few minutes ago my computer is showing unusual amounts of c-drive accessing !


  24. furiouscalves

    we are coming closer and closer the ultimate mathematical division with our digital technology. code is becoming law. you are either the owner and “for” the code or you are not. You are a one or a zero. the division now has less and less levels of gray. maybe we are at like 8 bits right now and it looks terrible. we need at least like 1024 bits to survive as a functioning society.

    also, yes it was and is a fascist revolution that has occurred. only fascist minds would choose the one and try to let all the rest have the zero over and over. only a fascist thinks that everything in the world can exist as an either or proposition with one side always being favorable. computers breed fascists and too many people like them it. scares the shit out of me.

  25. Kukulkan

    As others have pointed out, software (proprietary or otherwise) is just a tool, like a set scales. If Wells Fargo were a butcher shop and had rigged their scales so they under-weighed the meat, so customers were getting less by weight than what they paid for, I don’t think anyone would have any trouble recognising that as fraud. If they were a chain of butcher shops and had programmed their electronic scales to all under-weigh to the same degree, then that would be widespread and systemic fraud.

    As far as I can tell, what’s being described here is exactly the same. If the order in which payments are supposed to be applied is mandated by law and Wells Fargo’s system is applying the payments in a different order, then the tool is biased and not returning an accurate result. Just like a set of scales not reporting the weight of an item accurately.

    The thing is, to check for this, you don’t need access to the code — which I expect Wells Fargo would fight to keep secret, it being proprietary and all. All that would be needed is some standardised test cases: a hypothetical mortgage and series of payments over time that can be feed to the system. What the results for how much is still owed, etc. at any given time would be known in advance and if the system failed to return those results, it would clearly be inaccurate and not fit for purpose. Just like if you put a standardised weight of one kilogram on a set of scales and if the scales return any result other than 1 kg, you know the scales are inaccurate; you don’t need to know how the scales work.

    I don’t know who in the United States is responsible for ensuring that tools used in trade — such as scales and the like — are fair and accurate, but investigating whether something like Wells Fargo’s proprietary software is accurate would seem to be a valid extension of their mandate into the computer age.

    If it turns out the system is not accurate — that is, when the standardised test cases are run through it, it doesn’t return the correct results — then Wells Fargo would be given a week or a month to fix the problem and, if they fail to do so, would be barred from trading after that until they do fix it.

    Either that, or they would be charged with consumer fraud.

    (Yeah, I know either of these outcomes is unlikely given the current political climate in the West, but that’s how things should work.)

    1. Lambert Strether Post author

      That’s the methodology, like my metaphorical clean room, that gets around the argument that their code is proprietary and should be secret.

      And I love the “tools used in trade” argument. Now, if only some bright lawyers can evaluate all these ideas, take the good ones, and run with them.

  26. Eclair

    Great post, Lambert, and thought-provoking discussions, as usual, by commenters.

    Re: MERS and the entire foreclosure fraud debacle, as well as the bankster bailout. Law, and in this case our real property laws, are written by the group with the most power – money, weapons, “divine right” (snort).

    Land, in the US, was wrested from the Native Americans by force. The Euros had the advanced weaponry and the deadlier pathogens. The results were codified into “law”, which, mirabile dictu, benefited the invading Europeans.

    This system has lasted nicely for the past three centuries until the present, when an incredibly wealthy small group has decided that it wants the land, under its own terms. Enter MERS and its opacity as well as its unavailability to the general public. There is no more “public”, but only “proprietary.”

    The for-profit prison systems have become the new Reservations, where the least powerful are shunted, having travelled their own “Trail of Tears.”

    And the oligarchs, not content with having taken the Native American land, are now engaged in a power grab for their water. Damn, we overlooked the water rights when we wrote up that treaty! Let’s fix it now!http://www.nativenewsnetwork.com/senate-bill-2109-seeks-to-extinguish-navajo-and-hopi-water-rights.html

  27. Pearl

    Oh Noooooo!I’m late reading this post!

    I have been hoping for a post like this; I hope the following links get noticed by one of you important folks.

    I can take “code” even one step further–look what I stumbled upon a couple of weeks ago.

    This is the actual patent for, what I like to call, “electronic foreclosure.” (Can we start THAT meme–“electronic foreclosure?”)


    Just in case the link does not work, you can probably just find it by googling the following:

    Application number: 11/458,762
    Publication number: US 2008/0201190 A1
    Filing date: Apr 8, 2008
    Inventors: William H. Compton, Charles R. Haag
    Original Assignee: Barrett Burke Wilson Castle Daffin & Frappier, L.L.P.

    Notice the patent was granted right before the crash–in August 2008–so it was well-timed. The “original assignee” was Foreclosure Mill Extraordinaire, Barrett Burke Wilson Castle Daffin & Frappier LLP (Addison, TX.)

    To me, this is confirmation that these high volume foreclosure / bankruptcy mills are being run, soup to nuts, via software–not humans. Indeed–this is NOT the practice of law! It’s just HAL! :-)

    If anyone has the time–please check it all out via the link above. (And note the diagrams!) It’s all totally consistent with what I’m seeing coming out “the other end” these days in the Georgia Land Records. (Honestly, I didn’t know whether to laugh, scream, or cry when I first discovered it.)

    Well, I have a few more thoughts on this, but I don’t want to be a blog hog. I’ll check back in a while and see if there is any interest. If there is–I’ll post more.

    1. PL

      Some human involvement is required by this system, it is not entirely automated. Look at the descriptions of a “reviewer” making decisions about how to proceed with foreclosure or bankruptcy. Assuming the reviewer is an employee of the servicer, there’s one more human player required for the system to work. A member of the legal profession must sign legal documents and submit them to court. The question that arises is whether the attorney is making independent decisions or acting merely as a puppet of the software/reviewer. If so, then the software/reviewer is practicing law without a license or, at the very least, under someone else’s law license. Why an attorney would agree to this arrangement speaks volumes about excess supply in the legal profession and the resulting behavior of JD’s looking to make a buck.

      1. Pearl


        I am only now truly connecting the dots. I noticed the following ad on Craigslist Atlanta a year ago and saved it:

        “Attys & JDs/LLMs – 50-Person Doc Review, Fortune 500 Co (Charlotte, NC)
        Date: 2011-04-03, 6:07PM EDT
        Reply to: see below

        Our client, for which we are its exclusive staffing agency, seeks another 50 attorneys, JDs and LLMs. 5 positions are for Team Leads, with the remaining 45 being attorneys, law school graduates or those with LLMs. The hours of this project are expected to be between 50 and 60 per week.
        No experience is necessary for the non-Team Lead positions, although any litigation or document review experience is helpful.
        Admission to the Bar of ANY State is required for the Team Lead positions, as well as prior team lead/project management experience or prior experience as a litigation associate/partner with a prominent firm. Our client will also consider attorneys with substantial document review experience, particularly concerning issues of privilege and/or the creation of privilege logs.
        The Team Lead positions pay $30 per hour. The non-team lead positions pay $20 per hour for straight-time and $30 for overtime, which will be substantial.
        Please refer to the “Charlotte Project” and email your resume to BOTH sbosi@b3legal.com AND lmaxfield@b3legal.com.
        IF YOU ARE COMING FROM OUT-OF-TOWN OR KNOW ANYONE WHO MIGHT BE, housing costs will largely be provided, leaving a de minimas amount for out-of-towners.
        ALSO, a generous referral fee is provided for anyone new you refer to us who works on the project.
        We NEVER submit your resume anywhere without first obtaining your explicit authorization.”

        Pearl here. :-) The above Craigslist ad may have had to do with last year’s Consent Orders and audits, but it also may be sort of a model for how they (the banking interests /foreclosure mills/ document mills, etc) hire–temporarily–a handful of inexperienced law degrees, ahem, I mean lawyers, ultimately have them (unwittingly, perhaps) put THEIR law degrees on the line, by “supervising” the signing of zillions of robosigned documents.

        But, basically, every foreclosure-related document that makes its way into Georgia manages to make it here without any actual attorney from Georgia ever having signed or attested to the document being authentic, original, accurate, or true. Everything that requires the signature of an attorney is worded very cleverly (“cleverly” as in “deceptively”)to look on its face as though an attorney is swearing or attesting that the document is accurate, original, authentic, or true, but the wording always seems to fall short of an attestation of whatever it is one would think the attorney’s signature is attesting to.

        1. PL

          That Craig’s List advertisement for JDs to conduct foreclosure reviews shows just how far attorney’s wages have fallen–$20-30 per hour and $30 overtime–that’s $60 per hour tops. Housing allowance is included because these JD’s can’t afford to pay rent (like low wage workers in pricey resort towns.) Many JDs are saddled with student debt over $100K and there are few employment opportunities, particularly for those graduating from second and third tier law schools. No wonder they are willing to act as handmaidens to mortgage servicers and their proprietary software. The wages are tangential to your post, Pearl, but so inadequate that I had to comment.

          1. Pearl

            I hear you, PL. When you factor in the lack of benefits–these JDs probably make less than the lowest-level robo-signing clerical staff.

            (Of course, the lowest-level robo-signing clerical peeps all happen to be Vice Presidents of MERS.) :-/

        2. lambert strether

          The Charlotte Project? Isn’t there some bank or other located there?

          It would sure be interesting to talk to anybody who worked on it. I wonder if they signed NDAs?

          1. PL

            I suspect they signed NDAs, but how much of a disincentive to talk is it when one is virtually judgment proof thanks to student loan debt?

          2. Pearl

            Hmmmmm…..Charlotte….it does sound familiar.

            Here is the other half of that Atlanta Craigslist ad from 04/03/2011, Lambert. It says that they will be straightforward about both positive and negative aspects of the jobs. Might be interesting for someone to depose one of these recruiters…. :-)

            “Attys & JDs/LLMs – 50-Person Doc Review, Fortune 500 Co (Charlotte, NC)
            Date: 2011-04-03, 6:07PM EDT
            Reply to: see below”

            “About Balint Brown & Basri/b3legal (http://www.b3legal.com/)Our principals (Marcie Balint, Craig Brown & Shawn Treadwell) helped turn Charlotte into one of the contract attorney capitals in the country. Specifically, they introduced their clients to the wealth of legal talent available in Charlotte and, subsequently, placed HUNDREDS of Charlotte attorneys in contract positions, many of which became permanent in short order. Now, as principals of their own national legal staffing company, b3legal, they continue to introduce their clients to the talented Charlotte legal market, which has increased the demand for quality attorneys.We at b3legal are committed to providing you with the HIGHEST-LEVEL contract (and permanent) positions available in Charlotte … and nationwide. We also are committed to being forthright with you on all issues, including the positives and negatives of any assignment or position to your career aspirations. We do this not only because it is the right thing to do, but also because we fully understand your work situation, as we are former practicing attorneys ourselves, including the Director of our Charlotte office, who has worked as a contract attorney in Charlotte for several years.
            Location: Charlotte, NC
            Principals only. Recruiters, please don’t contact this job poster.
            Please, no phone calls about this job!
            Please do not contact job poster about other services, products or commercial interests.”
            “PostingID: 2303396268”

            BTW, One of the positives that the Craigslist ad above fails to mention–Charlotte is only a three hour drive from the Butner Federal Correctional Complex. (Mr. Madoff and Mr. Farkas, apparently, both ended up there.)

    2. Walter Wit Man

      I don’t think this is anything suspicious. There is a lot of “proprietary” software to help manage legal cases. This may have a backdoor for the CIA, like I assume many programs do, but I would be surprised if this was anything other than what it purports to be.

      Like a lot of technological innovations, these case management and law practice systems are a lot of work to gain the efficiencies it promises. A lot of the tricky stuff involves calendaring, and I would imagine this software would have to update often to make sure each state’s laws and timing requirements are accurately coded into the software.

      This also sounds similar to other bankruptcy software, like Best Case, that attorneys use to prepare bankruptcy documents. This would do the same, it sounds like, and generate documents for foreclosures. Of course the attorney would be responsible for making sure the document is accurate and complies with the rules.

      In fact . . . . debtor’s attorneys often use “the software ate my homework” excuse, and judges don’t like hearing it. The software is a tool, and it does help prepare things like bankruptcy documents because like tax returns, they require the input of a lot of individually specific information, and it’s helpful to have a computer generate many of the fields.

      Plus, all filing is done electronically. This actually saves time and money not having to make a trip to the courthouse to file documents. The rules also facilitate serving by electronic mail . . . which makes things much easier than mailing out hard copies to all the parties, which can be dozens of addresses.

      1. securecare

        Anyone that wants to understand these systems and how they might be be used to, ummm, “manipulate” behaviors etc should understand about the history around PROMIS.

        1. Walter Wit Man

          Yep. Thanks for pointing me to Promis a while back.

          I even mentioned in this thread a little ways up, along with my similar speculation about Oracle and the Russian voting system/database. Did you see that?

      2. Pearl

        The problem is that, at least here in Georgia, which is a nonjudicial foreclosure state, foreclosure mill attorneys are able to get away with having nothing attributed to them. They, shall we say, “oversee” the process only if the foreclosure becomes a contested or judicial foreclosure. Otherwise–it looks to me as though there is NO INVOLVEMENT by an attorney–it is 100% “electronic.”

        And nonjudicial foreclosures probably account for 95% (or more)of all foreclosures in Georgia!

        Computers should not be allowed to take people’s homes from them–title to real property is just too complicated and too important. (Just like we wouldn’t want computers deciding child custody issues, either.)

        I really think at the heart of the crisis here in Georgia–it’s the fact of “electronic foreclosure” that is wreaking havoc. Georgia’s Land Records system, laws, statutes, and judicial structure simply did not contemplate a foreclosure process that was devoid of any human involvement.

        Electronic foreclosure might work okay in other states–but it is not compatible with our system here in Georgia.

        I have some real horror stories that I can relate. And I am not talking about an illegal foreclosure here and there–I am talking massive numbers of completely illegal foreclosures that have been taking place.

        This will not end well.

        1. Walter Wit Man

          Well, you’re right. It’s a problem when we let the computers rule.

          But it does make preparing these documents easier. So technology can be good. And both debtors and banks benefit from software like this.

          People should not be let off the hook when they try to blame computers though. Debtors attorney aren’t and neither should the foreclosure mills. Especially when mills have so many cases there is not adequate human control.

      3. Pearl

        I am not suggesting that it is suspicious.

        I am suggesting that it’s a total deal breaker.

        We can have electronic foreclosures OR nonjudicial foreclosures. Not both.

        The two are incompatible. Period.

        1. PL

          If non judicial foreclosures can be filed without an attorney and the entire process electronically administered, that is very concerning. What I posted above, about needing an attorney to shepherd the case through the process, was informed by my familiarity with judicial foreclosure only.

  28. securecare

    All part of the evolution of a revolution in human affairs. One of the required critiques that needs to take place in the process of replacing an old, stagnant order of affairs with a newer order that corrects, mostly, the flaws of the old.

    See Without Marx or Jesus for the complete story.

  29. ellen carey

    ” That is, what if the stakes were not “the rule of law,” but the nature of law itself, and hence the nature of the State?”

    Bill Black gave this interview recently,http://www.kpfa.org/archive/id/78274, wherein he discusses his re-education as a regulator following the S&L crises period, and being advised by “Washington” to see the banks as “clients” of the regulatory body. When Mr. Black attempted to correct the person giving the “re-education”, stating it was the American people the regulatory body represents, not the banks, he was advised his opinion was incorrect.

    Can a federal regulatory body have “clients”? If you read the definition of “client” in Blacks law dictionary, there is no possible way a regulatory body can function as a regulator if it considers the parties to be regulated as “clients”. So something has changed in the relationship between what we, as citizens, believe to be public government and how that government relates to the private sector. And as the regulatory body supposedly represents the public State, one has to question whether this State is any longer public, particularly when it considers itself to be in a position of having “clients” who are not the American people. So your question regarding what is the nature of the State appears to me to be very pertinent because State actions suggest this State, perhaps in a private manner, now represents only a particular portion of the populace.

  30. Joe Firestone (LetsGetitDone)

    This is the best, most impactful post I’ve seen from Lambert. Just wanted to point to some tags that further describe what’s it about:

    — kleptocracy

    — Fascism

    — plutocracy

    — oligarchy, and the

    — The Predator State

    The realities we now have to cope with before they bury American Democracy.

  31. Nathanael

    You raise important points. However, it’s also important to point out that an attempt as you describe by a company like Wells Fargo to privatize the law by embedding it in code would fail without government support (and quite possibly even with government support), and here’s why.

    The ability to write code is much more democratized than you think.

    This has been the experience of the people trying to censor the Internet. They can’t get control of the code.

    This will be the experience of the people trying to steal money. Any one “rogue trader” or hacker is just as effective as the entire corporate apparatus of Wells Fargo. If the people in general decide that there is no outside, just law controlling these things, people will take the code into their own hands, and that is *far* easier than taking the law into their own hands.

    This is a rule-of-law crisis. Either the rule of law gets enforced against the powerful, or everyone starts treating the law as a joke, something to be evaded. If the latter happens, then watch out, because the powerful *do not* have control of the code, regardless of whether they think they do. The elites generally can’t actually program or debug themselves — so this would quickly lead us into the “programmers secretly rule the world” scenarios.

    1. Nathanael

      To expand on this point, massive surveillance has usually been considered the exclusive domain of the rich and powerful, governments or large corporations.

      But we have now reached the point where it’s so cheap that it’s *not*. Anyone can surveil. This is causing a slow revolution, as every government abuse is documented by camera and uploaded to YouTube. Surveillance drones will soon be cheap enough that protest groups will have ’em (and are planning to get them).

      This changes everything. Political power always flows from the opinions of the people, and the democratization of surveillance is eliminating a bunch of forms of power which were, fundamentally, based on secrecy which is not viable any more.

      These are indeed interesting times. The powers that be are out of date and out of touch, and see new technology only as a tool to be used for control in the old social context, missing the effects that it is already having on the nature of society itself.

      1. Nathanael

        BTW, in terms of extricating one’s community from dependence on the existing government when the existing government gone corrupt, tech is easy, communication is easy, government is easy (hold an election!), defense is tricky (but fairly well-understood), and *the economy is hard*.

        So our discussions of the nature of money are crucial when considering how to set up alternative money should crooked powerful elites control us through money.

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