Unnatural Persons

Not, as you might immediately think, a blog about ghosts, zombies or Ugandan attitudes towards homosexuals but rather about the concept of legal persons that aren’t real (natural) people at all.

Now, I’m not a lawyer, businessman or frankly even remotely qualified to talk about this in any great detail but, you know, this is the Internet, so why should that stop me?

As far as I can work it out, “legal persons” are non-human entities that are assigned some of the same rights as a real person for the purposes of, amongst other things, legal liability. What this means is that several natural people can create a new entity, separate from their own legal liability, which can act as a legal entity in its own right and do a number of thing natural people can do, such as own things, incur debt and be legally liable for its actions and responsibilities.

This isn’t exactly breaking news though, as it’s basically one of the fundamental aspects of corporate law and has been around pretty much since the Industrial Revolution.

Well, so what? Well, if you read the end of paragraph three, these entities can incur debt, debt for which the people that “own” that entity are not liable. Corporations are legal persons and so the basic rule of thumb is that the corporation incurs a lot of debt and fails, the shareholders aren’t liable for the whole of that debt, just whatever they’ve invested (and not any profits gained in the meantime, either). Any debts that the corporation might then owe are ultimately left owing to whoever lent them anything, with no actual real person liable for that debt.

From my fairly limited view of this, which please enlighten me if I'm shooting in the dark here, but it seems to me that this basic principle is the lynchpin of the current financial collapse. When this corporation is, say, a corporate bank or hedge fund and, due to outrageous gambling of its stock by its shareholders etc on the stock exchange, suddenly there’s a billion dollar debt with no one to pay it. If that corporation fails, there’s now a billion dollar shockwave of missing money out of the financial system. If several big corporations go, then the shockwave is that much bigger.

So how when all the Wall Street banks, RBS, whoever else started to fail, the countries they were in basically had the choice to either deal with the shockwave (bad) or bail out the giant debt hole with magic taxpayer money (you know, for like hospitals and stuff, so also bad). This then gets worse when the country itself starts to take on debts (or it just looks like they might have to) and then the International money market thinks “hey, Greece has lots of debt, they’re not a good place for us to invest” and we just move up to a larger scale and repeat (and then up to currencies etc).

So, this is all because the people who own these corporations aren’t themselves liable for their own debts, because they’re not their own debts, they’re the debts of a thing that’s just a name on a bit of paper. Once the company is big enough, stock markets and stakeholders are happy to gamble one against the other or whatever and if it all goes tits up, well, it doesn’t matter because it’s not actually me. I can take the profits but not the debts.

Maybe this is really old news to some of you, maybe I’m a slow learner but basically how can this not be completely insane? Maybe we should just let Somali pirates carry on kidnapping and ransoming people while we’re at it and maybe even pay them or make them into Lords or something for the privilege? Perhaps I've got the wrong end of what looks like a distinctly shitty stick and, like I said, please tell me if I'm wrong, but unnatural persons seems, certainly in this regard, like a deeply unnatural practice to me.