Understanding The Incidents Of The Two Eight Financial Crisis

To understand the incidents that occurred in the two-thousand eight Financial Crisis one must understand what a mortgage is. Someone who wants to buy a house will often borrow hundreds to thousands of dollars from a bank. In return, that bank receives a piece of paper, called a mortgage. The bank often sells the mortgage to a third party. When an individual agrees to a mortgage, they are agreeing to pay back their loan in portions plus interest to whomever holds the mortgage. If the borrower does not repay the lender, the property will be taken back by whomever holds the mortgage; it is then sold to cover the debt. This process is known as foreclosure. If the borrower stops paying it s called a default. A default is when a debtor is†¦show more content†¦Mortgage back securities are created when large financial institutions attempted to secure mortgages. Basically, they bought thousands of individual mortgages, bundled them together, and would sell shares to investors. 3 Investors relished in these mortgage backed securities. They paid a higher rate of return than investors could get in other places, and appeared to be safe bets. Home prices increased; Leading lenders to believe the worst case scenario, homeowners would default on their mortgage, and they could sell the house for an additional amount of money. 1 At the same time, credit rating agencies continued to inform investors that mortgage backed-securities were safe investments. Investors were desperate to gain more securities. Promoting lenders to help create more of them. However, to create more, lenders needed more mortgages. This caused lenders to loosen their standards and provided loans to individuals with low income and poor credit. These are referred to as subprime mortgages.2 Eventually, some institutions begin using what is referred to as predatory ending practices to generate mortgages. They made loans without verifying income and offered absurd, adjustable rate mortgages with paym ents individuals could afford, at first, it became disorderly quickly. Subprime leading was a new practice at the time. These investments were becoming increasingly less safe. However, investors trusted rating, and continued to

Liebeck V. Mcdonalds free essay sample

This paper will consider the facts associated with the case of Stella Liebeck versus McDonald’s, resulting from Ms. Liebeck’s efforts to collect for damages sustained when she spilled extremely hot coffee into her lap in 1992. The issues, applicable laws and the conclusion the jury reached will also be covered as well as the subsequent impacts on American tort law following this decision. The facts in the Liebeck case start with the incident description as recounted by Aric Press in the March 20, 1995 issue of Newsweek. Ms. Liebeck was a recently retired, 79 year old woman who ordered coffee at a McDonald’s drive through and received it in a lidded, styrofoam cup (Press, 1995, p. 32). After the order was picked up, her grandson pulled his car forward and stopped so that she could add cream and sugar to her coffee. After placing the cup between her knees since the car had no cup holders, she attempted to remove the plastic lid. The entire contents of the cup spilled into her lap, burning her severely. Subsequently, Ms. Liebeck suffered second and third degree burns on her groin, inner thighs and buttocks (Press, 1995, p. 2). Ms. Liebeck spent several days in the hospital for her burns and another period of weeks at home recuperating. Subsequently, she was readmitted to the hospital for skin grafts. (Press, 1995, p. 3). It was confirmed that the coffee was stored at a temperature of approximately 180 to 190 degrees, per industry standards (Howard, 1994, p. 1), which is likely to cause third degree burns with only a few seconds exposure. The temperature at which McDonald’s kept their coffee was reported to be approximately 40 degrees hotter than that made in a home brewed pot of coffee (Howard, 1994, p. ). McDonald’s had previously received reports of over seven hundred (700) burn incidents form scalding hot coffee and had not at all reacted to the situation (Press, 1995, p. 32). Prior to the incident in question, Ms. Liebeck had never before filed suit in her life (Coffin, 2004, p. 4). During the trial, testimony from the expert for the defense did not help their case when he told jurors that the number of burn cases was trivial in comparison to the number of cups of coffee sold annually (Gerlin, 1994, p. 2). In fact, he stated that, in perspective, the 700 complaints were â€Å"basically trivially different from zero† (Press, 1995, p. 32). One of McDonald’s executives testified that, in spite of their awareness of the issue, they had not consulted any experts in the field, and in fact had decided not to warn about the possibility of burns. This was in spite of the fact that they were aware of the danger and that most people would not consider danger to be an issue (Gerlin, 1994, p. 2). Ultimately, the case was settled for an undisclosed amount. Ms. Liebeck originally attempted to settle for as little as $2000, but McDonald’s only offered $800 (Press, 1995, p. 2). A primary issue at hand is what obligation does the defendant, McDonald’s, have to alert its customers that it’s coffee is excessively hot and can cause severe burns? Also, what responsibility does the consumer have in ensuring they understand this and take appropriate cautionary measures to avoid causing injury to themselves? What are the penalties associated with McDonald’s failure to protect its clientele? This case deals with product liability law. According to Kubasek, Brennan, and Browne, when consumers†¦purchase a product, they assume that the product will do the job the manufacturer claims it will do without injuring the consumer or anyone else (in Hartigan, ed. , 2004, p. 169). In this case, coffee purchased is presumed to be non-injurious by a reasonable person. Specifically, it is expected that coffee is hot, but is not presumed that it will cause injury to the degree that occurred in the Liebeck case. The plaintiff complained of negligence on the part of the defendant based on their failure to warn or negligence in failing to provide adequate warning (in Hartigan, ed. 2004, p. 169) of the hazard associated with excessively hot coffee. McDonald’s had as many as 700 reports of coffee that scalded customers, creating injuries (Gerlin, 1994, p. 1). The jury decided that the plaintiff was entitled to both compensatory damages of $200,000, reduced by $40,000 for her own negligence, and punitive damages totaling $2 . 7 million (Gerlin, 1994, p. 1). Gerlin (1994) goes on to state that â€Å"the jury found that McDonald’s had engaged in willful, reckless or malicious conduct† and subsequently used that for the basis of their punitive damages (p. ). The number settled on was equivalent roughly to two days worth of coffee sales companywide (Gerlin, 1994, p. 2). The jury concluded that McDonald’s behaved callously and punished them accordingly (Coffin, 2004, p. 4). The jury decided the warning on the cup was insufficient for the hazard (Press, 1995, p. 33). The jury applied the law correctly since it was determined that McDonald’s was acting outside the parameters of peers, had been previously warned of and settled cases associated with scald burns, and did ot properly or clearly notify patrons of the level of severity of the inherent danger. The standard of proof for success exists such that â€Å"the plaintiff must prove that the defendant knew or should have known that, without a warning, the product would be dangerous in its ordinary use†¦Ã¢â‚¬  (Kubasek, et. al. , in Hartigan, ed. , 2004, p. 172). In this case, the temperature of the item and the inadequate marking of the container, in the jury’s view, demonstrated negligence on the part of McDonald’s. Since no published opinion is apparent, it is unclear exactly what specific norms the judge and jury may have used in making their determinations, but I submit that the two primary ethical norms at odds in the case are justice and efficiency. Justice (Kubasek, et. al. , in Hartigan, ed. , 2004, p. 172). in this case supports the plaintiff’s claim that negligence was clear in the case and the plaintiff was, therefore, wronged, by the defendant and eligible to collect damages for the loss. The defendant, in their efforts to meet the needs of the marketplace, was interested in efficiency (Kubasek, et. al. , in Hartigan, ed. 2004, p. 172) and maximizing their ability to capitalize on consumers’ needs by serving hot coffee for enjoyment by its patrons. After the verdict, many, myself included, thought the American tort system had gone haywire. There were innumerable articles about the vastness of the award and most, including a column from the New York Daily news, Mighty Qui nn (1994), were aghast at such an award for something so seemingly innocuous. The media reports were not terribly detailed and, as such, many people’s perceptions about exactly what occurred were erroneous. Tort reform became a big topic at the state and federal levels. Congress set limits on punitive awards and malpractice awards (Press, p. 2). The case brought light to the enormous cost of civil litigation, pegged at $130 billion (Press, p. 2). The legal system was hurt by the case because there were many misperceptions created because of the sparse coverage provided. When the details came to light, it was easier to understand what had happened and, more importantly, why. Gerlin’s article provided some important clarity about the severity of the injury, McDonald’s behavior in failing to address previous complaints and McDonald’s unwillingness to deal fairly with an injured patron. In deference to the decision, McDonald’s helped future customers by apparently lowering the temperature at which coffee is dispensed. A local reporter found the temperature to be a â€Å"comparatively cool 158 degrees† the day after the verdict at the McDonald’s in question (Gerlin, 1994, p. 3). If I were serving my coffee at that temperature, I would probably dial it down a bit and certainly eliminate pouring where patrons could be scalded. Ultimately, the consumer drives the business. Clearly, customers want their food and beverages prepared properly. As stated by Terry Dort, executive director of the National Council of Chain Restaurants, â€Å"Coffee in our industry is served between 180 to 190 degrees. That is what manufacturers recommend, and that is what customers want† (Howard, 1994, p. 1). In conclusion, the case and subsequent evaluation have been an excellent reference on the importance of evaluating all the facts prior to reaching a conclusion. Public perception of the case, and indeed my own, were of a woman who sought to bend the system in her favor and squeeze cash from a large corporation. In reality, it appears that it was McDonald’s who was the wrongdoer and was justly and finally punished for their transgressions. The media portrayal was very distorted and only focused on the elements of the award and incident, but not the sum of the facts. The media focused on a relatively simple event that almost everyone has experienced and left out the legalities of the issue. Additionally, follow up rarely reported that the award was reduced and eventually that an out of court settlement was reached.