Not In-House Lawyers
Any lawyer who has worked in-house in a financial services firm, no doubt, is not surprised about the mortgage documentation mess. Articles abound in the newspapers: Gretchen Morgenson, One Mess That Can’t be Papered Over; Joe Nocera, Big Problems for Banks: Due Process; and a NYTimes editorial, More on the Mortgage Mess.
As I have experienced, and many, many friends and colleagues have confirmed, few issues command less respect than properly documenting a transaction, a process or a meeting. Everyone on Wall Street, and throughout the financial services industry views themselves as a deal-maker, a trader, a big-picture gal or guy. Documentation is clearly beneath them. (Yes, this condition crosses gender lines).
I will never forget in the early 90’s when equity swaps and other over –the –counter trades were gaining in popularity. We were wrestling with the documentation process … executing confirms as well as master agreements. Admittedly, it is a tedious process.
The Wall Street model had junior associates who worked directly on the trading desks who were responsible for completing first drafts of trading documents. Deals were only kicked up to the legal department in the event that negotiations broke down over issues like indemnification or other liability limiting provisions.
Not so in our organization. Notwithstanding my otherwise well-honed skills of persuasion, no one on the trading desk wanted anything to do with documentation. Any piece of paper with more than 2 paragraphs of written English clearly was a “legal document” and belonged with “Legal”.
I tried to explain that understanding the legal documentation between two parties provided a junior person with valuable training. Certainly someone who aspired to be an equity or fixed income trader would gain insight into their roles if they understood the contractual nature of the obligations they were creating.
I might as well have been from Mars. Everyone just wanted to “do deals”. Very few people were interested in “dotting the ‘I’s’ or crossing the ‘T’s’”. In the excitement of wracking up large bonuses over the last decade, few people wanted to be bogged down by the careful, detail-oriented work of getting the documentation right.
And throughout Wall Street and beyond, the very people who were disdainful of documentation, eventually assumed leadership of their firms. Everyone knows, that the tone is set at the top.
Tens of thousands of mortgages, middlemen, issuers of securities, underwriters and sales people —the fact that there is a mess, does not surprise me.
Go take a poll of in-house lawyers. I’m sure they read the various accounts of the mortgage mess simply shaking their heads with a profound sense of understanding.
As a lawyer, and as a fiduciary, I know in my gut (in my kishkes) that documentation is crucial. For when the dust settles, all that is left are the documents. Lawyers know that, and so do judges.
Fiduciaries have an obligation to act prudently on behalf of their clients. There is no excuse and no tolerance for the lack of diligence in assuring that all documentation is perfect. That is our duty.