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Krugman: "The Question Is Whether Our Economy Is Governed By Any Kind Of Rule Of Law"

George Washington's picture




 

Washington’s Blog

Paul Krugman writes:

The
mortgage mess is making nonsense of claims that we have effective
contract enforcement — in fact, the question is whether our economy is
governed by any kind of rule of law.

***

True to
form, the Obama administration’s response has been to oppose any action
that might upset the banks, like a temporary moratorium on
foreclosures while some of the issues are resolved. Instead, it is
asking the banks, very nicely, to behave better and clean up their act. I
mean, that’s worked so well in the past, right?

 

The
response from the right is, however, even worse .... conservative
commentators like those at The Wall Street Journal’s editorial page
have come out dismissing the lack of proper documents as a triviality.
In effect, they’re saying that if a bank says it owns your house, we
should just take its word. To me, this evokes the days when noblemen
felt free to take whatever they wanted, knowing that peasants had no
standing in the courts. But then, I suspect that some people regard
those as the good old days.

I'm happy that someone as prominent as Krugman is weighing in on the side of the rule of law.

I've been banging on this drum for years:

Karl Denninger makes a similar point today:

Charles Hugh Smith [writes]:

Either
there is due process of law or you have a kleptocracy/"banana
republic" oligarchy. At present, that is the decision we face as a
nation.
If the banking Elites and their partners in the
Central State (Fed and Treasury) are allowed to "win" and gut the
property laws of the states, then the U.S.A. will be revealed as a
kleptocracy/"banana republic" oligarchy.

 

If state laws are upheld, then the "too big to fail" banks are insolvent and they will fail. Then the question of kleptocracy arises once again:
will the banks be allowed to fail as per Classic Capitalism, that is,
their owners and managers will have to absorb the losses of that
bankruptcy/failure, or will the Central State use its powers to collect
taxes and cover the private losses of the Bank/Financial Power Elites?
Privatizing profits and socializing losses has been the entire game
plan since the global house of cards collapsed in 2008.

 

It's
decision time, citizens. Either the banks/Central State "win" and we
are a kleptocracy/ "banana republic," or they lose and the U.S.
mortgage/ banking sector implodes
and is either formally
socialized (i.e. owned lock, stock and barrel by the Central State) or
rebuilt from scratch without big banks, Federal guarantees and the Fed's
incestuous interventions. ("We create the credit that enables the
mortgage, you issue the mortgage, and then we buy the mortgage.")

There is no "fix" or half-measure that can patch this over now.

Yep.

 

The
bottom line now is that Bernanke thinks he can continue to paper over
this crap with yet more "QE" and other monetary games. He's wrong.
All he's done, along with Greenspan, is enable not just bad behavior but outright lawlessness, while
at the same time savers, senior citizens and those on fixed incomes
are seeing their mandatory spending soar, destroying their savings. Instead
of using his regulatory power to put a stop to it, he feeds the
bankster criminals that in their drug-induced mania have trashed our
nation with yet another shot of heroin laced with meth, empowering yet
another wilding binge of destruction.

 

Every time
Bernanke speaks he talks about "more credit." But we're here because
instead of capital formation we have shifted to relying on "more
credit." Credit, however, is debt. Those policies great for the debt
merchant, including of course The Fed, but highly-destructive to the
capitalist who is trying to provide a good or service into the economy.
He is slowly asset-stripped by the banksters through his reliance on
these mechanisms, where he should be relying on asset accumulation -
that is, capital formation.

 

By destroying capital
formation Bernanke both destroys those on fixed incomes and savers
through intentional devaluation of their asset base and wrecks the
structures that are necessary for productive investment and economic stability, say much less growth.

 

In
a very real sense, Bernanke is throwing Granny and Grandpa down the
stairs - on purpose. He is literally threatening those at the lower end
of the economic strata, along with all who are retired, with
starvation and death, and in a just nation where the rule of law
controlled instead of being abused by the kleptocrats he would be facing
charges of Seditious Conspiracy, as his policies will inevitably lead to the destruction of our republic.

We're at a crossroads folks. Either the rule of law is restored and
the games stopped, with the removal from positions of power of those
who have enabled the scams and frauds and the fraudsters themselves put
out of business and jailed, or the spiral will tighten and the
pressure build [with more and more] capital flight and destruction of
final demand ....

 

 

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Fri, 10/15/2010 - 23:32 | 654842 Fearless Rick
Fearless Rick's picture

And Angelo Mozilo walking with a deal from the SEC today doesn't even get a mention here at ZH or anywhere much else. Rule of law = Pay fine. Move on.

Sat, 10/16/2010 - 10:12 | 655026 11b40
11b40's picture

To be clear, Mozilo won't be paying the fine, either.  BAC stockholders will be picking up that tab for the most part.

Fri, 10/15/2010 - 22:07 | 654713 NorthenSoul
NorthenSoul's picture

There's a bit of irony in Paul "QE times 10" Krugman worrying about the rule of law.

 

Give us ONE example of Krugman calling for disrespect of the rule of law. Otherwise, you're spewing political bullshit.

 

Fri, 10/15/2010 - 19:21 | 654355 lilimarlene1
lilimarlene1's picture

I think I am in love with you, Fred.

Fri, 10/15/2010 - 19:09 | 654339 spinone
spinone's picture

Rule of law applied by the Federal Government?  Why would they start now?

Our only hope lies with the States.  We are several steps down the road to sucession.  I pray it doesn't come to that.

Fri, 10/15/2010 - 21:27 | 654634 i-dog
i-dog's picture

I pray that it does come to succession. There is not a snowflake's chance in hell of a democratically elected (and oligarch controlled) congress making any rational attempt to solve this crisis and thus work on a solution of fostering small business to create employment through innovation and entrepreneurial trade.

Each state needs to sort out its own property records and take the necessary legal actions ... otherwise the feds will nationalise all property and the game is over.

Fri, 10/15/2010 - 23:50 | 654865 Widowmaker
Widowmaker's picture

I would assert the game has just begun.  Frankly, the sooner the better.

Fri, 10/15/2010 - 23:43 | 654852 Founders Keeper
Founders Keeper's picture

[...otherwise the feds will nationalise all property...]

I fear the upcoming lame-duck session may produce legislation achieving this very outcome.

(Good post, i-dog.)

 

Fri, 10/15/2010 - 19:05 | 654332 Mercury
Mercury's picture

While you're eagerly pursuing the Rule of Law do you see any need to track down the last good mortgage title on these defaulted properties or maybe have ownership of the title default to the government (since taxpayers are going to take it in the rear on this anyway) in the event that no good title can be found?

Or are you cool with whole insta-free McMansion thing?

Fri, 10/15/2010 - 19:11 | 654341 spinone
spinone's picture

What do you mean track down?  The last good title is filed at the local County Government building.  The MBS are the problem.

Fri, 10/15/2010 - 19:36 | 654352 Mercury
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...and somebody owns that title and therefore (I would think) if all other claims to the mortgage title are bogus than that one must be good and the owner of that title (even though he doesn't know it) is the one to whom the deadbeat home owner owes big money to.

If there's a windfall to be had here it should go to the last good holder of the mortgage title not the defaulting party.  Waving the magic wand and handing people free houses is moral hazard writ large.

 

Fri, 10/15/2010 - 20:06 | 654463 spinone
spinone's picture

Someone still owns the house - its in the County Records.  Ask the local County Clerk.  And who is investigating the banks?  The State AG's.  Our strength is in our local and state governments, robust and dispersed, and full of hardworking honest people for the most part. 

The founding fathers are on the edge of their seats in the hearafter, and they cant wait to see what happens next.

Fri, 10/15/2010 - 21:25 | 654506 Mercury
Mercury's picture

The title to the house and the ownership of the mortgage loan are two separate things.  The title to the house (and land) is almost certainly legitimately owned by the deadbeat occupant and is not what is in dispute.  But the mortgage has a lein on the property which is what triggers foreclosure.

Fri, 10/15/2010 - 22:40 | 654770 spinone
spinone's picture

Hey, if the banks lost their mortgage, thats their fault.  You want to bail them out of that too?  When I screw stuff up, I suffer the consequences.  So should the bank.

Sat, 10/16/2010 - 08:49 | 654954 Mercury
Mercury's picture

If mortgages on defaulted McMansions are forgiven You and I will pay for it I promise.  Plus the moral hazard will be more visible and repugnant to average Americans (if not actually, ethically worse) than yet another sop to the banks.

Fri, 10/15/2010 - 18:59 | 654320 liberal sodomy
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I wish Hitler had gotten paul's mother before she crapped him out.

Fri, 10/15/2010 - 23:54 | 654871 RockyRacoon
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I hope you end up in prison and find out what sodomy really is.

You are a shameful and embarrassing person.

Fri, 10/15/2010 - 23:07 | 654540 Andy Lewis
Andy Lewis's picture

Fuck off and die, Nazi filth.

And that goes quadruple for the slime who junked this comment.

 

Fri, 10/15/2010 - 19:25 | 654363 lilimarlene1
lilimarlene1's picture

Hey, I don't usually do this, but: screw you. I hate frickin anti semetic comments. It means you realize the Jews really are smarter than you, and this frustrates you.

Jews are not smarter than me. And while I love them, and think they are God's own,  I call them on "it" when I think I should.

Only wimpy or dumb goys don't, in that case shame on you.

Fri, 10/15/2010 - 19:43 | 654409 liberal sodomy
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jews aren't semites asshole.

Fri, 10/15/2010 - 19:49 | 654426 lilimarlene1
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You silly boy. You forgot your comma.

Fri, 10/15/2010 - 19:13 | 654343 spinone
spinone's picture

I junked you asshole.  Will you cheer on the next facist dictator too?  You may soon get your chance.

Fri, 10/15/2010 - 18:59 | 654318 SloSquez
SloSquez's picture

Saw the interview earlier, George.  Good to put a face the verbiage.  I was a little skeptical at first, but not now.  The eyes are the windows to the soul.  Much respect, George, much!!!! 

Fri, 10/15/2010 - 18:48 | 654295 gwar5
gwar5's picture

Thomas Sowell: "Politicians get elected simply by telling the gullible exactly what they want to hear, which is that they can get something for nothing which, of course, is not true. And, they get away with it because they know they will not be around when the promises come due."

Deficit spending and unfunded liabilities = broken promises. Broken promises = unrest = lawlessness.

 

We are there. Welcome to Obamazuela.

Fri, 10/15/2010 - 19:25 | 654361 chopper read
chopper read's picture

ha, ha.  "Obamapalooza"!

Fri, 10/15/2010 - 18:48 | 654294 DirtySouth
DirtySouth's picture

Shit happens.

Fri, 10/15/2010 - 18:34 | 654258 Diogenes
Diogenes's picture

Burn the banks or burn the Constitution.

Sat, 10/16/2010 - 07:39 | 654931 hardmedicine
hardmedicine's picture

true that

Fri, 10/15/2010 - 18:32 | 654246 knukles
knukles's picture

Watch out and hold on to your pants.  
Paulie The Mouthpiece of the Official Organ of the Democratic Republic of Central Planning and Theft has never, ever to the best of my recollection come down on any side other than his Uber-leftie, collectivist, it takes several layers of village Sherpas and bureaucracy, meddle in free markets, tell the peon how to behave, raise taxes, in order to save a disenfranchised puppy even if it destroys everybody else's Natural rights.

Somehow, someway, this is a massive stool softener for some nefarious pre-election shenanigans that DC's incumbents are stoking up in order to remain first dibs at the Department of Treasure's Public Trough.    

Else I've got to change my mind about rational thought and sanity.  No way we concur.  

Fri, 10/15/2010 - 20:25 | 654496 nmewn
nmewn's picture

++++ a million consciousness of "liberals" knukles.

This ass wipe has no problem advocating generational class warfare upon our society from on high...has never found a tax cut he could not criticize...and no government program that was not so desperately needed that the very Republic would crash and burn if it was not implemented.

There are two sets of laws until the pitchforks come out...now this thoroughly discredited, Enron board sitting member, PHD'd, provocateur wishes to be a populist?...ROTFL.

There's a special place in hell for people like this.

Fri, 10/15/2010 - 19:33 | 654386 Ricky Bobby
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+10 LMAO Great Rant.

Fri, 10/15/2010 - 19:28 | 654372 lilimarlene1
lilimarlene1's picture

Yee hah, these fight club mambos are on a roll today! Excellent knukles.

Fri, 10/15/2010 - 19:07 | 654336 Bob
Bob's picture

Unrelated rant notwithstanding, if you support the rule of law in this mess, I'm afraid your world just got real complicated, friend: You and Krugman agree. 

Deal with it.  Hope you don't go to the leftie dogs now. 

Fri, 10/15/2010 - 20:49 | 654541 nmewn
nmewn's picture

I'm thinkin property tax refunds are in order here...hamana hamana, ummm, what? ;-)

Fri, 10/15/2010 - 20:53 | 654551 Bob
Bob's picture

LOL

Fri, 10/15/2010 - 21:15 | 654609 nmewn
nmewn's picture

The discovery process in trial is a beautiful thing ;-)

If we are gonna do this we need to go all the way. No half measures.

I have never agreed with the practice of the mortgagor paying the owners property taxes. This would mean the state would have to go after the mortgagee for the refund. The bank would of course go "bank"rupt and walk away.

Or would they squat?...LOL.

Fri, 10/15/2010 - 23:48 | 654859 RockyRacoon
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Just a technicality but, mortgagor and mortgagee are reversed in your comment.

Sat, 10/16/2010 - 07:11 | 654916 nmewn
nmewn's picture

I was taught old school...the simple way I have always remembered is mortgagor has two "o's" and so does borrower. Lender has two "e's" as does mortgagee.

I'm always open for correction but a quick scan around seems to confirm my interpretation of the words.

Under mortgage by demise at Wiki, yeah I know it's Wiki, but it's quick...."In a mortgage by demise, the mortgagee (the lender)"...blah blah blah.

http://en.wikipedia.org/wiki/Mortgagee

Irregardless, if the bank (what I call the mortgagee) actually owns the property (and barring paper work mishaps they do) they...the bank...should be paying the property taxes not what we commonly refer to as the "homeowner" as technically it is a lease in my mind until payment is recieved in full.

In the larger context of my offhand proposal...it would bust the state treasury's (the refunds to what we call homeowners that I think would be owed) and force the statist's to side with their handmaidens, the bank's, to protect their beloved state against their own people.

An interesting libertarian attack on socialism...no? ;-)

Sat, 10/16/2010 - 16:06 | 655472 RockyRacoon
RockyRacoon's picture
You are correct.
MORTGAGEE  He to whom a mortgage is made.He is entitled to the payment of the money secured to him by the mortgage; he has the legal estate in the land mortgaged, and may recover it in ejectment, on the other hand he cannot commit waste, he cannot make leases to the injury of the mortgagor, and he must account for the profits he receives out of the thing mortgaged when in possession.
MORTGAGOR - He who makes a mortgage.He has rights, and is liable to certain duties as such. 1. He is quasi tenant, at will; he is entitled to an equity of redemption after forfeiture. 2. He cannot commit waste, nor make a lease injurious to the mortgagee. As between the mortgagor and third persons, the mortgagor is owner of the land. He can, however, do nothing which will defeat the rights of the mortgagee, as, to make a lease to bind him.
Sat, 10/16/2010 - 18:20 | 655593 nmewn
nmewn's picture

This is just one of those quirky things in the English language.

What did you think of my proposition that "homeowners" should not be held liable to pay property tax on what they do not really own?

Personally, I have felt for years this was a construct between lawyers, bankers & the government. There is no way banks or realtors could pay on the accumulated property they hold so it was set up (by law) to make it "legal". To me it's legalized theft unless you own it free and clear.

Any thoughts or have I gone completely off the rails here?

Sat, 10/16/2010 - 19:04 | 655633 i-dog
i-dog's picture

As Rocky quoted above: "As between the mortgagor and third persons, the mortgagor is owner of the land."

Sat, 10/16/2010 - 19:58 | 655688 nmewn
nmewn's picture

Only by conveyance...under an obligation to perform something, that is, pay the mortgage off...not by title...which is my point exactly.

You get title of your land free, clear and unencumbered by any other party after you pay for it.

So there is obviously a shared legal interest here in any property that has a mortgage. My point is, if there is a shared interest, there should be shared responsibility and burden for taxation, if we are to place a tax on real property.

I understand the deck is stacked against my proposition on this, it was meant to be stacked this way in my view, but I still love being the underdog on this one ;-)

I'm simply postulating it's unfair and as such unlawful regarding taxation only. 

Though this started out as my tweaking of a statist, it seems to be evolving into an interesting debate and I would appreciate your thoughts on what I have outlined here...as to the fairness of taxation on mortgaged property.

Sat, 10/16/2010 - 22:23 | 655830 i-dog
i-dog's picture

I'm opposed to ALL theft/taxation!

But for the sake of the argument, the mortgagee is only holding the title as collateral, while registering a lien over the property to secure that contingent interest. The mortgagee is enjoying both the use of the property and any potential gain from that use (including possible capital gain through both inflation and scarcity value, in addition to the sale of produce or manufactures arising from possession of the property).

The mortgagor may be taxed on the interest income, and the mortgagee may be taxed on any income derived from use of the property ... but the mortgagee is the owner and user in possession for the purposes of property taxes (which are allegedly charged to support provision of a variety of "services" supplied by the state for the benefit of the occupier).

Those are my quick thoughts. I hope they help. E&OE.

Sun, 10/17/2010 - 07:35 | 656255 nmewn
nmewn's picture

I'm not going to hold anyone liable for any errors or omissions and I certainly claim same...LOL.

There are many ways to tax for "public services" that a homeowner might use. Of course some of those services will go unused by any number of people who are under different circumstances. A childless couple helping fund my childrens education comes immediately to mind.

I suppose all that is left to say is it seems patently unfair to me. One party has access to virtually unlimited public funding (which theoretically, would include some of the counterparty's own funds) while the other party derives funding from the private sector entirely.

And if anything, the law should be about fairness and balance.

I remain unconvinced that the burden of property tax should be the responsibility of just one party (the occupier) when another party has an interest in the property through mortgage. If the occupier fails to pay the property tax the bank will usually (in normal times) step forward and pay them and take sole possesion. This should tell us something of the hand & glove nature of the arrangement right there.

At any rate, it was a good back & forth and I do appreciate your time which also has value.

Thanks D.

Sat, 10/16/2010 - 09:57 | 655010 RichardENixon
RichardENixon's picture

Irrespective of your use of the word irregardless, I agree with you.

Sat, 10/16/2010 - 10:15 | 655030 nmewn
nmewn's picture

I also use the word ain't...it makes the effete elite run for their meds...LOL...we all have our sources of entertainment ;-)

Fri, 10/15/2010 - 19:03 | 654328 Seer
Seer's picture

I seem to recall this all starting with a wink and a nod from Bush.  I know, some people have really short memories... especially ideologues...

Fri, 10/15/2010 - 23:45 | 654854 Widowmaker
Widowmaker's picture

Mission accomplished.

Wheres my magic walk on a beach with billy graham?  

Right.

Fri, 10/15/2010 - 23:18 | 654826 Founders Keeper
Founders Keeper's picture

[...some people have really short memories...]

I don't.

 

Fri, 10/15/2010 - 18:37 | 654265 calltoaccount
calltoaccount's picture

"free markets"?   what planet do you live on?

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