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Krugman: "The Question Is Whether Our Economy Is Governed By Any Kind Of Rule Of Law"
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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"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,"
Yes, he is. And he is doing it to protect criminals. And his partner in crime, Timmay, has been in lockstep with him from the beginning. And their boss, President Obama, supports them, unconditionally. And the depth and breadth of the criminality, which many of us have been screaming about for more than two years, may finally be sinking in to the nation as a whole. The crisis is about to expand. Counterparties and state attorneys general are going to sue the living pants off the banks and finally, FINALLY, no one is going to be able to deny what has been clear from the start which is that the trillions in toxic assets CAN NEVER have their toxicity removed because of how they were constructed in the first place. Every effort by the government to this point has been a desperate cover-up, a big, fat lie to buy themselves time to unload as much as possible and rename the thievery "quantitative easing", like it was some kind of laxative or simethicone pill. The greatest fraud in the history of the capital markets is beginning to unravel. We have been left holding the bag of shit and that bag of shit is inflating and overflowing and no one knows how to plug the securitization food chain bunghole. TARP 2.0 will be necessary, but this time they won't be able to argue that all they are trying to do is prevent the crisis from spreading from Wall Street to Main Street.
It didn't have to be this way. There were other options. They could have chosen accountability, economic justice, the rule of law and basic honesty. They could have told people the truth. Instead, they let criminals USE them to frighten the people into submission so they could take our money away and keep their billions flowing. Instead of placing the zombies in receivership, breaking them apart, firing the bums, forcing haircuts, and returning clean and lean businesses back into the private sector with reforms in place, they chose to argue that what is good for Goldman is good for the world. And now they are going to pay for that choice, and so are we. The Tea Partiers and bank friendly Republicans are going to win big using populist arguments, and, after they do, the measly bank reforms will be gutted, health care reform will be repealed and starvation of the beast will be completed.
Again, hard to argue with shear brilliance. But the Tea Party and Pubs better no go "D.C."
Otherwise, stick them in the same tar and feather'm.
You obviously have your views of the Tea Party regurgitated into your beaks by some mother bird somewhere. If the "establishment" thinks they can buy or coopt the Tea Party, the people who actually united under the original banner will reject that just as quickly. But that doesn't fit your comfy description of the enemy. Denninger and Santelli both are putatively Tea Party and anti-bailout, anti-Fed, anti-bankster - no? And it's sheer brilliance, misused because of its absence.
At the crossroads. Will the front runners of the Fed finally get punched in the gut?
You mean philately Billy and the Balboa broncos?
No. I knew that when the GM bond holders got hosed. It was in clear violation of the bankruptcy laws. Laws mean nothing when money and influence is on the line.
+1 The chrysler bondholders took a haircut at the expense of the unions. That was against the law, and that was the point I knew there was no longer a rule of law. Uncertainty reigns.
Also saw in the Worldcom BK when the MCI junior bonds (which were technically senior to the Worldcom bonds) were almost forgotten about by the court, and oh well, put on equal footing with the Worldcom bonds. Oops.
you got that right
Surely, Krugman knows the answer to the question is "it depends who you are". He honestly isn't stupid enough to believe that the justice system is at all universal for all. Surely not.
"Contract Law;" what's that? US politicians, what a joke......
Nothing to see here move along.
Beautiful, George.
Don't know if you've seen this, courtesy of user mrcmmm, but I keep trying:
http://opinionator.blogs.nytimes.com/2010/10/14/how-wall-street-hid-its-mortgage-mess/?hp
I don't believe Krugman wrote that.
The thing most conservative people dislike about Krugman the most is his idea that govt should spend more to boost economy...why would that preclude him having other opinions that conservatives would agree with...
Krugman was critical of the lax regulation and high private debt, and predicted the financial collapse when many liberal and conservative econmists thought he was crazy. Krugman has also been critical of banks also, so why would it surprise he would say this?
Because the guy wants govt debt spent on infrastrucure, teachers, UI...to make up for private credit/debt crash/deflation, does not mean he is an idiot or an apologist for banks..
why does everyone see everything so black and white, I'm a progressive but disagree with most of what Krugman says and often find myself agreeing on certain issues with hard core libertarians like Mish, Ron Paul, or someone like Pat Buchanon,, even while I totally disagree with same people on other issues.
Great comment.
Certainly agree with you.
can we get a few hundred thousand more of you, and some on the conservative side as well?
I was trying to work with two disparate groups, hardcore progressive hippies and hardcore religious conservatives...they both wanted the same thing, natural, non-gmo, organic, as"nature/god" created it, food.
They could not work together because the progressive hippies could get over the "right wing, religious nazis (always gotta throw that "progressive" label in)" and the rightwing religious conservatives couldnt get over the "leftwing, godless communists (always gotta throw that "conservative" label in)"...
Sad thing is, they wanted the SAME goal, natural, as god/nature intended, food...but couldnt see past the divide over one frakking word....nature/god.
I gave up...
The PTB are doing well, keeping us divided.
Did I ever explain my capitalist commune? It could/has worked in the past...lol...:)
The compulsion of self-policed division is rapture to the ignorant masses.
It's tragic that, in spite of the fervency of the supposedly driving beliefs, it never comes remotely close to doing justice to reality.
Many progressives believe that abortion is wrong. Few, in fact, celebrate it.
People divide themselves. And their passionately maintained ignorance is anything but bliss.
Whether stated or not, it almost always comes down to abortion.
I agree with Krugman, if only this once. This nation is founded on the rule of law, and it must be applied even if the outcome is bad for banks and the economy in general. I am hopeful that state sovereignty (in the form of the 50 state Attorneys General) will overcome the government's desire to control every aspect of the economy.
There is a reason why these notes/deeds are held at the county level and not some federal red-tape bureaucratic building inside the beltway. And that reason is so that our property rights would always be local, preventing the federal government from literally getting their hands on our property.
I can't wait for the lawsuits to start flying.
kill the banks, save the people
Point 1 - even if they are ratbag strategic defaulters. people with shit incomes got into mortgages not out of cynical mendacity, but out of fear that if you still have to pay rent when you are a decrepit old man you will be lucky to avoid spending your dying days homeless. Thats the American PROMISE, forget the american dream.
Point 2:
the benefit of corporations - i.e the legal inventiveness of a 'Limited' company - is that the entity can die but the investors are sheltered from having their personal wealth stripped away to pay creditors
add point 1 and 2 and you get the conclusion that America will rise from the ashes of the banks quicker than it will rise from the ashes of mass home equity depletion
Gee, that ain't what I saw on all those property "reality shows" on cable. They still show the reruns you know - they just haven't moved to Comedy Central yet.
I'm hoping that one of these lawsuits yields an injunction against paying out the bonuses on the grounds that they represent a deliberate attempt to drain company resources in order to prevent just and equitable recovery.
Bob,
Absolutely! If I were one of the MBS investors, the first thing my lawsuit would ask for would be that injunction. And if were the judge, I'd grant it. I see it as a transfer of assets in anticipation of BK or .gov resolution.
Oh, now you're talking. Any payment prior to BK or when the company is technically insolvent can be reclaimed...
Perhaps an injunction is needed to prevent payment of bonuses so that the companies have additional liquidity for BK filing.
+100
Yea, when the crooks are weighing on the side of "rule of law" you gatta start looking over your soldier
And that is not a typo
buy handcuff futures.........
Krugman is to law as Imelda Marcos was to shoes.
A little cross topic:
Just read Ambrose Evans-Pritchard on the need to devalue the $
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8054066/Currency-wars-are-necessary-if-all-else-fails.html
I can't believe I'm going to say this, but I agree with Krugman in that quote. I don't agree with him and Soros' organization that the government should be in the business of creating property rights. It is nice to see someone mainstream pointing out all the potential problems here though. Let the banks fail, the investors take a haircut, and the courts settle the property issue. Someone still owns it, no matter how "fair".
Conrad - One of Government's only legitimate roles is providing the legal infrastructure around property rights (which are Natural Rights, after all).
But I also agree with Krugman, albeit for the first time in my life. Capitalists and banks cannot ask for protection of property rights from the Government and then deprive even the lowliest mortgage defaulter of his/her legal right to due process.
The integrity of the whole system depends on following the rule of law. Otherwise, we will have anarchy. Of course, we may well end up with Anarchy anyhow if the Fed keeps printing money.
Captain, the integrity of the whole system is dependent on wealth or preservation of power.
That's it, that's all, the rest is negotiable.
Justice must be blind.
If the result is anarchy because of a corrupted system, then so be it.
If there is no due process, then there will be anarchy, let it be so because the system did not fail.
"The integrity of the whole system depends on following the rule of law"
More accurately, it depends on the ability of legal rules to be effectively enforced and maintain systemic stability. Perhaps the problem is the size/complexity of the system itself, which naturally requires unequal application of the laws to maintain its economic complexity.
As Denninger points out, actually applying the laws in an equal manner will lead to insolvent major banks, which leads to much smaller credit markets, and therefore greatly reduced complexity.
http://peakcomplexity.blogspot.com/2010/09/limits-to-complexity.html
...the problem is the size/complexity of the system itself, which naturally requires unequal application of the laws to maintain its economic complexity.
...applying the laws in an equal manner will lead to insolvent major banks, which leads to much smaller credit markets, and therefore greatly reduced complexity...
And the downside to reduced complexity is what?
Your assertion that the "unequal application of the laws" in necessary is based on what?
Your gut feeling or a suspicion that it's just not "right"?
I apologize for my assertion here, but I "feel" judicial decisions should not favor the "rich", the "poor", the "powerful", the "weak", the "intelligent", the "stupid", the "strong", the "weak", the "famous", the "obscure", the "honorable", the "dishonorable", the "blessed" or even the "cursed".
The law is the law and it stands on its' own. Those that adjudicate are the black swans of society.
imho
I'm not saying laws should be applied unequally, I'm saying they will be unless we reduce economic complexity (which will happen anyway if we don't voluntarily do it). I see complexity as one of the fundamental drivers in inequality of wealth and therefore application of laws.
Finance = borrowing against future labor = borrowing against future energy = increasing complexity. To ensure increasing financial activity, the legal system has to promote "efficiency" and economic growth, so that's how it becomes structured by central institutions. Old laws that were meant to promote stability/fairness/equality are repealed, modified or simply ignored and not enforced.
To enforce these laws means to sacrifice economic growth and increased complexity, and although I absolutely think this should be done, the elites are obviously not willing to do so. Fortunately, it is not really up to them anymore... natural forces win out over the idealistic desires of human beings every time.