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:

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?


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]:

there is due process of law or you have a kleptocracy/"banana
republic" oligarchy. At present, that is the decision we face as a
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.


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.



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.


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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the grateful unemployed's picture

The fraud counts raise some issues. Is there such a thing as a 'straw man' in a housing sale? You have a commodity, you take that commodity to market, and you link up buyers and sellers. The banks didn't build the house, and they didn't take it to market, they merely handed the keys to the first person (in this case a middle man? a house flipper?) whose purpose (intent) was to remarket the house.

Regulating housing implies some controls over supply and demand, if supply outstrips demand because of LOW INTEREST RATES, A BUBBLE ECONOMY, then whose fault is it really, the Tulip Bulb salesman?

This economic problem , like the global economic problem, goes something like this, every new child needs a supply of US dollars. So we print those US dollars, but they aren't getting into the hands of those children, they sit in some bank vault, or they buy overinflated stocks, and other cockeyed monetization schemes. The befuddled homeowner has no idea who to pay his mortgage too, and when he pays the bank he pays the wrong guy, the bank sold the paper years ago.

So everyone who has a claim, a piece of MBS, whatever, should make a claim against the house, an escrow company should accept the payment, and disburse it accordingly, incredibly complicated but a legally useful comparison.

RocketmanBob's picture

Too bad Krugman didn't feel this way about the thuggery surrounding the takeover of GM and Chrysler...

Of course, that's the problem.  He doesn't think, but "feels" instead.

But he is correct about the rule of law; not much else though.

And is still a putz.

Lionhead's picture

Put another log on the fire for Bank of America as a former manager is indicted for six counts of wire fraud and one count of bank fraud:

(posted earlier in comment 655039)

"According to the charges, developer Michael David Scott arranged to purchase multi-family dwellings and then sold individual units in the buildings to straw buyers recruited by Scott, SAMUELS, and others.

The straw buyers' financing for the purchases was obtained by submitting mortgage loan applications that falsely represented key information, such as the buyers' assets, down payment and intention to reside in the condominiums. SAMUELS also caused false verifications of deposit to be created in support of loan applications submitted to lenders in the names of straw buyers, and acted as a straw buyer himself on three property transactions. In most instances the lenders were led to believe that the straw buyers had made substantial down payments and paid substantial sums at closings."

As I have posted earlier in my conjecture, the banksters may have developed a fractionalized mortgage system to boost their profits & bonuses during the bubble years. This will put into doubt clear title for all mortgaged properties. Check your title & deed(s) to your property.

mh505's picture

I am rather shocked to learn that a site such as zero Hedge - with their strive for authenticity - still cares to quote Krugman.  The man has embarrassed himself on so many occasions (there should be an institution preventing Nobel prize winners to besmirch themselves - that even things he says to which one might agree will not improve matters at all



the grateful unemployed's picture

We have one Nobel Prize winner in jail, why not all of them?

Triggernometry's picture

Must say its easy to agree with Krugman on this one. Of grave concern is the recent ruling allowing placement on GPS trackers on a car parked on private property; the government is essentially arguing we don't have full privacy right on property which is not fenced in, nevermind local ordinances which often prohibit fencing of property within 28feet of center of adjacent roads.

Our country has faced the issue of equal application of the law many times in the past.

“Decency, security, and liberty alike demand that government officials shall be subjected to the same rules of conduct that are commands to the citizen. In a government of laws, existence of the government will be imperiled if it fails to observe the law scrupulously. Our government is the potent, the omnipresent teacher. For good or for ill, it teaches the whole people by its example. Crime is contagious. If the government becomes a lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy. To declare that in the administration of the criminal law the end justifies the means -- to declare that the government may commit crimes in order to secure the conviction of a private criminal -- would bring terrible retribution.” -Justice Luis Brandeis (Olmstead et al v. United States (1928))

37FullHedge's picture

The rule of Law is so corrupted by the elite Fraud is now accepted, Fraudclosuregate is a good clear example to the general population Law as we knew it no longer applies hence why pay a mortgage and to be fair why pay it,

The BP debacle clearly shows the US as a mafia mobster state and corrupt to the core, The $20 billion shakedown farce, Who in their right mind would do bussines with the US? The masses are waking up, When the rule of law no longer applies at state level like the US clearly banana republic status follows,

Foreclosuregate could and should take the US quickly to its correct lawless fraudulent level,

Trust is a no starter like working with any gangster its inevitable you will get screwed,

Karl Denninger is doing a good job showing up just how corrupt things are and forecasting how bad things will turn out if the rule of law isnt restored, I wish him luck with that hes going to need a lot of luck, Bankruptcy of the US is probably the only way the rule of law could have a chane of being restored,

Audit the Fed, Whats Ron Paul thinking? Audit the US gold reserves, Everyone Knows the truth thats why never in a million years will Ron Pauls audits happen, The markets will blow up for very good reasons, Rule of Law now thats a joke.  

bingaling's picture

Martin Armstrong was the first casualty of no rule of Law . Read his work it is enlightening to say the least . He was incarcerated for refusing to go along with the big players . He names names like Buffet , goldman sachs etc .

So no there isn't rule of law and congress when back in session will pass something to make sure this goes away even if it is a blatant admittance there is no rule of law .

B2A5DE8E-17C4-29EB-4B06-4C8A89D4ED7D 1.02.28
killben's picture

For once Krugman makes sense!!

CashCowEquity's picture

Insurance Roast= Financial Toast

mogul rider's picture

Clearly communism is alive and well in the US. You just call it capitalism. Orwell said it best

"Some are more equal than others". Think about it folks ost of you are outside the glass looking in.

Tell me how the commies have NOT invaded your country. Looks to me like they have. But they call themselves dems adn reps.


You just believe them that's all.

mogul rider's picture

Decline of the American Empire, A great movie, rent it sometime. Made by a guy from Quebec.


The descent into madness and chaos is assured and in progress. You just don't know it yet.


Standing by and watching the carnage month after month is truly a once in a lifetime event. I've never seen a country self destruct before. WOW

Freewheelin Franklin's picture

Hmmm? No mention of title insurance companies? Don't they stand to lose a bundle depending on how this plays out?

Coldfire's picture

A dyed-in-the-wool statist implying support for property rights? Pardon me, but that's a bit much.

Hook Line and Sphincter's picture

Krugman is either delirious, or has his own controlled opposition built into himself.

Fearless Rick's picture

Hey, you even used "Your" correctly! Bravo!

Fearless Rick's picture

Too goddam funny. I can hardly type. LMAO!

williambanzai7's picture

Rule of Law? Where have I heard that before...

RocketmanBob's picture

Dude, I love this graphic!

I'm going to shamelessly steal it.  How can I credit you for it?

Miles Kendig's picture

Every time Bernanke speaks he talks about "more credit"...

Too bad his moral credit accounts are all zeroed out

Jim in MN's picture

So that makes Krugman (corporate kleptocracy), Evans-Pritchard (I was wrong, end the Fed), and Bill Gross (expect zero real returns on equities and bonds for a decade or more) all having flashes of lucidity in the past few weeks. 

It'll pass.....???

Widowmaker's picture

Lawlessness -- good enough for Congress, good enough for corporations, but not good enough for you, pissboy.


High Plains Drifter's picture

Rule of Law?  We have had no rule of law since the civil war. Matter of fact, the martial law instituted during that time, technically never was rescinded. What we have now is color of law and during World War 2, the laws of agency started taking shape. So please. Rule of Law?  Spare me.  We have no common law and have not had it since the civil war. That is why talk about the Constitution does you absolutely no good in any court. The courts are not subject to the Constitution anymore. Isn't it strange that Krugman is whining about the rule of law, and at the same time , talking about more QE. Is the FED constitutional?  Is the creation of money out of thin air constitutional?   These socialist are a real trip.

PeterSchump's picture

Hola Zimbabwe of USA!


Is that you Paul Mugabe?

Goldenballs's picture

Banks,how can you call any of these organisations banks any more this is just organised crime.

High Plains Drifter's picture

A totally true statement. We see the game as it is played and we scratch our heads at the bogus air of legitimacy we give these thieves. After all that has happened and the money that has been stolen by these thieves from the American people, only one man has gone to prison , just one. I am sure I am not the only one that thinks the thing with Madoff was strangely sublime as Ghekko might say.

Goldenballs's picture

Short answer is "No" .

alangreenspan's picture

HITLER IS BACK... "My Fuhrer, the fraud was too massive"





Bob's picture

Beautiful, ain't it?  And 60,000 views in the past 6 days.  I've been sending it out to people who have in turn been sending it out . . . it's the least we can do for our bankster-government complex!

Bob's picture

LOL.  Hey, OGW, here's my latest love object, courtesy of user mrcmmm:

Have you seen it????

NorthenSoul's picture

WOW! Just WOW!

In a surprising turn of events, Paul Bossidy, Clayton’s chief executive, wrote this letter to the F.C.I.C. on September 30, a week after the hearing, disavowing Beal’s sworn testimony.

WTF? How often do you see such a thing?

Bob's picture

Trying to run CYA for his buddies, I suppose.  How about this, with a different guy:

Fearless Rick's picture

Same guy, if you mean Johnson.

 Clayton reviewed 911,000 loans for 23 investment or commercial banks

Holy title search, Batman. That's a lot of loans!

Bob's picture

I read VP Beal in the first one and reviewer Johnson in the second. 

Yeah, that's one hell of alot of loans! 

Apocalypse Now's picture

This issue encapsulates extremely important points in America:

  • States Rights / Laws Vs Federal Laws
    • Property Rights are local right down to the county courthouse
    • State/fed is a big deal, at one time a civil war was fought over the concept
    • Congress/bankers tried passing a law supplanting state notary laws
  • Individual Human Rights / Property Rights

Corporations associated with wall street/banking/fractional reserves should be treated as second class citizens, they are not producers they are parasites and divert the wealth of citizens and economies into their pockets.  Politicians take notice, these are crooks and if you get campaign contributions from them you are guilty by association.

Do not confuse producers/corporations with banks, let us focus all our anger on the TBTF banks (not community banks).  It was not as noticeable when the economy was healthy, but notice how much bigger the big banks have grown for the last twelve years while the indexes are flat - how many billions did they pull out of your accounts and put into theirs through regulatory capture, HFT, market manipulation, round tripping, commodity pump and dumps, etc, etc, etc.  Wealthy people that earned it through production are not the enemy, they create most of the jobs in this country and pay more taxes - to attack them is to bite the hand that feeds, the government does not feed but redistributes.  If this was not the case, Kenya or Zimbabwe would be just as successful as the USA.  They push for country wars to increase their debt interest.

I am concerned liberals might make this into a class warfare issue - again, this is a TBTF banker issue.

I hope Liberals and true conservatives and tea partiers get together on this issue of individual liberties.  Take a stand now or we will be reduced to serfs, they could robo sign that your entire fucking bank accounts and all properties have been signed over to them if this stands.

So who really owns a property? 

  • Consult current property law for the answer = holder of the title
  • If payments are not made then the note holder has a right to foreclose
  • If the chain of custody is broken the note holder does not have a right to foreclose
  • What is so fucking difficult to understand?

I have noticed banking industry shills on this site try to frame this debate as an issue of nobody should get a free house, well I am here to tell you that an individual that puts down a down payment, makes monthly payments, and makes tax payments has an infinitely greater right to the asset than a bank that did NOTHING and botched their only reason for being, which is to get the paperwork right.  That is all a bank does, shuffle papers.

As Mako has tried to educate people, the banks did not use their deposit money to fund a loan for the purchase of a home.  No deposits were required for normal home purchases, the money is created out of thin air based on your signature on the agreement to make payments.  Based on this new knowledge, who has more right to a home?  A community bank that still owns the note, sure if they did not destroy the chain of custody, but understand that even under this scenario the banks receive the benefit of a hard asset for nothing they provided. 

Under this scenario, banks could hope or collude to create an economic down turn so that they can reposess all assets across entire economies.  As long as they do not have the threat of bankrupty (.gov backstopped) they are infinitely more dangerous.  Forget P&L's, forget Balance Sheets, and think about ownership, influence, and control.  If they own all the assets, do they really care what the price is??????

Do you remember Warren Buffet talking like a junkie that had just visited Amsterdam about how great the banking business was and how he wished he had discovered Wells Fargo a long time ago?  The reason is the ability to print money with interest and foreclosures - at the time of a home "loan" they just sell the agreeement on to fannie or freddie.  That is why nobody cared about the quality of the loans and started providing NINJA loans.

My biggest fear is that this is some kind of trojan horse for questioning individual property rights or state rights versus federal decrees.  We need to stand together on individual property rights - the right to make sure that you have rights. 

This includes your individual rights over your own body, which is why I hate Obama Care.  Right now there are plans to inject humans with microchips for total world control.  Mad mad Massachussets has already passed a law that would make vaccinations (chips on the tip) mandatory or else jail time and fines. Mark my words, as Biden said to the Supreme Court, you will rule on this in your life time.  Israel, Mexico, and India have implemented this plan and are chipping people.  Most pets and cattle have been chipped.  FREEMASONS are chipping children at fairs under the guise of SECURITY/SAFETY. 

Wisconsin is currently the only state with a law on the books outlawing mandatory involuntary chipping of human beings.  Think about it, I am most concerned about an excuse to call martial law with mandatory chipping under the Obamacare technology provision.  We are not cattle, watch this video


Jim in MN's picture

As a liberal I completely agree with you.  Well, my Dad voted Libertarian a lot back in the day, but still. 

High Plains Drifter's picture

Getting chipped?  That is one of my many lines in the sand.  Homey don't play that.

John_Coltrane's picture

Absolutely brilliant comment especially:



Fredrick Hayek would be proud to have both the rule of law individual property rights as the foundation of freedom emphasized in both the post and your great comment.

Government/corporate collusion coupled with central control and planning is truly the "road to serfdom"

Local control and dispersed power in the only antidote to this cancer.

chopper read's picture

+ 2011.


term limits, end The Fed, open markets to competing currencies (including gold and silver), empower State and local government and starve D.C. at every juncture. 

blunderdog's picture

I am here to tell you that an individual that puts down a down payment, makes monthly payments, and makes tax payments has an infinitely greater right to the asset than a bank that did NOTHING and botched their only reason for being, which is to get the paperwork right.

That's a pretty good way of putting it, I'd say.  +1 for that.

Kina's picture

This has come to pass only because corporate America believed they owned the system and were totally confident they were in no danger from the law and punishment.


And the only reason they 'knew' that is because the corporate watch-dogs, police, regulators and judiciary were placed for the very purpose of allowing corporate America to do what it wants over and above rule of law, ethics and morals.

And that only came to pass because of a corruptible political class eager for easy wealth from the corporate world and the prospect of continual reelection.

The Regulators, police, judiciary and so forth are the very last line of defence against corporate and criminal anarchy. If they are corrupt then the system becomes systemically corrupt, and this is what has happened.


'Fortunately' the catastophe that has beset the US and Globe cannot be swept under the carpet, the powers that be cannot just turn a blind eye and be recognised as corrupt. So we have things being revealed, the formerly corrupt protectors having to do their jobs by rule of law.

But the process has only just begun. The SEC, CTFC are still corrupted organisations that work only for the benefit of corporate corruption of markets.

Part of the process of rebuilding must include an overhaul of the regulatory bodies and their governance.  They must be freed from political corruption, individual regaltors must face harsh penalities including long prison terms for blatant neglect.

If we had had a strong regulatory system with real powers and a brief to use them ruthlessly, strong non-political judiciary all of this may not have come to pass.

Dick Buttkiss's picture

"If we had had a strong regulatory system with real powers and a brief to use them ruthlessly, strong non-political judiciary all of this may not have come to pass."

Yes, more regulations from an even stronger regulatory power, which is of course what the new Fin-Reg law is all about -- i.e., giving the Fed more control over what it has already lost control of.

You want a "non-political judiciary"?  Get rid of the politicians by letting a private court system rule based on the protection of live, liberty, and property.  Period.


The state can kiss my ass.

Beancounter's picture

As a former GM bondholder, we've already punted on the rule of law.


Dick Buttkiss's picture

Krugman is a clueless, Keynesian, state-worshipping fucknut, who wouldn't know the rule of law from his own butt cheeks.

And knowing something about my own, I invite Krugman and the state can kiss them both.

High Plains Drifter's picture

But, but , but wait a minute. Our hero won a Nobel  Prize in Economics in 2008, so he must know a lot that he can teach us mere mortals.

nmewn's picture

Yeah he won it for essentially dotting i's and crossing t's on someone elses theory. He's never had an original thought in his life...LOL.

Fred Hayek's picture

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

And, for god's sake, how does the WSJ get to be a stand in for anyone and anything "on the right"?  My god.  Does every lefty have to answer for every inanity Krugman spits out in his columns? 

The WSJ identifies too heavily with the big banks.  It isn't a matter of what people on "the right" are saying.  I've got conservative and libertarian friends and I think every one of them sees the banks as deserving of the trouble they've brought on themselves.  They're laughing that the banks that bought the gov't and got to avoid their just insolvency in 2008-9 now have this coming around to bite them in the ass .

An even marginally mentally nimble writer would realize that the WSJ doesn't stand for "the right" on this.  A prize winning hack like Krugman just sees a lazy shortcut to making a superficially better argument.