Monday, December 3, 2007

Save me from myself, Mrs. Clinton

In the first days of December, Mrs. Clinton came out with an entirely new tack for her. She called for a moratorium on mortgage foreclosures as well as a five-year freeze on the rates of adjustable mortgages. (choose your source) This is such a blatant invasion by government into the free commerce of the private sector that it is almost a spectacular display of chutzpah that it is being suggested openly rather than under a cloak of darkness. And it is not just being proffered by a secure, sitting Congressman (Congresswoman not only sounds kinda silly but may be inaccurate anyway.), but by one actually betting their future sought-after political office on what they say on a day-to-day basis.

Note that these loans were all allegedly perfectly legal contracts when they were written and entered into. If the issue were that they were illegal, that would be what is being addressed here. And Government (be it State or Federal) would be well within their rights to investigate the situation, nullify the contract and prosecute accordingly... because a law would have been broken. However, since that doesn't seem to be the case, it is difficult to ascertain the premise on which Ms. Clinton's request/demand/expectation (it's never just a request with her) is based.

According to Article 1, Section 8 of the U.S. Constitution, a document, which, by now, Ms. Clinton should have had an opportunity to familiarize herself with, Congress has the power to "regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes". This is commonly referred to as "The Commerce Clause." There are three sections to The Commerce Clause, "Foreign...", "Interstate...", and "Indian..." respectively. Unless the banks involved in the mortgage loans were either outside the U.S. or on Indian reservations, the 2nd section ("interstate") of the clause is the only one that could possibly apply. However, even if the Interstate Commerce Clause applied for whatever reason, it remains that the Constitution only says that Congress has the power to regulate. Left alone, that power is not law. Congress' only ability to do anything with that power is to draft and submit a law.

It is no secret that Congress has done their utmost of the years to take the solid granite block concept of free market economics and whittle and carve and chisel it until what remains is barely able to sustain its own weight. They have passed untold laws that have gone over and above the power granted by the Commerce Clause. In fact, most people don't even realize that there is a limitation on this power. We have many government-spawned regulatory bodies that tell us what we can and cannot buy, sell, or trade; how, where and when we can advertise; and what terms we can and cannot set for those sales. It would be pointless (and off-topic) to go into the complexities of the commerce laws that the Federal Government has passed. The point does still exist, however, that - even in light of all those laws on the books - the contracts that were put into force between the mortgage lenders and the borrowers... were legal.

The Executive Branch of the Federal Government exists solely to enforce the laws that are enacted by the Legislative Branch. (Again, not time for a digression into the Judicial Branch's foray into writing law.) That means, in theory, if Congress didn't write a law that in some way covers a specific action, it isn't illegal. No one other than Congress can make it illegal. If the act isn't illegal, it is not within the Government's purview to take any sort of action on it. After all - The Legislative Branch makes laws, the Executive Branch enforces laws, and the Judicial Branch administers the courts when laws are broken. Notice that Government's only power to meddle in the private sector are through the common conduit of law. If there is no law, the Government has no role.

Which brings us back to the issue du jour for Ms. Clinton. If there was:

  • a contract between two ostensibly competent parties,
  • entirely involving commerce in the private sector,
  • that were constructed so as to not violate any laws in force at the time,

... what business is it of Government's?

Ms. Clinton's purpose here is allegedly that she wants to help the poor, struggling families who are about to lose their homes. Let's forego the titular purpose of this blog for a moment and take her at her word. Let's also lay out some other premises that should cover the majority of the situations involved here. The people she is trying to save:

  • were not forced to purchase a house at that time,
  • were not forced to use credit to purchase the house,
  • were not forced to select an adjustable rate mortgage (ARM) over a conventional fixed rate one,
  • were not forced to agree to terms that later became inconvenient (e.g. prepayment penalty riders),
  • were not forced to stay with that mortgage (inconvenient penalties not withstanding) as the rates rose.

To sum up, the people involved exercised their freedom and entered into an agreement with another party that, at the time and to the best of their knowledge seemed agreeable to them. Apparently this is what Ms. Clinton finds so scandalous. Given her track record of indirectly implying that the people of this country, as individuals, are incapable of making proper decisions on their own (her health care plans being a prime example), it would logically follow that she believes that the average home loan borrower is incapable of entering into a financial contract with the legal burden of mental competency. Therefore, by applying this assessment with the broad brush of sweeping generalization, she would perform what amounts to a de facto class action judgement via edict and render the contracts that were entered into - in good faith - null and void. (Or at least suspended for a time.)

Even with only a short suit of creativity, this sort of mechanism can be applied in an impressive myriad of ways. In short, any action or decision that, in retrospect, became harmful to an individual should be forgiven. Actually, it only needs to be simply regretted rather than harmful. However, unlike bankruptcy which has its burdens of proof, penalties and long-term ramifications, the person escapes relatively unscathed from the "Hillary suspension." It amounts to the ultimate financial mulligan. It's as simple as saying "I didn't like what came out of my decision, so I'd like you to cut me a break." Not bad - unless you are the one on the other side of the transaction.

This mentality can actually be taken even further - and already has if you recognize the signs. For example, let's say that a retailer sets a price that he wants to sell his product for. For the most part, a seller is free to do that. In a free market, that price is an offer - not a demand. No on is forcing a buyer to agree to it. If the buyer does not agree, there is no transaction. If some buyers do and some do not, it is up to the seller as to whether or not he likes only selling to some people or whether he wants to entice more of them to purchase his product by lowering his price. He can even choose to sell his product to person A for one price and person B for another price. (For example, different negotiated rates for exactly the same product happen all the time between businesses.) There are a number of instances of the concept of "choice" in the above series. The choice to offer for sale, the choice of price, the choice to purchase, the choice to pay a price. All are free choices in a free market.

However, if the government comes along and says, "we understand that you normally sell your product for $X, but to this person we are going to insist that you sell your product for $Y instead," choice has been removed from one of the parties. This happens all the time in our over-regulated, quasi-free market.

One example... After hurricane Katrina, government tried to force insurance companies to pay of claims that were specifically not covered. Some companies chose to raise their rates for future hurricane coverage in order to cover what had become a massive liability for them. Government tried to force the companies to offer lower rates than what they needed to. Some insurance companies did not want to get involved in the issue in the future and chose not to sell insurance in Gulf states any more. Government then tried to prevent those companies from pulling out or force them to offer hurricane insurance in those states once again.

"Gray-out" Davis' price controls on electricity in California only led to the utilities not being able to purchase power from other states when it was needed. The result was rolling blackouts statewide. So, despite having their electric rates frozen at arbitrarily (and unsustainably) low levels, Californians went without reliable power for a good portion of the summer of 2001. (I could have littered this paragraph with all the requisite bolded "chose" words, but I figure at this point, it should be intuitively obvious to most people that they should be in there.)

There are other examples of where government has interfered with the market - allegedly to help the (euphemistically) "less fortunate" - and it has resulted in disaster. But even if the government managed to exorcise the spectral "law of unintended consequences" that is endemic to any large governing body, and instead wielded some Midas-like power, it still would not be their job (via the power granted to them by the consent of the governed) to step in and make changes to any private contract or transaction. It is simply not their business to meddle in our business, so to speak.

So we return to Hillary's proposal... which, at the moment, is theoretically not in the purview of the Federal Government. Why bring it up then? It sure does sound nice. After all, Auntie Hillary (it's OK to call her that since, as a member of "The Village", she has shared in the responsibility of raising us) would like to kiss it better and make the boo-boo go away. Who wouldn't want that?

The timing and nature of the idea couldn't be better - or more obvious. With the election season pre-game show coming to a close and the first round about to begin, Hillary knows that she is being scrutinized. She is also well aware that the turnip that is her health care proposal is not going to yield any more accolades or acolytes than she has already squeezed out of it after 15 years. She was in need of one last, preferably timely and topical, broad-appeal proposal to unfurl like the a banner streaming hope behind her as she appears, galloping at the cavalry van.

But that's not really all that different from most political proposals made during a campaign, is it? We can hardly fault her for trying to come up with something splashy in time for the mighty Dioscuri, Iowa and New Hampshire.

Really, Hillary's true purpose, with this and many of her other proposals, is actually "hidden" in plain sight. Take the generalized ideal that she proffers:

By enacting this plan, the Federal Government will be able to help you get what you want and need.

Through a linguistic slight of hand, she has directed the attention of most people (and most importantly, her potential voter base) to the one hand of her sentence... "get what you want and need". To witness the power of the enticement of this mental analgesic, look no further than a common theme in questions from the public to candidates in debates and the misnomered "town hall" meetings. Surprisingly often a person will ask, "how will you help [me]?" or "what can I expect that you will do for [me]?" or "will you promise to fix [me]?"

So, with the audience fully entranced by the visions of sugar plums, there is little risk that there will be left-over consciousness to ponder what the other half of the statement entails. What people fail to realize fully in their heroin-like euphoric trance is that, "by enacting this plan, the Federal Government" has surreptitiously taken up a little more residence in your life - the wave-by-wave erosion of the beachhead of your freedom. It's made even more clandestine by what you seem to be getting out of the deal in the short term. Even the frog is comforted at first by the slow, even soothing warming of the waters until he is no longer capable of hopping out.

And thus, the mortgage proposal falls into line with other offerings from Ms. Clinton. Under both the rousing fanfare to the Power of the Masses and the soothing lullaby of the nurturing nursemaid, is masked a steady tattoo of deprecation.

You can't do it. We can do it for you. Submit.

It's all there when you think between the lines.

1 comment:

impact said...

The interpretation of the commerce clause by the supremes is now so broad that the feds get to regulate everything because the air we breathe goes across state lines. About the only thing worse is the total disregard for the 10th Amendment to the Constitution.