Which Country Is This?
Today, the President proposed that the government nullified contractual agreements, an action that obliterates the rule of law. The measure he introduced relieves home owners from paying interest on adjustable mortgages upon rate-reset as required by the mortgage contract.
Why stop there? If he wants to be popular why not exempt borrowers from any interest payment? Why not exempt them from principal payment, too? Why not just take rich people’s money and help bad-credit owners build larger houses? Why not become Hugo Chavez?
Update: The ASF claims that no contracts will be violated. It says that “existing subprime securitization operative documents generally authorize the servicer to modify the loans for which default is reasonably foreseeable” (page 9) and “agreements should be interpreted, to the maximum extent possible, to authorize the servicer to take the actions” including equating the standards “default is imminent” and “default is reasonably foreseeable.” Some lawyers are going to have fun.
Update2: In the above, I condemned Bush’s housing bailout in moral terms: it’s a violation of contracts, the rule of law, and a cheep populist ploy to give away another’s wealth to those who haven’t earned it. I decided to read the conservative blogs to see if contracts, law, rightful ownership, and expropriation were among the terms employed to criticize these measures.
On National Review Online I found a discussion of the economic impact and comments about ‘who it helps’. It gets better when Michelle Malkin asks about whether we are punishing the rest of us (expropriation) and equates Bush to Hillary here. But it sinks to a low when Kudlow, while properly rejecting the alleged economic benefits, supports it as politically necessary.
Red State has several articles along utilitarian/consequentialist lines but little from a moral perspective. Patrick talks about moral hazard. Cornwall talks about allowing the free market to work on the “LockeSmith Blog”. Glen Reynolds could only dig up this link. Berlau of the CEI wisely points out that if the “plan is truly voluntary, it’s unnecessary” but mostly talks about contract violation in Hayekian terms of spontaneous order.
The above writers make important points. However, few address the moral issue directly. Some hint at the moral issue; others mention it in passing. Few make it the central point of their criticism. The simple truth is that a mortgage is a contract, there are laws, and the individuals involved have rights which aren’t trumped by the needs of others. Perhaps it’s early but I don’t see conservatives taking a principled moral stance against what is intended to be a violation of the rule of law and a violation of rights.
Update3: Epstein is an exception. Note his reliance on self-responsibility and rights vs. the evil of expropriation and punishing the innocent. Compare that with the "free market" TechCentral article by Kling which purports to be about responsibility but is really about Kling's view on who deserves to be punished including real estate agents with Rolexes!
posted by Jason Pappas at 3:37 PM
38 Comments:
The New Mommy State... increasingly smothering baby Liberty since 1776... and now eaving social saftey nets into hammocks since 1929.
'w'eaving/safety. Sheesh!
Do you mean Hugo Chavez?
Jason writes "Today, the President proposed that the government nullified contractual agreements, an action that obliterates the rule of law...why not exempt borrowers from any interest payment?...Why not just take rich people’s money and help bad-credit owner build a larger house?"
Perhaps that is where we are headed. Our social-democracy is governed by the vision that to help people, anything goes. I do not know of any support of our civilization that is not undermined to help out those in "need".
It is distressing that there is virtually no public discussion regarding the proper role of government.
Lao Tzu wrote "If you do not change direction, you may end up where you are heading."
Thanks, Pastorius. I changed "Cesar Chavez" to "Hugo Chavez" which is what I meant. Cesar was a labor leader of farm workers and Hugo is the communist in Venezuela. Hugo's policies just got a ‘thumbs down’ in Venezuela a few days before the Bush administration's decision to take a small step down that very same road.
Jason notes that the "simple truth is that a mortgage is a contract, there are laws, and the individuals involved have rights which aren’t trumped by the needs of others...I don’t see conservatives taking a principled moral stance against what is intended to be a violation of the rule of law and a violation of rights."
The problem appears to be that we have become so politicized that the fundamentals of morality and principle have been lost.
I submit that the first question to address is what is the proper role of government; the second is whether it is moral to take what belongs to one, so as to give it to others.
Weingarten
Allow me to digress on dealing with fundamentals. Jason has noted how conservatives address the economic and political impact of Bush’s housing bailout, but not its immorality. Let us consider that *the glue of a nation is its shared moral values*. My point is not to advocate a Constitutional position, or a religious view, or an Objectivist one, but merely to ascertain what are America’s shared moral values. If there is any consensus, it is that government should aid the ‘needy’ by giving them what belongs to others. We lack the belief that the foundation of the Constitution is the protection of our inalienable rights, nor the religious view that one should not covet, nor the philosophical position that it is immoral to initiate force. Rather there is only the preference as to whom wealth should be taken from, and to whom it should go.
Placing aside the immorality of this position, there is not even the willingness on the part of the public to examine it, nor even to justify it. I recently moderated a discussion for about 30 people, generally liberal, and raised the question as to whether it was moral for an *individual* to forcibly take from one person to give to another. The immediate reaction was to say that the government had the right to do so, thereby precluding the consideration of what morality is. Although a few would say that it was wrong for an individual to take from another, many would refuse to consider the question, or would say that it is an individual matter, or that it is subjective, or it depends upon which group one is in, or that we shouldn’t continue this discussion, or that it was a meaningless question. Thus, there was no consensus about the existence of an objective morality, let alone what it might be.
As to government, there was unanimity of its right to distribute income. I asked where that right came from, to which there was evasion. Some pointed to majority vote, but would not address whether slavery was permissible if 51% wanted it. Some pointed to the Constitution, stating that slavery is illegal, but held that if the majority wanted to revise the Constitution, then slavery was moral. For the most part, there was anger and interruptions, so as to deflect from considering the issue. One person shouted (out of order) that it was necessary to do so when it was a matter of life or death, as in an emergency. Here, there was no opportunity to say that the mission of the government included the prevention of death, and the dealing with emergencies, but rather the question was whether it is moral to confiscate what belongs to others when there is no emergency.
The bottom line was that this group, which always advocated the importance of freedom of speech, and the imperative of our education system, refused to allow the subject to be addressed. The conservatives and religionists had virtually the same moral view as the liberals, although they differed on economic and political matters.
In Russia and China, there is a consensus among the populace for building their country, and furthering their culture. There does not seem to be any comparable support in our country. However, they and we share the view that morality is carried out by force.
Weingarten
"Why not just take rich people’s money and help bad-credit owners build larger houses? Why not become Hugo Chavez?"
Because that would require that Bush actually be consistent about anything, which would imply that he holds at least one principle without pragmatic compromise.
Try to remember whom you're writing about here. :)
LMOA. You're right Jeff. I doubt he even senses the principles involved, let alone their violation.
Weingarten, everything you say is true. Yet if you mention that fulfilling one’s contract is honorable, have objective laws and respecting them is ethical, and taking what isn’t yours is objectionable, most people know those principles. They believe they should be cast aside at times but they don’t believe they should be totally eliminated.
I still think that raising them and suggesting that they apply plants doubt in the mind of the average person who advocates suspension or limitation of those principles. Most aren’t up to the task of dealing with their conflicting desires to have laws but not have laws, to want freedom and yet want what’s not theirs. Most just don’t want to think about it or ‘feel’ the answer or claim there is a greater principle, etc.
It’s disappointing how most aren’t even intellectually curious to examine the issue beyond asserting their prejudice. Still, at times I like to express my moral qualms with current policy and let it sand. I might say "I have trouble with this because ..." and just leave it at that.
Hello Jason
I largely agree with your fundamental position, but the Bush proposal isn't quite the populist measure you claim:
1. Some of the sellers of subprime mortgages were misrepresentating their products and engaging in fraud. Gov't should never have allowed this in the first place, but it did. Not all home"owners" stuck in this mess are irresponsible (although many are). It would be fine to sort this out case-by-case, but put 1million new cases into the courts all at once and see what happens.
2. Many holders of subprime (and prime) debt have an interest in the rate freeze: they are better off receiving payments at the frozen rate than being stuck with one million repossessed homes no one wants. Not that we should want to protect them from the downside their risky investments, but the aren't exactly victims here (at least in many cases).
And most importantly...
3. The primary reason for the freeze is because of fears of a much greater financial meltdown if the situation isn't stabilized. This is not really not to help homeowners, but to avert a bigger financial debacle and to help bail out big banks who helped generate this mess.
Underlying the whole fiasco is the federal govt's own fiscal irresponsibility. And behind that, the Americans' tolerance for (insistence on?) big govt spending w/o having to foot the bill.
I posted a dissection of the whole debacle on my blog yesterday.
BTW, I forgot to mention -- the three points I raised don't lead me to support the Bush plan. America needs a good financial comeuppance and correction...and we'll likely get it, despite this.
(The plan isn't Bush's, of course, it was cooked up by Bernanke I suspect, or more likely is from Citibank or some similar source.)
Charles, I’ll have to check your blog but I’m going to be away from the computer for a few days. From the above, I’m surprised. Points 2 and 3 are narrowly consequentialist. With regard to point 1 there are laws against fraud and it isn’t clear where the fraud is more frequent on the mortgage lenders side than the borrower’s side. Given the number of “low doc” and “no doc” loans in the 2006 and 2007 cohort, we’re finding out many borrowers lied about their income and occupancy status (speculators claiming to be owner-occupants.)
I’ve written about the subprime crisis months ago. No doubt government macro-policy was the major cause of excesses. However, I’m surprised you’re not concerned with the issue of contract violation and the rule of law. I’m surprise that you’d introduce utilitarian criteria before these fundamental moral principles. I know you’re an economist and I share your interest in the detailed consequences, including the all important unintended ones. Here I suspect we may ultimately agree in large part. Still, the basic spirit of the administration’s approach, even if it is a small step, is that contracts can be tossed aside.
I note, in all fairness, that the ASF is trying hard to claim that these measures are not in violation of the contracts; but when they seek to make contracts “flexible” and “living documents” that have to be “interpreted” rather than “enforced” one gets the point.
By the way, the criteria focuses on loan holders who aren’t in trouble paying their loans but are expected to be in trouble (by unspecified tests) at reset, I don’t believe the result will change the default and loss rates substantially and either do many Wall Street firms, although the analysis has just started.
This thread began when Jason noted that conservatives did not take a “a principled moral stance against what is intended to be a violation of the rule of law and a violation of rights.” It implied that they have replaced morality & reason as their fundamental guide, by political and economic concerns. This abdication is not a matter of their rejection of your views or mine, but of violating their own ostensive beliefs.
I then stated that the American public had also lost its way with regard to morality & reason, even to the point of evading the issue. Jason responds with the recognition that although the public has compromised ethics and laws “most people know those principles. They believe they should be cast aside at times but they don’t believe they should be totally eliminated.” I concur, and would add that deep down people know what is right, and have the common sense to apply reason.
Do not all of us know that it is better to find the truth, than to evade it? Would any parent teach his children that instead of being truthful, they should misrepresent what exists, for the sake of advantage? Would they say that justice should be abandoned for the sake of gain? Would they advise irresponsibility over dedication? Would they advocate that one should conceal his errors rather than correct them? If you asked someone whether it is moral that those who have been productive, should fare no better than those who have been disruptive, he would say “No”. If you asked whether schools should indoctrinate to the majority view, he would say “No”. Morality and common sense are built into people. Why then is it buried?
The social-democrats (or liberals) have not only been winning the war of ideas, but have instilled evasion & misrepresentation as the way to carry out their agenda. The conservatives (or Republicans) accept the premises of the social-democrats, by placing pragmatic (or popular) positions above principles. In this sense, *liberals and conservatives, while differing on political & economic matters, cooperate in practices that pander to the passions*.
Now Ayn Rand has denounced ‘evasion’ as man’s “basic vice, the source of all his evils…” She has also said that one cannot defeat his adversaries by employing their premises. How then should we deal with the situation where the public willingly suspends its judgment, and accepts the premises of those whose logic is to destroy our civilization?
I submit that *the primary corrective is to set an example, and discuss such matters as morality and the proper role of government* (as well as principles, honor, decency, survival, etc.). As to interacting with the mass, I would raise the question as to whether they prefer evading issues to examining them. Nor would I reject their choice if it were to place benefits over principle, or conformity over character. One needn’t fight with an addict, but rather accept his free will to live as he prefers. It suffices if he recognizes that he has made a choice, and can reconsider it if he decides that he has a problem.
Do any of you believe that America’s key bottleneck is that of evasion & misrepresentation? If so, how would you deal with it?
Weingarten
I sure hope President Chucklenuts allows as much property as possible to foreclose so that the market can be gutted even further.
Yessir, nothing like a couple of foreclosures or panic sales on the block to raise the old property values.
Anyway, the bill is pretty watered down and is more a sop to make believe there has been action and calm the market. A sop for Rollo. Then again we have those who start whining about income redistribution.
Now, when mortgage backed securities are marketed fraudulently, people are lied to and the market is manipulated there is never any outcry when the flow is upward.
You Randian economic tyros seem to feel that you can have a "moral" free market transaction when agencies are lying about the quality of the underlying securities. Let me remind you that free market transactions require that both parties understand the value of the exchange.
I would suspect, Jason, that you have been around long enough to know that government performs the function of cleaning up the poo-poo when markets make a mess (which they do when Randoids like Allen Greenspan allow large capital bubbles to form).
That's right, Jason, rather than cursing government you should realize you have another example of market failure and the need for regulation.
Excellent article, Jason! Do you mind if I reprint on my blog and link back to you? This is something that needs maximum exposure, although I'm not surprised GWB would pull nonsense like this, as he seems never to have read a word written by Ayn Rand, or anyone else on the virtues of capitalism and limited constitutional government. GWB tries to all things to all people and ends up by being hated by everyone.
Jason,
I ranted a bit about this on yesterday's radio show.
Call me heartless. I don't care!
Look. Signing a mortgage agreement requires caution--particularly on the buyer's side. Expecting the bank or even one's own real-estate agent to look out for the buyer's best interests is the height of foolishness.
Whatever happened to "Caveat, emptor"?
As a society, we keep moving closer and closer to "It's not MY fault!" That attitude allows for the government to overstep its Constitutional powers. The result, of course, is more and more dependence upon the Nanny State. "From cradle to grave" (along with the concommitant over-regulation by government) will prevail if this lack of accountability of the individual continues.
Jason: I apologize for being unclear. I am against Bush's proposal, on exactly the ethical grounds you suggest, and -- even if it "works" -- also because it raises worse consequences for the future than the ones it allegedly combats.
The idea I meant to convey is that I do not believe this is a populist plan. It seems clear to me that this is proposed to try to avert a serious debacle in the financial system.
If you reread my 2 posts with this in mind, they'll come across differently...I hope.
Ducky: so should property values be kept high by preventing foreclosures, or is this a bubble, with prices too high? You say both, right?
You also claim that markets were manipulated, that there was fraud, that the Fed's to blame, and then turn around and call this a market failure that calls for government to step in.
Nothing like blaming the free market we don't have for the results of the interventions we do have.
While we're on this subject, what part of the Constitution grants the Congress or Executive the power to redefine terms of private contracts?
From any viewpoint, moral or utilitarian, this is a very bad thing.
Today's Wall Street Journal article 'Dissecting the Bailout Plan' criticizes the Bailout Plan on many levels. Its conclusions are similar to those of Jason: "...honoring contracts and property rights is absolutely essential to the proper functioning of a free society and free economy. A mortgage is a binding contract between consenting adults. A mortgage-backed security is private property. It is the antithesis of a free market for the government to fix prices, pressure mortgage service companies into renegotiating contracts, and thereby expropriate property rights of those stuck holding mortgage-backed securities."
Weingarten
The main purpose of my original terse two paragraphs is to point out that critics of the government’s plan aren’t anchoring their criticism by ethical principles and concepts. Almost all the links (in Update2) have insightful economic descriptions that deals with some aspects of the unintended consequences. Charles, you have some good points on the history of government actions that laid the ground work for the problem including some that I didn’t mention (fiscal) but are not unrelated.
I’m confident that all the conservative/libertarian critics are sympathetic to the ethical principles involved. However, as Weingarten has pointed out (among many excellent comments), people are evading what we all know are basic ethical issues. Conservatives are “enabling” this process by failing to discuss the issue first and foremost in ethical terms.
One doesn’t need a full blown sermon. We can raise people’s consciousness merely by introducing the concepts I mentioned in my first paragraph of the original post. AOW does this by raising the ethical issue of self-responsibility, which is totally absent from public debate, while Ducky uses fraud as an excuse to regulate, instead of prosecute, thus seeking to punish those who haven’t committed a crime (so much for individual responsibility). The ethical issues will be discussed by implication and we’ll lose to the Ducks of the world by failing to make it explicit, by failing to raise people’s awareness.
Let me add that it is still valuable to discuss economics; but I’d be careful. Most people can’t follow such a discussion and even the average economist is overwhelmed by the number of factors and unintended consequences. However, a good economics discussion can help to allay the fears that people can’t handle liberty and self-responsibility. Indeed, the policy lesson is that people can’t handle government power! However, economics should be a tertiary level of discourse. The primary focus should be “how can we proceed in light of core ethical concerns?” We shouldn't let that slip away.
Alan Reynolds did write those paragraphs in the Wall Street Journal but unfortunately they were in the last two paragraphs and mostly to tell Ducky that the proposed government regulations, the clearly violate property rights, are not a “free market solution.” I wish the issue wasn’t a postscript.
"They clearly violate property rights"
Jason, here's a flash, "property rights" are a legal construct. There is no inate natural rights to property.
So called natural rights are limited to the right to die a dismal brutal death. The rest is a collective civilized construct.
You don't seem to understand that the debate occurs precisely because you beg the question or assume that your schlock cult leader answered it.
Property rights are based on nature, human nature. There is indeed such a natural right. The protection of property rights requires a human construct, government.
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, …”
Rights exist by nature and secured by just government.
Count me in the Jeffersonian cult any day.
Jason writes that “people are evading what we all know are basic ethical issues. Conservatives are “enabling” this process by failing to discuss the issue first and foremost in ethical terms…”
Let us then consider the fundamental issue of morality. There are tomes of work in this area, with complex formulations and differences of outlook. Yet we can simplify matters by stating that *what is key about morality is to live-and-let-live*. That is, the way to improve the world is by allowing people to go their own way, provided of course they permit others to do so as well. By this token, it is not moral for one person to take what belongs to another, even for what he deems a good cause, for there is no justification for initiating force.
Some immediately object to this view by citing emergencies, such as people on a lifeboat, or during earthquakes, where the initiation of force is imperative. However, the fact that survival trumps morality does not refute morality, but rather addresses its preconditions. Moreover, it clarifies the role of government, for its use of force is not for the sake of morality, but to ensure its preconditions, so that people can engage in moral pursuits.
Now if the role of government is to protect our rights (which includes dealing with emergencies) it is a protective mechanism, rather than a moral one. George Washington wrote “Government is not reason or eloquence. It is force. Like fire, it is a dangerous servant and a fearsome master.” Thus we do not look to it for virtue, but attempt to keep its use at a minimum. It has been viewed as an umpire, who seeks to determine fair or foul, rather than to reward or hamper any player or team.
This view of government as having delegated powers, but no rights, was familiar to our founders. Today it is anathema to our social-democrats (or liberals). The moment one asks these folks for the moral justification of governmental wealth distribution, they become evasive, if not hostile. One asks them, if an individual has no right to take what belongs to another, how can he delegate that right to government? The social-democrat swings and sways, referring to irrelevant emergencies, and to heartlessness, but cannot provide any moral justification for government intervention. Sometimes they claim, it is moral by majority vote, but if you ask whether slavery is moral if 51% of the electorate say so, they are not responsive. Or else they say that if the Constitution permits something, it is moral. Yet this boils down to the same issue, for if a majority amend the Constitution to permit slavery, how can they claim it becomes moral?
So to raise the issue of ethics, I submit that we: define morality; advocate the proper role of government; and ask those who advocate intervention to provide a moral justification.
I also concur with Jason that it is valuable to discuss economics, but to recognize that most people cannot deal with the plethora of factors involved, including the unintended consequences. Yet much of this can be rationalized by addressing the moral foundation of economic policy. For example, Leonard Read said that one ought not do to another, what he would not have another do to him. It turns out that the mass of economic considerations (in Wertfrei economics) can be roughly dealt with by adhering to such guides (which I refer to as ‘moral-economics’).
Weingarten
Is it a justice to fleas that a dog should have no parasites?
Could not the healthiest dog support the greatest number of parasites?
Does not the healthiest dog attract the greatest number of parasites.
Should a healthy dog ever be prohibitted from scratching himself?
The American economy has just begun what will be the 73rd consecutive month of growth (the Bush Boom) with no slowdown in sight.
If it ain't broke, don't "fix" it.
Maybe they're trying to wreck the economy before Rudy or Hillary can.
To Beamish: What would you need to have as evidence of a slowdown? Billions of dollars of malinvestment aren't sufficient?
The Bush budget imbalances and spending programs have put the U.S. gov't into an increasingly untenable financial position (prescription drug benefit, failure to fix SS & Medicare/caid, new long term military commitment). The boom is financed by credit from overseas and by Fed manipulation. It's not a sustainable situation, primarily because too much of the spending is relatively unproductive.
CNN's telling me what the great mortgage rate freeze program will do.
People who qualify:
* have an income and live in their homes
* are currently making their payments on time
* would default if their interest went up
Probably a pretty small group and I don't see this having much effect. Moot anyway for Jason since he would rather have a further deterioration rather than a program which benefits both sides.
Laissez-faire means never playing anything but a zero sum game.
I also concur with Jason that it is valuable to discuss economics, but to recognize that most people cannot deal with the plethora of factors involved, including the unintended consequences. Yet much of this can be rationalized by addressing the moral foundation of economic policy. For example, Leonard Read said that one ought not do to another, what he would not have another do to him.
-----------------------------
Bless his heart, weingarten is virtually quoting Kant.
As he rants against this horrible "violation of rights", has Jason given any indication that mortgage lenders are expressing outrage over Bush's rather meager plan?
If it is such an outrage why aren't they squacking? Or maybe they feel it benefits them also.
Duckworth, you seem unable to answer a question, as well as to follow an argument.
Do you really believe rights ought to be susceptible to redefinition whenever it's politically expedient? Property rights are no more a "social construct" than any other "human rights." True, they have meaning only in a social setting, but they are not arbitrary. And if the federal government can redefine them whenever it is politically expedient, it's a bad thing, both from the standpoint of principles and consequences.
I still patiently await your answers to my questions to you, a few posts up.
Jason "condemned Bush’s housing bailout in moral terms: it’s a violation of contracts, the rule of law..." In particular, Article 1 Section 9 of the Constitution states "no...ex post facto Law shall be passed." This says in effect that there be no violation of a contract.
Weingarten
To Beamish: What would you need to have as evidence of a slowdown?
A slowdown, obviously.
This isn't like retarded leftists setting up more and more thermometers in the desert and equator regions and surmising inanely that the average Earth temperature readout from the world's thermometers is rising.
This isn't even like the pure dippity-dumbass leftist rocket surgeon belief that if we stop using fossil fuels, we can somehow generate the energy required to refine the materials needed to make solar panels.
No, when dealing with economics, you've got to work with reality, which has never been a leftist's forte.
Reality says the assets of the American people as a whole outweight the liabilities of the American people as a whole by a ratio of 5 to 1.
Beamish: according to the 26 Dec. 2007 Wall Street Journal, consumer Christmas season spending was up 3.6% in nominal terms over last year, and only 2.4% if gasoline is excluded. Since CPI inflation is over 4%, that's a decline in real spending.
Your original point was "The American economy has just begun what will be the 73rd consecutive month of growth (the Bush Boom) with no slowdown in sight."
So here's evidence not only of a slowdown, but an actual downturn, in an important sector. Couple this with sluggish GDP growth, a very clearly declining housing sector, and a serious mess in the banking/financial system, and there's ample evidence of economic trouble.
I'm not sure why you raised the points about leftists; none of this evidence is left wing nor does it support leftist conclusions. The economic problems are the fault of government fiscal irresponsibility, government manipulation of the money supply, and government regulation of banking and finance that insulates (for a time) well-connected banks from the market discipline they ought to be facing.
Bush isn't doing it to help homeonwers, he's doing it to protect the banking system.
I'm telling you somebody went to the Fed over the weekend, and knocked on the Fed's door, and said, "Listen. I am big. I'm someone big. And I have a contagious disease and I slept with the world."
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