The legal basis of the “ownership society” continues to unravel. Our aspiration is to make it politically unravel as well. The most important ideas, like walking away from underwater property and making the forecloser produce the note, are gradually spreading. The MERS system
continues to unravel.
Still, the produce-the-note movement is further advanced among those in the biz than it is even among the people. The past month has stepped up the tempo of the legalistic unraveling, as first GMAC
and then JPM
suspended tens of thousands of foreclosures upon revelations of systematic fraud by their robo-signers, officers who signed affidavits assuring the court that although they couldn’t produce the note, they were still the rightful note-holders.
I admit I still don’t understand the concept in principle: “I’ve personally seen the note or otherwise know that it belongs to us, and I can personally vouch for the fact that it was lost or accidentally destroyed. This is one of many, many thousands of times this has happened in my experience.” Who would ever believe that? Is it supposed to rely on getting a different judge each of the thousands of times? Surely not. Is it relying on the housedebtor to seldom challenge the documentation, so that judges rarely notice it? More likely. Is it relying on judges to countenance fraud on the court? Most definitely. This is proven by the fact that in many cases the lenders are claiming to have intentionally destroyed the notes
, and judges are accepting this. It’s not often that a plaintiff strolls into court, claims “I own that but I destroyed the legally required documentation, but you should take my word for it anyway” and gets a judge to agree. What makes a mortgage note different? Only the political influence of the banks.
Some regulators are stirring themselves to get involved. In Florida, California, Ohio, Illinois, Iowa, Connecticut, and elsewhere state attorneys general are at least pretending to care about massive fraud on the part of servicers. More significantly, bona fide
“capitalists” are getting spooked. The major title insurer Old Republic National Title Insurance (I love the portent of that name, “the old republic”) announced last week
that it would suspend insuring titles on houses foreclosed upon by JPM Chase until “the objectionable issues have been resolved”. Days earlier it had similarly suspended GMAC from its business.
Think about that. The company whose business it is to insure that the title is properly conveyed from one legal owner to the next will refuse business where the conveyor is JPM or GMAC. (The former being the uberbank
, supposedly the most solvent, stable of all, the feds’ first choice where they need a potemkin buyer for something.) Granted, since those both suspended foreclosures they won’t be producing much new business in the near future, so this announcement ratifies the temporary status quo, but it’s still a significant vote of no confidence. They could have quietly waited and done nothing, but it’s a sign of how market confidence in everyone involved is rapidly diminishing, as we see in the suffering stocks
of foreclosure thug outfits like Lender Processing Services.
That’s strong testimony as to the rumblings of instability in the structure. The common man feels knocked about by inexplicable tremors and falls into sudden chasms which gape before his feet. But where system players are hunkering down and afraid to move for fear of toppling, the earthquake must be far more general than the propaganda says.
Why is this such a mystery to the people, by the way? Propaganda in the media, yes. We need ongoing education for this and everything else. Why should it be
such a mystery? Why should the disposition of our
land be kept such a secret from us by MERS
? Why should the banks “own” our land at all? All this goes to the more fundamental issues of elitist secrecy and ideology. We demand and seek total transparency and to obliterate this ideology.
What’s the real issue in this case? The separation of the note and the lien. Of course I deny the banks ever owned the land in the first place, but even by their own legalistic measure they no longer own it. In 45 states the note and the lien cannot be separated. Doing so causes the mortgage to revert to a regular unsecured loan. In theory the distressed housedebtor could file for bankruptcy, discharge the loan, and still hold onto the house by adverse possession or something, since the legal “ownership” has become vacant anyway.
(Probably nothing is more universally hated than this idea, that some alleged “deadbeats” might get something for nothing. Even among those who hate the banks, many seem to hate the idea of this temporary side effect even more. But it seems to me that liberating the land for food production by those who are willing to become food producers is the most important thing. If a temporary result of this is that some actual deadbeats get to squat for awhile, I say so be it. The transformational community can get around to evicting them later. All the land eventually has to go into production. But the first thing is to break the banks.)
This isn’t just an attack on one illegitimate property dispensation. It’s also calling an alleged rule of law to account. This kleptocracy has abdicated on all its proclaimed principles. It has violated and abrogated its own alleged mandate. How can a property dispensation be authoritative under this condition of lawlessness? How can social stability be maintained?
Hernando de Soto has long sounded the warning on how this system was undermining its very basis of legitimacy by flouting the paper-based rule of law. He has mostly focused on the proliferation of derivatives, and how all real bases of economic activity and property itself were being destabilized by subjection to this regime of galloping securitization. Today when we read one of his jeremiads
, in America we think first of the mortgage note disaster.
What, according to de Soto, are the “six longstanding procedures that guarantee the value and legitimacy of any kind of paper purporting to represent an asset”?
- All documents and the assets and transactions they represent or are derived from must be recorded in publicly accessible registries. It is only by recording and continually updating such factual knowledge that we can detect the kind of overly creative financial and contractual instruments that plunged us into this recession.
MERS fails to record in the first place and then denies public access.
- The law has to take into account the “externalities” or side effects of all financial transactions according to the legal principle of erga omnes (“toward all”), which was originally developed to protect third parties from the negative consequences of secret deals carried out by aristocracies accountable to no one but themselves.
- Every financial deal must be firmly tethered to the real performance of the asset from which it originated. By aligning debts to assets, we can create simple and understandable benchmarks for quickly detecting whether a financial transaction has been created to help production or to bet on the performance of distant “underlying assets.”
MERS systematically split the note and the lien, and then lost the note.
- Governments should never forget that production always takes priority over finance. As Adam Smith and Karl Marx both recognized, finance supports wealth creation, but in itself creates no value.
- Governments can encourage assets to be leveraged, transformed, combined, recombined and repackaged into any number of tranches, provided the process intends to improve the value of the original asset. This has been the rule for awarding property since the beginning of time.
On the contrary, the real use-value of “property” has gone below zero, with the advent of asset inflation (socially and economically destructive and destabilizing) and socially and environmentally destructive suburbia.
“To improve the value” – since speculative derivatives do no such thing, ban them.
- Governments can no longer tolerate the use of opaque and confusing language in drafting financial instruments. Clarity and precision are indispensable for the creation of credit and capital through paper. Western politicians must not forget what their greatest thinkers have been saying for centuries: All obligations and commitments that stick are derived from words recorded on paper with great precision.
The MERS system is dedicated to complexity, inefficiency, confusion, opacity, secrecy.
Above all, governments should stop clinging to the hope that the existing market will eventually sort things out. “Let the market do its work” has come to mean, “let the shadow economy do its work.” But modern markets only work if the paper is reliable.
Government’s main duty now is to bring the whole toxic environment under the rule of law where it will be subject to enforcement. No economic activity based on the public trust should be allowed to operate outside the general principles of property law.
This can never be accomplished by or under a criminal system dedicated to perpetuating these very subversions of the rule of law. Today, to say that bringing the toxic environment under the rule of law is “government’s main duty” is tantamount to saying it’s the duty of we the people to renounce a criminal government. And if we’ve learned anything from our history (which de Soto, still lamentably mired in trickle-down elitism, has not), we’ll have learned that our main duty is to constitute and exercise the government ourselves.
Underlying this is the wrong principle of “property law” in the first place. As Proudhon established, injustice and lawlessness are endemic to any regime of parasitic rentier propertarianism. The only productive and moral basis for the land dispensation is useful possession. In the post-oil age that will mean above all food production.
So the fact is the system has inadvertently renounced its own legalistic property rights in the land by “losing the note”. I of course don’t expect them to meekly obey their own law. I expect them to deploy any necessary and possible level of lawlessness upon lawlessness to prop themselves up. So what can they do? What are they trying? We have Florida’s kangaroo courts
. This is the first institutionalized, public overthrow of even the forms of law. (Once again, Florida is setting the standard for banana republicanism.) On a less conspicuous level, we have participants legalistically withdrawing from the system, as with the contracts of adhesion Wells Fargo is imposing on buyers
. These are of dubious legality themselves, and this is another example of a major system player declaring no confidence in the system. Wells is disavowing responsibility even for its own statements, implicitly admitting they may be lies.
In general, I expect the system to lawlessly muddle through for as long as it can (that is, I don’t think Florida’s dedicated kangaroo courts will be the preferred model; they’ll prefer the same effect but on a less systematic, more ad hoc basis). Then at some point, when the pressure becomes too great, there will be some anti-constitutional declaration of force majeure. Congress or the SCOTUS will retroactively legalize the MERS system. Or perhaps the executive, working through the GSEs, will come up with some kind of super-HAMP.
Whatever they try to do will be dictated by their two great imperatives, continuing the Bailout and preserving and augmenting their own power. These mean they have to keep housing prices propped up, maintain the pseudo-integrity of the housing system itself including the foreclosure process, each step of the way appeasing the short-term greed of each individual bank.
The fact that there are many conflicts and contradictions bound up in this set of priorities will only make their task more impossible.