According the Affordable Care Act's ("ACA") website, ACA is:

…a health care law that aims to improve our current health care system by increasing access to health coverage for Americans and introducing new protections for people who have health insurance

ACA in fact is a lobster trap. It is also crony socialism's latest and most dangerous assault on what remains of the free market for health care.

THE ACA LOBSTER TRAP: THE "EXCHANGE"

As a condition to implementing ACA, ACA requires that every State (and, interestingly, the federal territories) establish a health care "Exchange." The Exchange is a computer database of programs and designed to implement ACA within the States. Through the Exchange, authorized health care providers, participating employers and individuals and payers (insurers and the federal and state governments) will input information designed to create a "market" for health care services.

In order to create a market, however, ACA needs "information." Specifically, it needs information on the people who will be demanding services from this market — the lobsters. What if the lobsters are too smart to enter the trap themselves? ACA demands that the States to throw the lobsters into the trap by populating State Exchanges with their personal, private financial and health data without any lobster first giving their consent. ACA can never go anywhere without complicit State actors.

An example of the information that will become part of each state's Exchange is found in Exhibit D of the State of Minnesota's $41-million Exchange Contract with Virginia-based "Maximus" corporation. Governor Mark Dayton entered into the Exchange Contract through the executive fiat of an Executive Order without legislative action. In Exhibit D, Governor Dayton authorized the State of Minnesota to provide Maximus with the following information on its citizens: private data, health records, chemical health records, HIPPA-protected health information, Electronic Health Information and federal tax information.

Not only has no Minnesota lobster consented to allowing the State of Minnesota sharing his personal, private health and financial data with the ominous-sounding Maximus, no Minnesota legislator has passed a law permitting Governor to establish the Exchange. Yet over $41 million in funds will flow through the Minnesota State treasury to Maximus.

THE REALITY OF THE ACA "MARKET"

ACA will in fact create a "market." But the market will be a federally controlled and federally regulated oligopoly and will therefore resemble the Soviet Union bread market. Government will determine who is an authorized provider and will therefore determine (and therefore limit) supply. Government will also determine who is an authorized payer (only authorized insurers and the government itself through Medicare and Medicaid) and therefore limit "demand."

Although the hapless lobsters who enter the trap based on the promise of "improved health care" will think that it will serve their "demand" for health care, it will not. ACA is to stop the gushing of red ink from federal Medicare and Medicaid. The only way to do this is to for the federal government to get control of costs. The only way to do this is for the federal government to complete control of the market and deny payment, deny services or exclude providers who, according to the federal government, "overcharge." This is already happening and ACA is not even off the ground. Just look at the recent actions of Massachusetts Governor and Obama acolyte Deval Patrick. He has signed a "cost containment" law that will limit state ACA expenditures. Moody's reports that the law is "credit negative" for hospitals as will "limit revenue growth" and "reduce their operating flexibility."

The reality of ACA is that the very wealthy and the independent thinkers will avoid the lobster trap and will seek free-market health care outside of ACA and will obtain real, discerning, market-based holistic health care. The poor lobsters who enter the allopathic ACA trap will soon realize that it will not and cannot provide the services they need. They will wake up to the fact that the ACA system resembles the Bataan Death March more than the health care they once enjoyed. That is when the hapless lobsters will discover what the federal government really means by "universal" health care — there is no way out.

CRONY SOCIALISM

The great Murray Rothbard commented that the "State is a gang of thieves writ large." Nowhere is this more evident than in ACA and government involvement in health care generally.

For example, Minnesota has its own diluted version of ACA called "MinnesotaCare." In order to get the dollars that flow from the federal and state Medicare and Medicaid troughs, a group of politically connected University of Minnesota physicians established a company called "UCare." The idea behind UCare was to make UCare one of the preferred providers for MinnesotaCare: to get first in line at the trough. In 2011, UCare quietly "gifted" $30 million to the State of Minnesota. This gift in fact represented sums that UCare had overcharged the State for Medicaid services. State Health and Human Services Commissioner Lucinda Jesson suggested to the UCare cronies that they characterize the payment as a "gift" so that the State of Minnesota (Crime Family No. 2) would not have to share the overcharges with its partners in crime, the federal government (Crime Family No. 1). Leader of Crime Family No. 1 Senator Chuck Grassley, however, discovered the lack of honor among thieves, demanded payment and got it.

And so will be the fate of ACA. The free market price mechanism has a way of keeping people honest. Free market prices did not exist in the Soviet bread market and do not exist in ACA Exchanges. The winners in the ACA system will the UCare's of the world: socialist cronies who can steal $30 million in full public view and then avoid prosecution by calling return of the ill-gotten loot a "gift."

A TAX? REALLY? IS IT REALLY CONSTITUTIONAL?

In the United State Supreme Court's decision regarding Obamacare, turncoat Justice John Roberts avoided a "commerce clause" challenge by calling the ACA's penalty for non-compliance a "tax."

Exposing the lobster trap nature of ACA, its opponents properly pointed out to Justice Roberts that the ACA cannot be a tax, because the penalty will apply to everyone who refuses to purchase health care insurance through the Exchange. Taxes that apply to everyone are "direct" taxes and the United States Constitution does not allow "direct" taxation without apportionment (division in accordance with state population). Unapportioned federal taxes can only be lawful if they are indirect, excise taxes. Indirect, excise taxes are constitutional because they can be avoided. The federal 19 cents per gallon gas tax is an example. Don't want to pay the tax? Ride a bike.

Peter Schiff explains the difference between a constitutional indirect tax and an unconstitutional indirect tax here.

Justice Roberts response? Here it is:

A tax on going without health insurance does not fall within any recognized category of direct tax. It is not a capitation. Capitations are taxes paid by every person, "without regard to property, profession, or any other circumstance." Hylton, supra, at 175 (opinion of Chase, J.) (emphasis altered). The whole point of the shared responsibility payment is that it is triggered by specific circumstances — earning a certain amount of income but not obtaining health insurance. The payment is also plainly not a tax on the ownership of land or personal property. The shared responsibility payment is thus not a direct tax that must be apportioned among the several States.

Justice Roberts says: the health care penalty tax is not a direct tax because no one in the past has every tried to tax everyone directly for health care. If no one in the past has ever tried it, then it cannot be a direct tax now. This is a perfect example of circular reasoning fallacy.

Then he no-so-deftly admits that the penalty applies to everyone (that is, it is an unconstitutional direct tax), but it is only "triggered by specific circumstances." That circumstance is being lobster who may have unwittingly entered an ACA Exchange by accessing its medical care and then later earning "a certain amount of income."

That is when the lobster discovers the trap.

CONCLUSION

Murray was right.

Bill Butler [send him mail] is a Minneapolis attorney and the owner of Butler Liberty Law.

The Best of Bill Butler

The untold story in the foreclosure crisis unfolding across America is that, following a foreclosure perpetrated by one of the October 2008 Bailout Banks (e.g. Bank of America, Citibank, JPMorgan, Wells Fargo) Fannie Mae or Freddie Mac suddenly appear as the record owner of Average Joe's home. These federal government sponsored entities then go into local housing court and get a court order authorizing them to evict Joe. If Joe resists, these supposedly charitable institutions obtain a writ ordering the local sheriff to forcibly remove Joe from his home.

Newt Gingrich recently admitted to accepting $1.8 million from Freddie Mac ($25,0000 to $30,000 a month during one span of time) for advising this proto-fascist entity. Gingrich claims that he supports Fannie and Freddie because he believes the federal government "should have programs to help low income people acquire the ability to buy homes." But Fannie and Freddie don't do this and never have. When government "helps" someone by subsidizing the purchase of something (through easy credit or lower-than-market rates), it makes that something more expensive. Helping someone buy something that is overpriced because of your help is not help. Fannie/Freddie subsidies not only hurt the low income people they intend to help, they hurt everyone by subsidizing, and therefore distorting, the entire housing market. Fannie/Freddie's charity has now taken a dark turn. Like their Depression-era New Deal predecessor the Regional Agricultural Credit Corp., Fannie/Freddie are now repossessing homes at an increasing and alarming rate.

Mr. Gingrich either does not understand economics — government subsidies make things more expensive, not less expensive, and therefore hurt their intended beneficiaries — or he is a vain, selfish, and cynical man with no interest in actually helping his neighbor.

You decide.

THE OCTOBER 2008 BAILOUT PAID OFF THE HOLDERS OF MORTGAGE BACKED SECURITES AND DERIVATIVE INSUREDS

The facts indicate that the Federal Reserve "printed" at least 16 trillion dollars as part of the 2008 bailouts. The bigger questions, however, who got it, why and what did the Fed get in return? The Fed doesn't just print money. It prints money to buy stuff. Most often this is U.S. Treasuries. That changed in October of 2008. In and after October 2008 the Fed printed new money to buy mortgage-backed securities (MBS) that were defaulting at a rapid rate. Want proof? Here is a link to the Federal Reserve balance sheet which shows that the Fed is holding over a trillion dollars in mortgage backed securities that it began acquiring in 2008.

Why is the Federal Reserve holding all these MBS? Because when "the market" collapsed in September of 2008, what really collapsed is the Fannie/Freddie/Wall Street mortgage "daisy chain" securitization scheme. As increasing numbers of MBS went into default, the purchasers of derivatives (naked insurance contracts betting on MBS default) began filing claims against the insurance writers (e.g. AIG) demanding payment. This started in February 2007 when HSBC Bank announced billions in MBS losses, gained momentum in June of 2007 when Bear Stearns announced $3.8 billion in MBS exposure in just one Bear Stearns fund, and further momentum with the actual collapse of Bear Stears in July and August of 2007. By September of 2008, the Bear Stearns collapse proved to be the canary in the coal mine as the claims on off-balance sheet derivatives became the cascading cross defaults that Alan Greenspan warned could collapse the entire Western financial system.

Part of what happened in October 2008 is that the Federal Reserve paid AIG’s and others' derivative obligations to the insureds (pension funds, hedge funds, major banks, foreign banks) who held the naked insurance contracts guaranteeing Average Joe’s payments. To understand this, imagine that a cataclysmic event occurred in the U.S. that destroyed nearly every car in the U.S. and further that Allstate insured all of these cars. That is what happened to AIG. When the housing market collapsed and borrowers began defaulting on their securitized loans, AIG's derivative obligations exceeded its ability (or willingness) to pay. So the Fed stepped in as the insurer of last resort and bailed out AIG (and probably others). When an insurer pays on a personal property claim, it has "subrogation" rights. This means when it pays it has the right to demand possession of the personal property it insured or seek recovery from those responsible for the loss. In Allstate's case this is wrecked cars. In the case of AIG and the Fed, it is MBS. That is what the trillions of MBS on the Fed's balance sheet represent: wrecked cars that Fannie and Freddie are now liquidating for scrap value.

Thank you Mr. Gingrich. Great advice.

BUT FANNIE/FREDDIE WASN'T MY LENDER AND WASN'T MY MORTGAGEE, SO HOW CAN THEY TAKE MY HOUSE?

To understand how it came to be that the Fed has paid Average Joe's original actual lender (the MBS purchaser) and now Fannie and Freddie are trying to take Joe's home, you first have to understand some mortgage law and securitization basics.

The Difference Between Notes and Mortgages

When you close on the purchase of your home, you sign two important documents. You sign a promissory note that represents your legal obligation to pay. You sign ONE promissory note. You sign ONE promissory note because it is a negotiable instrument, payable “to the order of” the “lender” identified in the promissory note. If you signed two promissory notes on a $300,000 loan from Countrywide, you could end up paying Countrywide (or one of its successors) $600,000.

At closing you also sign a Mortgage (or a Deed of Trust in Deed of Trust States). You may sign more than one Mortgage. You may sign more than one Mortgage because it does not represent a legal obligation to pay anything. You could sign 50 Mortgages relating to your $300,000 Countrywide loan and it would not change your obligation. A Mortgage is a security instrument. It is security and security only. Without a promissory note, a mortgage is nothing. Nothing.

You “give” or “grant” a mortgage to your original lender as security for the promise to pay as represented by the promissory note. In real estate law parlance, you “give/grant” the “mortgage” to the “holder” of your “promissory note.”

If you question my bona fides in commenting on the important distinction between notes and mortgages, I know what I am talking about. I tried and won perhaps the first securitized mortgage lawsuit ever in the country in First National Bank of Elk River v. Independent Mortgage Services, 1996 WL 229236 (Minn. Ct. App. No. DX-95-1919).

In FNBER v. IMS a mortgage assignee (IMS) claimed the ownership of two mortgages relating to loans (promissory notes) held by my client, the First National Bank of Elk River (FNBER). After a three-day trial where IMS was capably represented by a former partner of the international law firm Dorsey & Whitney, my client prevailed and the Court voided the recorded mortgage assignments to IMS. My client prevailed not because of my great skill but because it had actual, physical custody of the original promissory notes (payable to the order of my client) and had been “servicing” (receiving payments on) the loans for years notwithstanding the recorded assignment of mortgage. The facts at trial showed that IMS rejected the loans because they did not conform to their securitization parameters. In short, IMS, as the "record owner" of the mortgages without any provable connection to the underlying notes, had nothing. FNBER, on the other hand, had promissory notes payable to the order of FNBER but did not have "record title" to the mortgages. FNBER was the winner because its possession of and entitlement to enforce the notes made it the "legal owner" of the mortgages.

The lesson: if you have record title to a mortgage but cannot show that you have possession of and/or entitlement to enforce the promissory notes that the mortgage secures, you lose.

This is true for 62 million securitized loans.

Securitization — The Car That Doesn't Go In Reverse

There is nothing per se illegitimate about securitization. The law has for a long time recognized the rights of a noteholder to sell off pro-rata interests in the note. So long as the noteholder remains the noteholder he has the right to exercise rights in a mortgage (take the house) when there is a default on the note. Securitization does not run afoul of traditional real estate and foreclosure law when the mortgage holder can prove his connection to the noteholder.

But modern securitization doesn't work this way.

The “securitization” of a “mortgage loan” today involves multiple parties but the most important parties and documents necessary for evaluating whether a bank has a right to foreclose on a mortgage are:

(1) the Borrower (Average Joe);

(2) the Original Lender (Mike’s Baitshop and Mortgages or Bailey Savings & Loan — whoever is across the closing table from Joe);

(3) the Original Mortgagee (could be Mike’s B&M, but could be anyone, including Fannie’s Creature From the Black Lagoon, the mortgagee “nominee” MERS);

(4) the “Servicer” of the loan as identified in the PSA (usually a Bank or anyone with “servicer” in its name, the entity to whom Joe makes his payments);

(5) the mortgage loan “pooling and servicing agreement” (PSA) and the PSA Trust created by the PSA;

(6) the "PSA Trust" is the "special purpose entity" created by the PSA. The PSA Trust is the heart of the PSA. It holds all securitized notes and mortgages and also sells MBS securities to investors; and

(7) the “Trustee” of the PSA Trust is the entity responsible for safekeeping of Joe’s promissory note and mortgage and the issuer of MBS.

The PSA Servicer is essentially the Chief Operating Officer and driver of the PSA. Without the Servicer, the securitization car does not go. The Servicer is the entity to which Joe pays his “mortgage” (really his note, but you get it) every month. When Joe’s loan gets “sold” multiple times, the loan is not actually being sold, the servicing rights are. The Servicer has no right, title or interest in either the promissory note or the mortgage. Any right that the Servicer has to receive money is derived from the PSA. The PSA, not Joe’s Note or Joe’s Mortgage, gives the Servicer the right to take droplets of cash out of Joe’s monthly payments before distributing the remainder to MBS purchasers.

The PSA Trustee and the sanctity of the PSA Trust are vitally important to the validity of the PSA. The PSA promoters (the usual suspects, Goldman Sachs, Lehman Bros., Merrill, Deutchebank, Barclays, etc.) persuaded MBS purchasers to part with trillions of dollars based on the idea that they would ensure that Joe’s Note would be properly endorsed by every person or entity that touched it after Joe signed it, that they would place Joe’s Note and Joe’s Mortgage in the vault-like PSA Trust and the note and mortgage would remain in the PSA Trust with a green-eyeshade, PSA Trustee diligently safekeeping them for 30 years. Further, the PSA promoters hired law firms to persuade the MBS purchasers that the PSA Trust, which is more than100 percent funded (that is, oversold) by the MBS purchasers, was the real owner of Joe’s Note and Joe’s Mortgage and that the PSA Trust, using other people's money, had purchased or soon would purchase thousands of similar notes and mortgages in a “true sale” in accordance with FASB 140.

The PSA does not distribute pool proceeds that can be tracked pro rata to identifiable loans. In this respect, in the wrong hands (e.g. Countrywide's Angelo Mozilo) PSAs have the potential to operate like a modern "daisy chain" fraud whereby the PSA oversells the loans in the PSA Trust, thus defrauding the MBS investors. The PSA organizers also do not inform Joe at the other end of the chain that they have sold his $300,000 loan for $600,000 and that the payout to the MBS purchasers (and other derivative side-bettors) when Joe defaults is potentially multiples of $300,000.

The PSA organizers can cover the PSA's obligations to MBS purchasers through derivatives. Derivatives are like homeowners' fire insurance that anyone can buy. If everyone in the world can bet that Joe's home is going to burn down and has no interest in preventing it, odds are that Joe's home will burn down. This is part of the reason Warren Buffet called derivatives a "financial weapon of mass destruction." They are an off-balance sheet fiat money multiplier (the Fed stopped reporting the explosive expansion of M3 in 2006 most likely because of derivatives and mortgage loan securitization fraud), and create incentive for fraud. On the other end of the chain, Joe has no idea that the "Lender" across the table from him has no skin in the game and is more than likely receiving a commission for dragging Joe to the table.

A serious problem with modern securitization is that it destroys "privity." Privity of contract is the traditional notion that there are two parties to a contract and that only a party to the contract can enforce or renegotiate that contract. Put simply, if A and B have a contract, C cannot enforce B's rights against A (unless A expressly agrees or C otherwise shows a lawful agency relationship with B). The frustration for Joe is that he cannot find the other party to his transaction. When Joe talks to his "bank" (really his Servicer) and tries to renegotiate his loan, his bank tells him that a mysterious "investor" will not approve. He can't do this because they don't exist, have been paid or don't have the authority to negotiate Joe's loan.

Joe's ultimate "investor" is the Fed, as evidenced by the trillion of MBSs on its balance sheet. Although Fannie/Freddie purportedly now "own" 80 percent of all U.S. "mortgage loans," Fannie/Freddie are really just the Fed's repo agents. Joe has no privity relationship with Fannie/Freddie. Fannie, Freddie and the Fed know this. So they are using the Bailout Banks to frontrun the process — the Bailout Bank (who also have no cognizable connection to the note and therefore no privity relationship with Joe) conducts a fraudulent foreclosure by creating a "record title" right to foreclose and, when the fraudulent process is over, hands the bag of stolen loot (Joe's home) to Fannie and Freddie.

Record Title and Legal Title

Virtually all 62 million securitized notes define the "Noteholder" as "anyone who takes this Note by transfer and who is entitled to receive payment under this Note…" Very few of the holders of securitized mortgages can establish that they both hold (have physical possession of) the note AND are entitled to receive payments on the notes. For whatever reason, if a Bailout Bank has possession of an original note, it is usually endorsed payable to the order of some other (often bankrupt) entity.

If you are a Bailout Bank and you have physical possession of an original securitized note, proving that you are "entitled to receive payment" on the note is nearly impossible. First, you have to explain how you obtained the note when it should be in the hands of a PSA Trustee and it is not endorsed by the PSA Trustee. Second, even if you can show how you obtained the note, explaining why you are entitled to receive payments when you paid nothing for it and when the Fed may have satisfied your original creditors is a very difficult proposition. Third, because a mortgage is security for payments due to the noteholder and only the noteholder, if you cannot establish legal right to receive payments on the note but have a recorded mortgage all you have is "record" title to the mortgage. You have the "power" to foreclose (because courts trust recorded documents) but not necessarily the legal "right" to foreclose. Think FNBER v. IMS.

The "robosigner" controversy, reported by 60 Minutes months ago, is a symptom of the banks' problem with "legal title" versus "record title." The 60 Minutes reports shows that Bailout Banks are hiring 16 year old, independent contractors from Backwater, Georgia to pose as vice presidents and sign mortgage assignments which they "record" with local county recorders. This is effective in establishing the Bailout Banks' "record title" to the "mortgage." Unlike real bank vice presidents subject to Sarbanes-Oxley, Backwater 16-year olds have no reason to ask: "Where is the note?"; "Is my bank the noteholder?"; or "Is my Bank entitled to receive payments on the note?"

The Federal Office of the Comptroller of the Currency and the Office of Thrift Supervision agree with this analysis. In April of 2011 the OCC and OTS reprimanded the Bailout Banks for fraudulently foreclosing on millions of Average Joe's:

…without always ensuring that the either the promissory note or the mortgage document were properly endorsed or assigned and, if necessary, in the possession of the appropriate party at the appropriate time…

The OCC and OTS further found that the Bailout Banks "failed to sufficiently oversee outside counsel and other third-party providers handling foreclosure-related services."

Finally, Bailout Banks consented to the OCC and OTS spanking by admitting that they have engaged in "unsafe and unsound banking practices."

In these "Order and Consent Decrees," the OCC and the OTS reprimanded all of the usual suspects: Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife, MERSCorp, PNC Bank, US Bank, Wells Fargo, Aurora Bank, Everbank, OneWest Bank, IMB HoldCo LLC, and Sovereign Bank.

Although the OCC and OTS Orders are essentially wrist slaps for what is a massive fraud, these orders at least expose some truth. In response to the OCC Order, the Fannie/Freddie-created Mortgage Electronic Registration Systems (MERS), changed its rules (see Rule 8) to demand that foreclosing lawyers identify the "noteowner" prior to initiating foreclosure proceedings.

NEWT'S FANNIE/FREDDIE ENDGAME: PLANTATION USA

Those of us fighting the banks began to see a disturbing trend starting about a year ago. Fannie and Freddie began showing up claiming title and seeking to evict homeowners from their homes.

The process works like this, using Bank of America as an example. Average Joe had a securitized loan with Countrywide. Countrywide, which might as well have been run by the Gambino family with expertise in "daisy chain" fraud, never followed the PSA, did not care for the original notes and almost never deposited the original notes in the PSA Trust. Countrywide goes belly up. Bank of America (BOA) takes over Countrywide in perhaps the worst deal in the history of corporate America, acquiring more liabilities than assets. Bank of America realizes that it has acquired a big bag of dung (no notes = no mortgages = big problem) and so sets up an entity called "BAC Home Loans LLP" whose general partner is another BOA entity.

The purpose of these BOA entities is to execute the liquidation the Countrywide portfolio as quickly as possible and, at the same time, isolate the liability to two small BOA subsidiaries. BOA uses BAC Home Loans LLP to conduct the foreclosure on Joe's home. BAC Home Loans LLP feeds local foreclosure lawyers phony, robosigned documents that establish an "of record" transfer of the Countrywide mortgage to BAC Home Loans LLP. BAC Home Loans LLP, "purchases" Joe's home at a Sheriff's sale by bidding Joe's debt owed to Countrywide. BAC Home Loans LLP does not have and cannot prove any connection to Joe's note so BAC Home Loans LLP quickly deeds Joe's property to Fannie and Freddie.

When it is time to kick Joe out of his home, Fannie Mae shows up in the eviction action. When compelled to show its cards, Fannie will claim title to Joe's house via a "quit claim deed" or an assignment of the Sheriff's Certificate of sale. Adding insult to injury, while Joe may have spent years trying to get BOA to "modify" his loan, and may have begged BOA for the right to pay BOA $1000 a month if only BOA will stop the foreclosure, Fannie now claims that BOA deeded Joe's property to Fannie for nothing. That right, nothing. All county recorders require that a real estate purchaser claim how much they paid for the property to determine the tax value. Fannie claims on these recorded documents that it paid nothing for Joe's home and, further, falsely claims that it is exempt because it is a US government agency. It isn't. It is a government sponsored entity that is currently in conservatorship and run by the US government.

Great advice Newt.

CONCLUSION

It is apparent that the US government is so broke that it will do anything to pay its bills, including stealing Average Joe's home.

That's change that both Barack Obama and Newt Gingrich can believe in.

APPENDIX

More and more courts are agreeing that the banks “inside” the PSA do not have legal standing (they have no skin in the game and so cannot show the necessary “injury in fact”), are not “real parties in interest” (they cannot show that they followed the terms of the PSA or are otherwise “entitled to enforce” the note) and that there are real questions of whether any securitized mortgage can ever be properly perfected.

The banks’ weakness is exposed most often in bankruptcy courts because it is there that they have to show their cards and explain how they claim a legal right, rather than the "of record" right, to foreclose the mortgage. More and more courts are recognizing that, without proof of ownership of the underlying note, holding a mortgage means nothing.

The most recent crack in the Banks's position is evidenced by the federal Eight Circuit Court of Appeals' decision in In Re Banks, No. 11-6025 (8th Cir., Sept. 13, 2011). In Banks, a bank attempted to execute a foreclosure within a bankruptcy case. The bank had a note payable to the order of another entity; that is, the foreclosing bank was "Bank C" but had a note payable to the order of "Bank B" and endorsed in blank by Bank B. The bank, Bank C, alleged that, because the note was endorsed in blank and "without recourse," that it had the right to foreclose. The Court held that this was insufficient to show a sufficient chain of title to the note, reversed the lower court's decision and remanded for findings regarding when and how Bank C acquired the note.

See also, In Re Aagard, No. 810-77338-reg (Bankr. E.D.N.Y., Feb. 10, 2011) (Judge Grossman slams MERS as lacking standing, working as both principal and agent in same transaction, and exposes MERS’ alleged principal US Bank as unable to produce or provide evidence that it is in fact the holder of the note); In Re Vargas, No. 08-17036SB (Bankr. C.D. Cal., Sept. 30, 2008) (Judge Bufford correctly applied rules of evidence and held that MERS could not establish right to possession of the 83-year old Mr. Vargas’ home through the testimony of a low-level employee who had no foundation to testify about the legal title to the original note); In Re Walker, Bankr. E.D. Cal. No. 10-21656-E-11 (May 20, 2010) (holding that neither MERS nor its alleged principal could show that they were “real parties in interest” because neither could provide any evidence of the whereabouts of, much less legal title to, the original note); Landmark v.Kesler, 216 P.2d 158 (Kan. 2009) (in this case the Kansas Supreme Court provides the most cogent state court analysis of the problem created by securitization — the “splitting” of the note and the mortgage and the real party in interest and standing problems that the holder of the mortgage has when it cannot also show that it has clean and clear legal title to the note); U.S. Bank Nat’l Ass’n v. Ibanez, 941 NE 40 (Mass. 2011), (the Massachusetts Supreme Court denied two banks’ attempts to “quiet title” following foreclosure because the banks’ proffered evidence did not show ownership of the mortgages — or for that matter, the notes — prior to the Sheriff’s sale); and Jackson v. MERS, 770 N.W.2d 489 (Minn. 2009) (this federal-gun-to-the-head — certified question from federal court asking for state court blessing of its already decided ruling — to the Minnesota Supreme Court is most notable for the courageous dissent of NFL Hall of Fame player and only popularly elected Justice Alan Page who opined that MERS should pound sand and obey state recording standards).

Bill Butler [send him mail] is a Minneapolis attorney and the owner of Butler Liberty Law.

The Best of Bill Butler

From nearly the beginning of time, holders of "capital" have employed their capital in the service of the market by producing goods and services that the market demands. These prudent capitalists are always seeking to maximize profit and therefore always look to maximize revenue and decrease expense. Historically, smart capitalists have recognized that government is the most dangerous threat to capital and capitalism. Free-market merchants and capitalists fled the German Nazi regime in the 1930′s because they correctly recognized that the militaristic regime was about to prey upon them. The most talented artists, athletes and free-market businesspeople fled or attempted to flee Communism in large part because it was not fairly compensating them for their services. After six months of historic crony bailouts and nationalizations that have silently taxed everyone holding dollars, when Mr. Geithner says that he now intends to change capitalism and complains of lax regulation the message therefore couldn’t be clearer — he is trying to further pervert, or perhaps kill, what is left of capitalism in the United States. He of course will not be able to do this, but if he is even partially successful the attempt will have the predictable effect of forcing more capital to flee for safer environs — namely, Asia. It does not matter how many Ivy League central planners gather at how many economic summits, Mr. Geithner and his friends cannot change this fundamental principle. When they attempt to pervert or change what is a fundamental relationship between human beings by punishing, seizing or reducing the purchasing power of capital, the only certain result is that their actions will force capital away and create opportunities for more hospitable countries.

Bill
Butler [send
him mail] is a Minneapolis attorney and the owner of Butler
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Small, solvent, well-run local and regional banks have objected. They rightly claim that they are not the problem. These banks have a solid and growing deposit base and many of them service their own loans and so did not get caught in the trap of originating bad loans and dumping them on the secondary mortgage market in federally-guaranteed bundles. Whether they know it or not, these banks intuit that, like Social Security, there is no FDIC "fund." FDIC insurance, like social security, is just another government-coerced Ponzi scheme — a tax that, according to former FDIC commissioner Bill Isaac, goes immediately to the Treasury to buy “spending . . . on missiles, school lunches, water projects, and the like.” Rather than increasing their taxes and punishing their relatively good behavior, these small banks suggest that the FDIC look first to Bailout Banks, the Wall Street mega-banks that have received nearly a trillion dollars in unearned, government-supplied capital via the printing press, for any increased insurance premium/tax.

Ms. Bair rejected these pleas by claiming that FDIC law does not allow her to "discriminate" against banks based on their size.

Clever.

What is really going is that the Bailout Banks are using the government and its insurance monopoly to help them gain market share by drastically increasing the operating costs of their smaller, better-run and scrappy competitors. You see, in the fall of 2008 as the Wachovias and Washington Mutuals of the banking world were going down and being served, on a federal silver platter, to the Bailout Banks, the free market — individual depositors — were silently and electronically withdrawing their deposits from poorly run and insolvent banks and depositing those funds with smaller, well-run banks. There are many local and regional banks that are flush with a solid deposit base and are willing to continue making loans as they always have, based on the five C’s of credit. Furthermore, since that fateful fortnight in October of 2008 when Congress passed and implemented the financial bailout bill and the feds began stuffing the pockets of all their Wall Street friends with newly printed dollars so that they would have money to cover two decades of bad bets, the capital markets have taken notice. The Bailout Banks have lost between 65 and 95 percent of their value since October of 2008. Knowing that the Bailout Banks have elected to spend the night with the Devil, the market knows that their reputation will be gone in the morning. For this reason, smart investors are taking their capital and running away from the Bailout Banks.

The Federales of course will not allow this. They created our present fractional-reserve banking system and have the regulatory power to keep everyone in the system in their proper caste. This is why many of the Bailout Banks have not been as eager to lend as their smaller competitors. They are keeping their newly printed powder dry for the squeeze play — they intend to use their potentially limitless bailout funds to acquire the small banks that cannot handle the surcharge or new FDIC insurance "premiums." The FDIC claims to have $20 billion in its insurance fund to cover failed banks and already has a $100 billion line of credit with the Treasury. Yet it requests a loan of over 25 times the amount in its fund to cover banks that will become insolvent over the next few years. If the FDIC can simply borrow to cover this exposure, why impose a surcharge or increase premiums at all? The answer — consolidation.

This is just the start of the pressure on the smaller banks, as the banking system becomes more and more nationalized, expect to see "section 8"-like lending requirements imposed on all banks, not just the Bailout Banks. With ACORN receiving potentially billions in the latest Obama stimulus package, a federal mandate requiring banks to make bad loans to unqualified borrowers is on the horizon. Don’t be fooled. The real purpose of this do-gooder cover is to bury small banks and allow Bailout Banks to seize market share.

Two things could stop or delay this from occurring. First, depositors could do their homework and choose to avoid the Bailout Banks and deposit their funds with smaller banks that have rejected bailout funds. Second, a capitalist like Warren Buffet could step forward and offer a free market alternative to the FDIC. Mr. Buffet for several years was in the business of providing private insurance for deposits in excess of $100,000. With the help of some aggressive and sharp lawyers and the choice of a good court venue, Buffet could break, or at least attempt to break, the FDIC’s monopoly and offer private insurance to the well-run banks. If Buffet was willing to privately insure a bank’s deposits, depositors would naturally flock to these banks and away from zombie banks propped up by the FDIC and the federal printing press. If Buffet had this kind of courage, it would bring about the speedy demise of at least two banks that have had a stranglehold on our country for a century. Indeed, it could be the first step in reversing the socialization of the United States by putting a roadblock in front of federal attempts to centralize financial power and resources.

Come on, Warren, be a real patriot!!

Bill
Butler [send
him mail] is a Minneapolis attorney and the owner of Butler
Liberty Law.

Bill Butler Archives

Among the many interesting things I have learned came from a 2005 blog entry by Stephan Kinsella, a fellow attorney I have never met and know very little about. In his entry, Mr. Kinsella cited a passage from Alan Watson’s Roman Law and Comparative Law, and noted that Roman slaves had some, albeit very circumscribed, financial rights:

A slave could own no property, but from early times it was customary to give the slave a peculium, a fund that he could administer as if it belonged to him. Technically, this sum belonged to the master, but to some extent it was treated as a separate estate with which the master did not interfere except for good reason.

As I read this I recalled my response when my employer in the early 1990′s offered a new "401(k)" plan that allowed me invest "pretax" dollars in the market. Although untrained in Austrian economics, I instinctively recognized this as a method of coercively supplying money to the capital markets. While many around me saw the account as a government-sanctioned employment benefit, I saw it as a government threat. That is, the government was telling us that if we did not cooperate and give Wall Street its tithe, the government would take (via the ordinary income tax) thirty percent of what we did not give to Wall Street. Further proof of the coercive nature of the transaction was the government’s added ten percent penalty for those who had the temerity to withdraw what was supposedly their own capital prior to the government-authorized age.

Instinctively understanding that nature abhors a vacuum and knowing that 401(k) and IRA dollars sent to Wall Street were not subject to the government’s thirty percent charge, I anticipated that these newly-popular accounts would likely result in a significant flow of cash into the stock market. I was so convinced that this coercion would cause a market bubble that I began trying to parlay my new law degree and finance undergrad into an opportunity in the finance industry. I toddled around from investment firm to investment firm peddling my theory that the coercive transfers evidenced by 401(k)’s and IRA’s would necessarily inflate the market. Even before the repeal of Glass-Steagall, managing funds and selling 401(k) plans would be like shooting fish in barrel as long as the pipeline of pre-tax dollars continued. As long as the music continued to play — baby boomers remained employed, did not retire and did not withdraw their funds — the inflation would continue. The losers would be the ones who did not see this as a cause of the inflation and so would not be able to anticipate at least a timeframe of when the music might stop. The Ivy Leaguers with whom I shared this theory were uninterested in my simplistic analysis. From them and from financial pundits I heard instead that this was a "new era" in which P/E ratios and Capital Asset Pricing Models (CAPM) were no longer relevant. Oh well.

After spending the last decade studying Austrian economics and learning the Austrian theory of the business cycle, reading a lot of Gary North and developing some of my own thoughts on how to measure the real value of the Dow, I now realize there is more to the market bubble story, but not much. Although the Fed’s decade of artificially low interest rates and federal deficit spending have certainly contributed the bubble, the fact remains that the price of the market has been driven up by a powerful pipeline of coerced capital that is now drying up. It is no different than if one person, A, holds a gun to B’s head and tells B to pay C or A will take one-third of B’s property. B is now recognizing the scam and is refusing to play along. Much of this capital remains in the market unwillingly, it is held hostage by the coercive power of the government to tax it. It is, in short, not much different that the Roman slave’s peculium.

Bill
Butler [send
him mail] is a Minneapolis attorney and the owner of Butler
Liberty Law.

Bill Butler Archives

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Many today view socialism as the kindest and gentlest method of organizing civilized society. Dyed-in-the-wool socialists are referred to as "bleeding hearts" because of the popular perception that they possess heightened empathy for the downtrodden. The sellers of socialism — whether left-wing Fabian socialists or right-wing revolutionary socialists — always peddle their theory as the best means for society to provide a social "safety net" for those who are left behind by the ravages of the free market. The truth, however, is that socialism is incalculably cruel and particularly cruel to those it attempts to benefit.

Socialism as a political philosophy was best summarized William Graham Sumner in his 1883 "Forgotten Man" essay:

As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine what C Shall do for X or, in the better case, what A, B and C shall do for X…What I want to do is to look up C …I call him the Forgotten Man…He is the man who is never thought of. He is the victim of the reformer, social speculator, and philanthropist, and I hope to show you before I get through that he deserves your notice both for his character and for the many burdens which are laid upon him.

Although Sumner and his followers, including Henry Hazlitt and other Austrian economists, correctly point to C as a victim of A and B’s social engineering, they fail to recognize that it is really X who is most victimized. This is because the only thing that is taken from C is property, which can be replaced, while the theft from X is of things dearer that can never be replaced — X’s time and social utility. This is because in a perfectly free market everyone is "doing" things that they love to "do" and receiving receipts from the market — for the moment, dollars — for their service to the market. Spending our most valuable and ever-depleting resource — time — doing the things that we love to do, is the key to happiness and success. If you doubt this, find the increasingly rare person who is so happy with their job that they say "I would to this job for free." If you ask this person what they most like to "do," you will find that their job involves doing the things that they most like to do. These people have found their niche, their place in the market. When A and B decide to employ X or direct X to behave in ways that they, not X, desire, they are wasting X’s time, social utility and thus wasting X’s life.

For example, when A and B (e.g. President Elect Obama and the socialist Congress) see the temporary condition of X’s unemployment, A and B seek to "fix" the problem by employing X to "do" something that A and B deem socially desirable — e.g. installing a nationwide system of high-speed internet. A and B sell the program as a benevolent means of providing X with work and further point out that the new system will also help disadvantaged Y who does not presently have access to the internet. A and B do not tell C, D, E or anyone else in the alphabet population that, because A and B have caused the new system to be created, A and B will inherit the power to regulate the most powerful means of communication and education in the history of mankind. This comes later, after the entire alphabet population has overcome its giddiness over the new "free" internet. When civil libertarians who supported the charitable internet project object to A and B’s obtrusive regulation and monitoring, A and B or their successors claim that they "paid for it" and so have the power to regulate it. If anyone else in the alphabet has the temerity to challenge A and B’s good intentions, J, a judge appointed by A and approved by B, dutifully agrees with A and B.

But what about poor X? X is an honest man and yearns to do the work of a carpenter, building and improving permanent structures. He was sitting in the unemployment line hoping and praying that someone in need of an honest carpenter would hire him. Meanwhile, R, a real-estate investor who has acquired several foreclosed properties in a beaten-down part of town, is in need of an honest carpenter who he can hire to repair and refurbish his properties and prepare them for resale. R wants to employ X and hire X to do what he loves to do — carpentry. The problem is that A and B also want to employ X but hire him to do what they want him to do — lay cable. In this competition for X’s labor, R is at a distinct disadvantage. R, unlike A and B, does not have the power to tax and thus coerce others to pay for his endeavor and further does not have the power to finance his operation by selling below-market debt to CB, A and B’s central bank. In short, A and B can literally print X’s wages and coerce others to pay for their endeavor while R must use his own finite capital.

Given A and B’s bidding advantage, when X looks at his options, the thing that he loves to do — carpentry — pays much less than the cable installation job. Because there is no real market demand for the job, A and B must set the wage price at a level that will cause X to abandon his dream of doing carpentry. X has three little x’s mouths to feed and so takes the higher-paying job laying cable. Poor X spends eight years of his life doing something that he does not like to do and something the market is not demanding from him — climbing telephone poles, snipping coaxial cable, etc. At the end of the eight years, X has died from overeating, abusing alcohol and the health problems that result from his Faustian bargain. R? Well R’s houses sit vacant or are shoddily repaired and refurbished because A and B have stolen X from R and forced R to hire people that are not as qualified as X. A and B point to the shiny new cable lines and pat themselves on the back for repairing the "market failure" and for providing internet access to millions that did not have it before. A and B then turn their attention to R. They excoriate R for being a slumlord that profits from shoddily repaired homes. A and B decide to "do something" about the problem and decide to expand their power to condemn and redevelop private property. The economic bubble from the internet construction has now burst, forcing X’s son, little x, on the unemployment lines. Little x loves to lay cable. A and B want him to be a carpenter. And so it goes.

And what if X likes to lay cable (or build cars) and the free market offers no jobs laying cable? Aren’t A and B doing a public good by employing X to do what he loves to do? No. The market is not static and neither is any single individual. The most challenging part of all of our lives is managing transitions — matching what we like to do with what the market wants from us. If the market will no longer pay X to lay cable, we do X no favor by employing him to do something that is economically obsolete. A and B are still wasting X’s time and therefore his life if they employ him to do something that the market is not demanding. X the individual must search his skill set and identify other things he likes to do and match them with market demand. When he does this he serves the market and builds real self-worth. The decision over what X does with his life is therefore a decision that only X can make. A and B do incalculable violence to X and the free market when they misdirect his labor and compel him to do things that he does not love to do.

Cruel, isn’t it?

Bill
Butler [send
him mail] is a Minneapolis attorney and the owner of Butler
Liberty Law.

Bill Butler Archives

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The news has been full of Democratic plans to "jump start" and "stimulate" the economy. Dissatisfied with trillions of Republican string-pushing stimuli directed to Wall Street, the Democrats want to push their own strings. Both President-elect Obama and Speaker of the House Pelosi announced this past week that they would like the government to bail out the US auto industry. Their rhetoric, however, sounds more like a takeover than a bailout. In her remarks, Pelosi indicated that a bailout would allow the government to exert more influence and control over the auto industry and that such a bailout will lead to the manufacturing of more "green" cars. The true goal of the Democrats’ takeover is not to make the industry green, but rather to make it red by employing government to seize private property and private manufacturing capacity.

The Democrats’ political goal is transparent — they want to use the government to provide make-work employment for hundreds of thousands of overpaid and Democrat-voting union workers for at least four years and, if everything goes according to plan, eight. That this is a foolish idea from an economic standpoint is beyond dispute. Remember all of those great Soviet cars from 1917 to 1989? Remember Soviet bread lines? Government takeover of the US auto industry will be no different than other socialist forays into the free market. It will necessarily lead to a very large supply of cars for which there is little demand and very large demand for cars for which there is little supply. This is because the goal of the owners of the business (the government) will not be to make marketable cars, but to engineer society. The cars produced will not be what people want but what the social planners think people "should" want. If the bailout goes through it will therefore be the beginning of the end of the US auto industry. The classic cars of the next decade will more than likely come from nations that stay out of the private manufacturing process — China, Russia, South Korea and Japan.

The Democrats’ rhetoric highlights an all-too familiar rhetorical device. When the average person (IQ between 95 and 105) hears the term "green" they think happy thoughts. They think conservation, frugality and non-wastefulness. When politicians use the term green, however, Machiavellian thoughts dance through their heads. They think government control, subsidization of political constituencies and punishment of political opponents. Do not think that the Democrats do not know what they are doing and do not know the harm that it will cause. In four, eight or 12 years, when the Democrats are about to lose political control, look for the need to "privatize" the industry by selling its assets to monied Democrats. And it is not just the Democrats who play this game. The Republican-sponsored infusion of $850 billion in "capital" to the nine biggest banks in the country is no different in its motivation or its uneconomic effect.

It is a pity that real greens do not see through the ruse. A real green person is someone who is actually frugal and non-wasteful and does not expect or use the government to pass a law mandating his behavior.

A neighbor of mine who just passed away exemplifies a real green person. 85-year old Willie Stang was 5 years old when his father was killed in a farm accident. Willie’s family was forced to sell the farm and move into a small town where his mother remarried. He graduated from high school and went to trade school to become a machinist. He married, raised seven children, put them all through private school, and became a very successful contractor and real estate developer. Willie was a big-game hunter, outdoorsman and an avid bicyclist and motorcyclist. He traveled the entire world and had he not passed away would right now be on a bicycle trip with his daughter in South Africa. Up to the day he died he could hop on his 1970′s era 30-pound Schwinn and ride for more the 50 miles. Willie was also very, very green. At the same time he was building a successful business, he and his bride Barb minimized their "carbon footprint" by raising their 9-person family in a duplex in South Minneapolis. When the children were gone, Willie built his dream home — a 2400-square-foot south-facing split-level rambler with skylights, no furnace, a wood-burning stove, and 16-inch super-insulated concrete walls. One day while at the local dump, Willi joyously spotted a stainless steel hot water heater that someone had impudently abandoned. He brought it home and used it as a "tempering tank." To save the cost of heating city water from 45 degrees to the 130-or-so degrees necessary for hot water, he routed the city water to pass first into the stainless steel tempering tank inside the house where the ambient air temperature naturally heated the water to 60 to 70 degrees before it flowed into the hot water heater. As a self-employed developer and self-made man, Willie had little time for the social planners who wanted only to confiscate the fruits of his labor. While hunting Moose with his son Tim in Montana, Willie told Tim that he wanted to die like Hatchet Jack, the character in Jeremiah Johnson, alone in the wilderness frozen under a tree with his gun clutched in his frozen hands. Willie Stang was green. Nancy Pelosi is red.

Bill
Butler [send
him mail] is a Minneapolis attorney and the owner of Butler
Liberty Law.

Bill Butler Archives

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Although no
one can accurately predict when socialism as a political and economic
philosophy will end, it must necessarily end. This is because socialism
employs unjust means — theft, coercion and the denial and/or circumscription
of private property rights — to achieve the impossible end of permanently
upsetting the natural human order. With the looming economic crisis
and resultant social crisis lying just ahead of us, good libertarians
stand in a position to expedite socialism's death and perhaps drive
a stake through the heart of a false philosophy that has spiritually
and economically impoverished the Western world for over a century.
Libertarians who spend the next several years sitting on the sidelines,
rubbing their gold and silver coins together, saying "I told
you so" or cleaning their handguns will do little to materially
advance the cause of liberty. Libertarians who understand socialism
and see the opportunity to use non-violent means to attack socialism
at its roots will hasten its demise.

To understand
how this is possible, it is first important to understand what socialism
is, what it seeks to achieve and the means it employs. Socialism
at its core is a system based on coercion and theft. Under threat
of violence or imprisonment, socialists take citizen A's property
and give it to citizen B. Left of center "liberal" socialism
generally seeks to achieve an unnatural and unachievable egalitarianism
— equal results from unequal inputs. Modern liberal socialists take
citizen A's property (primarily, but not exclusively, through taxes)
and falsely promise that the state can achieve "equality"
by giving A's property to citizen B. Right of center "conservative"
socialism generally employs the state as a means to maintain unnatural
control over national and/or international power and wealth. Modern
conservative socialists take citizen A's property (primarily, but
not exclusively, through inflation) and falsely promise that only
the state can provide A with security and can do so only by taking
A's property (by diluting the value of his dollars) and giving it
to citizen B (via newly created inflationary dollars) to wage foreign
wars and/or establish an internal police state.

Although liberal
and conservative socialists sometimes borrow each other's methods
and tactics, both subcategories of the socialist ideology are based
on utilitarian,
ends-justify-the-means, reasoning. Both left and right socialists
understand that their means, including but not limited to taxation
and surreptitious inflation, involve coercive and involuntary transfers
of property. They both understand that citizen A may not agree with
their wars or their involuntary transfer payments. They do not care,
however, because both left and right socialists believe that they
are possessed with greater wisdom than citizen A. In short, they
are willing to adopt unjust means to achieve their utopian ends.
Socialists believe that their idealistic ends are achievable if
only they break
enough eggs. Non-socialists therefore correctly regard all modern
socialists as "unprincipled." Although both left and right
politicians may woo gullible voters by agreeing with them on one
discrete political principle (e.g. being opposed the Iraq War or
desiring "lower taxes"), no socialist really cares about
principles. All successful socialist politicians easily abandon
any principle if it does not serve their end — propertyless egalitarianism
or state control of wealth and production.

Taking a broader
view, although their methods differ slightly, in order for socialism
to ultimately succeed, socialists of both stripes must fundamentally
upset the natural human order. They must cause their citizens to
believe that only the tax-funded state, not family, friends, neighbors,
church and other voluntary institutions, can provide real comfort,
safety, security and protection. In order for socialism to succeed,
it must break down and destroy these natural human bonds and relationships.
This is what liberal and conservative socialists mean when they
proclaim a desire to achieve a "New World Order." Socialists
sincerely believe they can destroy the natural human order and replace
it with an unnatural, government-dictated, man-made order. If you
doubt this, just look at John McCain's campaign slogan: "Country
First." Not family, not faith, not God, but Country, with a
capital "C." Or look at Barack Obama's litany of nanny-state
promises, including his promise to usurp parents and provide all
young adults with a government-subsidized college education, provided
of course that they first "serve" the state for several
years.

As just one
detailed example of the corrosive effects of the socialist philosophy,
the liberal welfare state has been very successful at undermining
the fundamental building block of civilized society: the family.
It has achieved this by offering unwed mothers (and indirectly,
fathers) fiat money transfer payments as an easy substitute for
the often painful sacrifices involved in marriage. This causes unwed
parents to falsely believe that a single parent can raise a child
as effectively as two parents. Ultimately, socialism so thoroughly
erodes the institution of marriage that people living in a socialist
regime forget that marriage is a third-party beneficiary contract.
It is a third-party beneficiary contract because its primary
intent is not to directly benefit the parties to the contract.
Although good marriages and good partners do seek to provide direct
benefit to their partners, the marital contract is primarily intended
to benefit third parties — the children that result from the contract
and society as a whole through the order and security the contract
offers. That is why most religions properly regard marriage as a
sacrament — it is an agreement to sacrifice for the benefit of others.
Socialist transfer payments reject this principle and erode this
fundamental building block of civilized society.

Abetting both
left and right socialists is the socialist
central bank, which enjoys a legal monopoly over the money supply.
If the central bank approves of immoral
or unjust government actions, it has the power to quell the
masses with the drug-like soma
of "easy money" and artificially low interest rates. Likewise,
an untethered central bank can, under the cover of attempting to
fight inflation, express its disapproval
of executive "peace" policies by raising
interest rates and tightening the money supply at politically
inopportune times with the intent to cause the natives discomfort
and compel them to remove an insufficiently militaristic, undesirable
executive. This 20th century socialistic "check
and balance" was not one contemplated by the Founders.

In sum, through
violence, coercion and theft, socialism seeks to upset the natural
human order and attempts to cause its citizens to believe that they
do not need anyone or anything but the state. Socialism's ultimate
success therefore depends on the destruction of the natural bonds
of family, friendship, and faith. To earn his socialist stripes
in the presidential campaign process, Barack Obama was compelled
to renounce his pastor of over 20 years. John McCain needed to offer
no such proof, as he had a long track record of engaging in unjust
wars, denying property rights, denying free speech and employing
the government to protect monied interests.

That is socialism.

So how can
good libertarians use the impending crisis to expose false socialist
promises, advance the march against socialism and re-establish natural
human order? Libertarians must first recognize that they have a
weapon of mass destruction at their disposal. That weapon is private
charity in all its forms: money, labor, sweat, food, etc. Beating
back socialism will require that freedom lovers use the coming crisis
as an opportunity to re-build the natural bonds and relationships
that socialism has eroded.

Over the next
several years, as the world seeks to correct 20 years of massive
malinvestment and capital dislocation, there will be many people
in need. People will need food, clothing, shelter, medical care,
legal services, education, training, etc. Libertarians can and must
take this opportunity to step forward and donate their time, energy
and money to help feed the hungry, clothe the naked and employ the
unemployed. Libertarians must use this opportunity to outwork, outserve
and outhustle the socialist behemoths. The coming competition for
the hearts and minds of future generations will be between large,
centrally-planned, tax-funded socialist institutions and small,
nimble, privately funded, private individuals and organizations
that reject all government aid and interference. If you disbelieve
the existence of the latter category of people and institutions,
they are real
and they exist.

The
Minneapolis-based Sharing
and Caring Hands is a libertarian's dream charitable organization.
Sharing and Caring Hands serves 240,000 meals a year, houses 500
people every night, pays to provide overnight shelter for another
19,000 people per year, provides eye exams and glasses for children
and adults and also provides shoes, clothing and emergency funds
to those in need. It does all of this without
accepting one dime of state, federal or United Way aid. Sharing
and Caring Hands has operated for over 20 years. Its founder and
CEO, Mary
Jo Copeland, was a libertarian before being a libertarian was
cool. In addition to rejecting all state and federal aid, Mary Jo
does not accept a salary. Mary Jo has heroically and successfully
fended off numerous attacks from Minnesota state authorities who
claim to dislike her accounting methods (she gives cash to the needy
and does not get receipts) but actually are more concerned about
what she really represents — perhaps the world's greatest threat
to the socialist Welfare State. Although I have been in the same
room with Mary Jo only once and have never spoken with her directly,
it is my impression that she is a living saint. As I have heard
the story, Mary was a severely abused child who has spent all of
her adult life in the service of the poor. Before starting her work
day, she wakes up at 5 am, goes to Mass and prays. Although she
also prays with and for those she serves, she does not proselytize
or demand dogmatic obeisance from them. She very simply and humbly
offers a living example of a faith-filled life and spends virtually
every minute of her working day in the service of others. It is
no wonder that she has little difficulty attracting uncoerced capital
to her endeavor. Last year Sharing and Caring Hands received $5.6
million in contributions.

November
1, 2008

Bill
Butler [send him
mail] is a Minneapolis attorney and the owner of Butler
Liberty Law.

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Someone is
reading Lew Rockwell's mail.

In the internet
era, government actors, big banks and most importantly, the market
almost instantaneously respond to the truth that is now available
to all through LewRockwell.com, Mises.org and other brave truth-telling
websites. This is particularly evident in the stock market's rapid
assimilation of the truth regarding the bailout. The market has
immediately recognized that the $850 billion "emergency"
bailout was not necessary, essential or even helpful in "rescuing"
the US financial system. This comes as no surprise to those who
knew that this was not its intent. Like all Bush Administration
boondoggles, the bailout was a patent attempt to use a crisis to
consolidate power and line the pockets of Bush cronies. Just two
weeks ago, callow politicians promised that the bailout would somehow
miraculously save the economy and the market. Today, the stock market
has exposed these empty promises. The market is screaming to the
social planners that their actions can have no effect other than
to worsen what is clearly a bear market. While the planners continue
to plan, the market laughs. The truth is that the US economy is
in recession and has been for some time. Non-market-based government
interventions, in whatever form, are as ineffective as pushing on
a string. In just two weeks, the government has scuttled $850 billion
Bailout Plan A for $850 billion Bailout Plan B. Plan B, however,
is even more dangerous and systemically corrosive than Plan A because,
as intended by its advocates, the inflationary dollars injected
into the system under Plan B are not traceable to any particular
transaction but generally injected as capital into the nations largest
banks.

A SHORT
HISTORY

On October
2, the day before Congress passed the bailout, LewRockwell.com detailed
the bailout for what it was: inflationary crony capitalism designed
to consolidate banking power in JP Morgan and Citibank. A week before
the bailout, the Bush Administration used the regulatory power of
the federal government's FDIC to foreclose on Washington Mutual
and threaten foreclosure on Wachovia and tender their respective
assets to JP Morgan and Citibank at fire sale prices. The practical
effect of bailout bill was to place JP Morgan and Citi first in
line to receive $850 billion in new dollars in exchange for the
unmarketable securities they acquired in the Washington Mutual and
Wachovia muggings. On October 3, Wells Fargo, perhaps cynically
recognizing the Austrian economics principle that the first pigs
in line at the fiat money trough get the fattest, stated that it
wanted to be in on the Wachovia deal, which was not set to close
until December 31. Over the next six days, Citi, Wells and Wachovia
fought, with the FDIC clearly taking Citi's side.

On October
9, LewRockwell.com showed the piggish motivations behind the Citi-Wells-Wachovia
dispute and warned the participants to be careful what they wished
for. Although the "first pig" rule is generally true,
it has no application where the fiat currency retains no marketable
value. Moreover, the "right" to sell to the government
could quickly become a messy, inefficient and unprofitable "obligation."
Notwithstanding a
prearranged infusion of $11.5 billion of capital on September 26,
the plummeting share price of JP Morgan (down 21 percent from October
2 to October 15) perhaps signaled that the future right to receive
$850 billion in newly printed dollars could be as worthless as the
securities sold in exchange. On October 10, Citi bowed out of the
Wachovia deal which the FDIC had orchestrated on Citi's behalf.
On October 11, LewRockwell.com sang Citi's praises for taking the
moral high road, at the same time preserving its legal strong claims
against Wells and Wachovia, and predicted that the Wisdom
of Crowds that is the market would reward Citibank and further
noted that Wells was in the unenviable position of selling unmarketable
securities in exchange for potentially worthless dollars and at
the same time was exposed to Citi's lawsuit that would require Wells
to disgorge any profits it made from the bailout.

From October
10 to October 14, the market did look kindly on Citi, with its share
price rising from 12.93 to 18.62, a 43 percent increase. On October
14, however, the Treasury announced that it would not allow Citi
to escape the bailout. The Treasury would hide its inflationary
infusion by purchasing stock in all the big banks, including Citi.
Citi apparently relented and its stock promptly dropped 12 percent
on October 15. From the October 2 to October 15, the stock prices
of these three big banks are as follows: JPM (-10.44; down 21 percent);
Citi (-6.56; down 28 percent); Wells (-2.98; down 8.12 percent).
Even though these entities are first in line to receive as much
as $850 billion dollars in new dollars in capital in some form or
another, the market does not appear to care. Indeed, because the
new plan does a better job of hiding the inflationary infusion of
new dollars – there is no purchase price of subprime securities to
evaluate or audit – the market appears to like the Plan B even less
than Plan A.

Unfortunately,
if Wells, Citi or JP Morgan are in fact reading LewRockwell.com,
they are not reading closely enough. If they were they would recognize
that the market is telling them to reject government intervention
in the market and imploring them to use reason, the free market
and all available legal, tax and accounting tools to achieve an
expeditious liquidation of the non-performing real estate loans
on their books. History will remember the heroes who have the courage
to take such action. The market will also reward them.

PLAN B MORE
DANGEROUS AND CORROSIVE THAN PLAN A

The government's
first bailout strategy (cast aside after only one week) was to incorporate
a new "government sponsored entity" (GSE) that would use
newly printed US dollars to purchase $850 billion in non-performing
loans from JP Morgan, Citi, Wells and other banks. This was the
patently unsound entity in which taxpayers were "investing."
Now the government has changed course. It now says that it intends
to initially purchase $250 billion in equity in the nation's largest
banks. The idea is that the government will infuse "capital"
directly into these banks and receive some sort of non-voting, preferred
stock in exchange. How the bad loans will be liquidated has not
yet been disclosed.

So why is Plan
B worse than Plan A? First, the purchase of bank share still represents
a vast, inflationary expansion of the money supply – the Treasury
will fund the purchase by selling bonds which the Fed will dutifully
purchase using newly printed dollars – only this inflation is nearly
undetectable and untraceable. Because Plan A contemplated a sale
between the bank and new GSE, the taxpayer at least had the opportunity
to see how much he had been cheated. He could evaluate the sales
price of a non-performing $100,000 mortgage against the amount realized
(price received at foreclosure less transaction costs) from a similar,
actual, mortgage foreclosure. The difference between the two numbers
would represent the amount stolen from the taxpayer. Cynics would
claim that this is why the politicians have adopted Plan B. Plan
B, coincidentally proposed by Swedish Central Bank Honoree Paul
Krugman, purposefully hides the inflation by laundering the new
dollars through the big banks' capital accounts. The purpose of
this infusion is to compel these lenders to make more loans to a
public that it just starting to realize to folly of excess leverage.
In short, it is doubling down on a bad bet.

Second, the
new plan is unsound because the government is doing something that
the free market is unwilling to do. If the capital markets saw value
in investing in these entities, capital would naturally flow to
them. Wise capitalists like Warren Buffet and Jim Rogers are participating
in the capital markets, if at all, intelligently, as mezzanine financiers
or by short-selling the stocks of troubled banks. In his latest
investments, Warren Buffet has demanded a 10 percent preferred return
with a right to acquire a large controlling common-stock interest
if there is a default. If the best of our free market capitalists
are not doing it, then neither should the taxpayer. The banks are
not "too big" for this. If there is profit in the sale
of non-performing mortgages, which there is, then capital will find
a way to finance it. Furthermore, with an apparently unlimited federal
lifeline of capital, what incentive do the banks have to efficiently
liquidate their non-performing loans? Answer: none. The new plan
is an unequivocal moral
hazard. Banks that participate in Plan B will be party to the
making ghost towns out of vast areas of urban America as over-encumbered
property sits vacant and underutilized for the next several years.

Third, the
strategy will in the short term harm the non-troubled community
banks, regional banks and credit unions that have benefited from
the flight of deposits from insolvent banks. Over the course of
the last year, many depositors have quietly and electronically withdrawn
their funds from troubled big banks and deposited
them with these well-run banks. This is the free market telling
the failed big banks that they are not providing a valuable service – providing
a secure repository for money. The well-run banks are solvent and
have made good lending decisions. The natural infusion of deposits
and capital is their market reward for a job well done. With the
increased deposits, they have the capacity to make more sound loans.
In contrast, the infusion of artificial, non-market based new money
"capital" into JP Morgan, Wells et al. disrupts the natural
operation of the market. The newly created inflationary dollars
infused into these banks gives them an artificial capacity to make
additional loans. In short, they did not earn the capital infusion.
Flush with an infusion of this irrational capital, feeling federal
pressure to expand the credit-based economy and in bed with a government
led by the former
lawyer for ACORN, one can expect these big banks to continue
along the same self-destructive road: making bad, inefficient and
unprofitable loans. As these banks inject irrational money into
the economy and make loans that the non-troubled banks would not,
this distorts the market by placing pressure on the non-troubled
banks. The loan officers of the non-troubled banks will compete
with the big boys only if they are willing to make similar irrational
loans.

Fourth and
finally, for the banks that agree to get in bed with the federal
gorilla, it very well could be their death knell. While all banks
are already quasi-government institutions (all banks must be federally
licensed, insured and therefore regulated), none have federal bureaucrats
on their boards, on their payroll or overseeing or directly influencing
lending decisions. The banks that accept federal "investment"
can expect all of these things. While these bank may see short-term
riches in government promises to be preferred lenders in federally
guaranteed programs to, for example, make low-income housing loans,
they will inevitably see a capital flight as the market recognizes
that they are no longer rational, capitalist institutions. Today's
Bailout Banks could very well be tomorrow's Fannie Maes and Freddie
Macs. All
Bailout Banks should note that the Plan B/ "Krugman" plan
copies the Swedish government takeover in 1991 and 1992. It
is no surprise that the banks that best survived the Swedish intervention,
like the
Wallenberg family-owned SEB, were the ones that most resisted
government interference.

JP MORGAN
AT CENTER OF FUTURE STORM

In a case of
with-friends-like-you-who-needs-enemies, JP Morgan may be questioning
its close relationship with the Bush Administration. Bush has been
so ham-handed in passing the nation's economic problems on to JP
Morgan, even
JP Morgan's CEO Jamie Dimon has intimated that in 2009 he would
rather be President Obama's Treasury Secretary than CEO of JP Morgan.
Although this would be a typical post-election Rockefeller-Morgan
alliance, it may also signal the lack of a future in Bailout Banks.
Plan B ties the hands of the Bailout Banks, limits executive pay
and places other, non-market restrictions like limiting the payment
of dividends. On September 15 the capital markets told the planners
and the Bailout Banks loud and clear that Plan B was not a good
way to attract real capital. Mr. Dimon, like the market, perhaps
recognizes that Plan B may be the beginning of the end of these
banks and wants to be the first rat off of the sinking ship. Rational
capital will necessarily flow to smaller, nimble, well-managed banks
that are not under political pressure to extend credit to particular
ethnic groups, congressional districts or "purple" (half
blue/half red and therefore politically in play) regions.

Because the
Bush Administration loathes trial lawyers, it is also a bit ironic
that the coercive and unjust means that the Bush Administration
employed to orchestrate the JP-Morgan Washington Mutual takeover
may give rise to the largest collectible judgment in history and
may end up costing the taxpayers and/or JP Morgan another $10 billion.
In the week before the FDIC took over Washington Mutual and paid
$1.9 billion for its assets, the Wall Street Journal deal
journal indicates that JP
Morgan had arranged $11.5 billion to finance the purchase of Washington
Mutual. This is pretty good evidence that JP Morgan saw at least
$11.5 billion in value in Washington Mutual yet, with the help of
the FDIC paid 1/5th of this and got the FDIC's help in
wiping out the WaMu shareholders, including an investment group
that had invested $7 billion just six months earlier. Press reports
at the time indicate that W himself was involved in the transaction.
Bush's impulsive actions therefore may give rise to the biggest
government taking case of all time and may implicate W himself in
an action under 42
U.S.C. 1983, which obligates the defendant to pay the prevailing
plaintiff's attorneys fees.

CONCLUSION

Like
other Bush Administration power grabs, the bailout, in whatever
form it ultimately takes, will necessarily fail and will cause much
needless pain and suffering. The Bush Administration appears to
believe that it can invent reality and repeal or suspend the laws
of gravity. It cannot. In an age before the internet, concealing
the truth and delaying the effect of government theft was perhaps
possible for a time. In an earlier age, the true motivations behind
the bailout and the predictable consequences would not be known
for months, years or perhaps even decades. When Hoover and FDR were
destroying the US economy with federal intervention following the
1929 stock market crash, only a few obscure
academics
knew the truth. Today, however, the truth travels fast. Today, websites
like LewRockwell.com and Mises.org have brought the truth to the
masses, so much so that principles of Austrian economics are regularly
discussed on public blogs like Google Finance and Yahoo Finance
pages. While the Bush Administration has taken drastic and unprecedented
steps to avoid or delay the impact of 8 years of irresponsible leadership,
the omniscient, eminently moral "invisible
hand" of the market will not listen and will not obey.
As fiat dollars flow into the Bailout Banks, real capital will flow
out. The market is powerfully informing the Bush Administration
and its fellow travelers who in fact is the Decider.

October
18, 2008

Bill
Butler [send him
mail] is a Minneapolis attorney and the owner of Butler
Liberty Law.

DIGG THIS

LewRockwell.com
was the first to comprehensively analyze the motivations behind
the bailout and to identify those who were its primary intended
beneficiaries: JP Morgan and Citibank. That October 2 piece showed
how JP Morgan and Citibank were poised to be first in line to receive
as much as $850 billion in newly printed dollars, a significant
increase in the U.S. money supply.

As Irish-French
(but truly Austrian)
economist Richard
Cantillon first observed, in a fiat money system those who benefit
the most when the money supply is increased are those who are first
in line to receive it. This is because when new money is created
asset prices in the market do not immediately reflect the increase
in the supply of money. Because sellers of fruit and just about
everything else generally do not check their daily prices against
the adjusted
monetary base as published by the St. Louis Federal Reserve,
they are for the most part initially unaware that the currency has
been debased. They realize the loss in purchasing power only long
after the initial debasement has occurred. Because most sellers
are generally unaware of the debasement, the holders of the new
dollars can purchase assets from them at relatively deflated prices.
Once the initial infusion runs through the system, the market (sellers)
recognizes that that the supply of dollars has increased and that
they can and must charge more for their product to keep up. Contrary
to the popular view, inflation is therefore really nothing more
than an increase in the money supply. The consequent increase in
wages and prices (the popular view of inflation) is just a delayed
effect of the earlier increase in the money supply. It must be noted
that inflation is not limited to fiat, paper currencies. If gold
were the exclusive currency and a mine that doubled the world's
supply of gold was discovered, the supply of money would be doubled
and one would expect, all other things being equal, that asset prices
would double. The problem in any centralized, government-controlled
money system is of course who holds the keys to the mine or, in
our case, the printing press.

The most pertinent
issues in the fog of the bailout debate were not a crashing stock
market, Wall Street salaries, the New Deal origins of Fannie Mae
and Freddie Mac, the unconstitutional Neighborhood Revitalization
Act or other red herrings. The most pertinent facts were that, one
week prior to the $850 billion bailout, the FDIC coerced over $600
billion in asset transfers from the two biggest subprime lenders
to the biggest, most politically-connected banks in the country:
foreclosing Washington Mutual and handing its assets to JP Morgan
and putting a gun to Wachovia's head and forcing it to agree to
sell to Citi by the end o the year. Finally, the October 2 piece
showed that those who claimed that the government would "make
money" or "profit" by purchasing unmarketable securities
were either dishonest or deluded. The politicians who coyly claim
that the government will "profit" "over time"
very likely cynically understand the inflationary effects of the
bailout and know that, if the government buys a non-performing $100,000
mortgage in 2008 and three years later sells the underlying property
for $200,000, this does not necessarily mean the government has
profited. If the money supply has doubled in that same time and
a bottle of Coca Cola has gone from $1.00 to $2.00, bread from $3.00
to $6.00, milk from $4.00 to $8.00 and gas from $3.00 to $6.00,
then there is no "profit' in the sale. The government's sale
of the property for $200,000 in 2011 is no different than if it
had sold it for $50,000 today. Devaluing the dollar by half and
then selling some thing for twice the present price is not profit.

On the day
after the October 2 piece, in a "surprise
announcement" Wells Fargo and Wachovia disclosed a deal
in which Wells would pay Wachovia $13 billion more for its assets
than Citi had agreed to pay with the coercive help of the FDIC.
On October
9, LewRockwell.com explained this deal for what it clearly was:
pigs fighting to be first in line at the trough. Wells management,
in perhaps a cynical Austrian epiphany, suddenly saw value in acquiring
the right to sell perhaps as much as $300 billion in subprime securities
to the US taxpayer. In the days between October 3 and October 9,
Wells, Citi and Wachovia battled over which pig would get to be
first in line with JP Morgan, who had already secured its subprime
booty with the help of the FDIC. The October 9 piece, however, warned
Wells and Citi to be careful of what they wished for, because the
market price of JP Morgan since the bailout had gone precipitously
down, notwithstanding its unequivocal spot as first in line at the
trough and the infusion of $10 billion in cash. As indicated in
the October 9 article, absent market manipulation the omniscient
and invisible hand of the market could be warning Wells and Citi
that JP Morgan's right to receive $850 billion in newly printed
inflationary dollars could be as "toxic" as the securities
sold in exchange.

On the evening
of October 9, 2008, Citi announced that it would bow
out of the fight and allow Wells to go forward with the Wachovia
acquisition. Although reports indicate that Wells "won,"
it is very unlikely that Citi sees it that way. Citi will hang on
to its very good and very powerful breach of contract and tortious
interference claims against both Wachovia and Wells, but it will
not partake in the morally odious practice of acquiring unmarketable
securities through coercion and selling them to the US taxpayers.
As with all things in life, Citi's correct moral decision is also
market-wise. Even though Rockefeller Republican Barack Obama is
poised to become the next president of the United States, Citi has
wisely decided that it will not be a party to fleecing the US taxpayer.
It recognizes that the "right" to receive $850 billion
in a government-controlled transaction could end up being a very
messy, very inefficient and very unprofitable "obligation."
If, in the unlikely event that Wells achieves enormous profits from
the bailout, Citi's lawsuit will put it in a position to recover
any and all profits that Wells obtains. No risk, high reward. Smart.

Citi's decision
reflects what all serious students of capitalism and economics know:
freely flowing, private commerce without government interference
is the lifeblood of humanity. Further, the market is eminently moral
in its judgments and truly does reflect the "invisible
hand" of collective wisdom. As any lawyer who has tried
a case to a jury can attest, there is a certain magic in the decision-making
of groups of people that are given complete access to all relevant
facts. This so-called Wisdom
of Crowds is evidenced every day by a stock market
that is free from government interference and manipulation. A free
stock market is the world's best and most well-informed jury and
the truest sign of a free society. If the market does not look kindly
on JP Morgan or Wells over the next few years, I would argue that
its invisible hand is recognizing that these companies have, through
aggression, deceit, and coercion, sought to acquire a portfolio
of unmarketable assets and sell them to a taxpayer at inflated prices.
In short, they are accomplices to theft.

For someone
who sincerely likes and admires Wells, this is troubling issue.
In the author's experience, through its merger with Norwest Bank
Wells acquired some of the best, most capable and qualified people
in the country. Norwest alums Chairman of the Board Dick Kovacevich
and former general counsel Stanley Stroup are great men and great
leaders. Wells opportunistic participation in the bailout signals
a negative turn. For JP Morgan, this could be a particularly hard
time as it seeks to sell its portfolio of subprime securities to
a new government sponsored entity that will likely be under the
control of Rockefeller
establishment
man Barack Obama who menacingly warns of more government "oversight"
and "regulation" to come. In the century-long feud and
battle between these two big banks it cannot be a good thing for
Morgan to be the holder the world's largest portfolio of subprime
securities and the only willing and able buyer is a Rockefeller
administration.

So what should
JP Morgan and Wells do? First, they must recognize that no great
company became or stayed great through government assistance or
by making government its primary customer. As trite as it might
sound, great
companies
are great because they first seek to do what they do best and thereby
serve humanity. Great companies and great people first seek to do
good and only then do they know that they will do well. Profit,
competition and seizing opportunities are what makes capitalism
fun, but knowing that one has truly provided a valuable good or
service and perhaps altered the course of someone else's life for
the better is what capitalism is really about. Companies like Nordstrom,
Wal-Mart, 3M, Apple, Microsoft, Sony, Hewlett Packard, Toyota and
Proctor and Gamble recognize this. Making money is not the end,
it is only an imperfect measurement of how well one is doing at
providing a valuable good or service to society. In this context,
money is nothing more than receipts for services rendered to society.
Good banks provide needed capital to businesses; they do not enter
into no-bid contracts with the government to unload a pile of unmarketable
debt and get first in line at the fiat trough.

Second, if
JP Morgan and Wells truly want their share price to increase and
people to invest in their companies, they should first seek to do
the right and moral thing. On Monday, October 13th they
should jointly announce that they want no part of the federal bailout
and that they have formed a privately funded clearing-house corporation
to which they will transfer all of their newly acquired subprime
mortgages at 5–10 percent of their face value. Realistic "mark
to market" FASB 157 would appear to support placing this
value on what is clearly illiquid and unmarketable. Because the
new corporation must do the dirty work of actually selling the properties,
must understand and accurately apply the foreclosure laws of all
50 states and must hold the properties for often lengthy redemption
periods, this significant transactional cost should further deflate
the value of the subprime portfolios. New
tax regulations would also appear to allow these banks to take
an accelerated loss on the sale. The purpose of this new corporation
will be to efficiently foreclose and liquidate all of the non-performing
loans on their books. They will invite other lenders to participate
in the corporation pro rata so that the entire mess can get cleaned
up efficiently and effectively. There are still plenty of people
with lots of dollars sitting on the sidelines waiting for a bottom
of the real estate market. This new entity will find that bottom
quickly and will stimulate billions of dollars in transactions as
investors and individuals acquire these properties. Having acquired
the non-performing loans at 5–10 percent of face value, the new
entity, unlike the GSE created in the bailout, will also very likely
turn an actual, non-inflationary, profit. If the Obama-controlled
IRS challenges the sale, JP Morgan and Wells can point to the impending
inflation caused by the Fed and Congress and find plenty of Austrian
economists
who will truthfully and credibly testify that, as a result of recent
fiscal and monetary inflation, the non-performing loans could very
well be worthless if the banks took no private action. These economists
will likely testify that the subprime mortgage became valuable only
because these brave banks rejected government interference and took
private action.

Finally,
should JP Morgan and Wells take this action, the wisdom of the market
(the same market consisting of millions of people who told their
Congressmen to vote against the bailout in a 10:1 ratio) will respond
with hosannas of populist support by purchasing their stock. The
wisdom of the crowd will recognize that these brave companies have
saved them $850 billion and may have saved the dollar itself. A
further benefit will be that the public will recognize that the
market, not the government, is the answer. They will witness the
free capitalist market, not callow and dishonest politicians, solve
the unsolvable.

JP Morgan and
Wells are positioned to prevent the next great depression but they
must reject the interference of government in their business. If
they refuse to deal with the devil, the market will reward them.

October
11, 2008

Bill
Butler [send him
mail] is a Minneapolis attorney and the owner of Butler
Liberty Law.

DIGG THIS

Thank goodness
George W. Bush has decided to "do
something" about the crashing stock market and credit crisis.
The United States' cheerleader-in-chief
has decided to hold a world economic summit with the stated purpose
of solving the world economic crisis and "unfreezing"
credit markets. Whew, what a relief. We can now lift the ban on
short-selling financial stocks, for no one would be so unwise to
short financial stocks knowing that George W. Bush and socialists
and central planners
from every corner of the globe are coming to the rescue.

Following
Mr. Bush's proactive lead, I have decided to hold my own summit
to address and defeat another global evil, nasty, pernicious and
unrelenting force that weighs down our every move, a force that
ultimately reduces our lives and bodies to mere dust.
That nagging, evil force of course is: GRAVITY.
Gravity has forever limited my vertical leap, my ability to fly
and nastily and very predictably causes things that I release from
my hand to fall on the ground, often damaging them. This force affects
Main Street as much, if not more, than Wall Street for it places
limits on everyone's ability to throw a ball and causes every one
of us to shrink as we age!! In short, it is a force that
must be dealt with immediately. Our esteemed leader tells us that
as men we are masters of this universe and that as men we have the
power to control everything in it. The Emergency Gravity Summit
is my small effort to follow his enlightened lead. You can certainly
see the gravity of this problem. It is very likely that a result
of the Emergency Gravity Summit is that we will need to unite and,
yes, perhaps declare War on Gravity.

Although the
current fever-swamp Neanderthal view is that gravity is perhaps
an unchangeable, immutable law of physics that remains somewhat
of a mystery
and which man can only temporarily defy (e.g. through flight, by
jumping in the air, etc.), the purpose of the Emergency Gravity
Summit will be to identify ways to show that this is untrue or,
at a minimum, devise methods that will allow us to permanently defy
the supposed "law" of gravity.

Since
we know that gravity does not "exist" in outer space,
the first proposal on the Emergency Gravity Summit agenda is to
identify ways to import the gravity-free void of outer space into
our atmosphere. This will require a permanent worldwide "deflationary"
policy whereby all of our atmospheric oxygen-rich air will be sucked
out of the atmosphere and piped into outer space. Because we know
how nature works and know that nature abhors a vacuum, gravity-fee
outer space will necessarily fill the void. Voil, no gravity!
If this remedy has the unfortunate effect of causing us to lose
all of the natural oxygen in our atmosphere and kills all worldly
animal and plant life, it will be worth it because we know that
gravity brings everyone and everything "down" (depressing,
isn't it?). Anyway, everyone must sacrifice if we are serious about
fighting gravity. Furthermore, we know that humans are intelligent
and adaptable mammals. We can chemically create oxygen in a lab
and all wear oxygen masks if necessary. That would actually be a
benefit because then we will be able to "control" our
oxygen supply. To date, plants have monopolized this process. No
plants, no monopoly, two birds with one stone.

There are of
course no guarantees that this will work because, as we know, there
are plenty of planets without our prolific atmosphere and those
planets are also mysteriously plagued
by gravity. Do not, however, be influenced by the nattering
nabobs of negativity who claim that the Emergency Gravity Summit
is nothing more than a black
hole. These backward, laissez faire, do nothing people do not
understand the nature of the crisis and refuse to "believe"
that we, as humans, have the power to control it. Do not let anyone
say we "did nothing" to address this serious problem.
And bring your checkbook.

October
9, 2008

Bill
Butler [send him
mail] is a Minneapolis attorney and the owner of Butler
Liberty Law.

DIGG THIS

On October
2, 2008, LewRockwell.com
exposed the political truth behind the bailout: that its purpose
is to transfer wealth to Citibank and JP Morgan from the US taxpayer
as well as the Wachovia and Washington Mutual equity holders. Although
many additional state-empowering bells and whistles have been added
to the bailout plan, at its core the bailout dictates that the US
government will purchase somewhere north of $850 billion in subprime
mortgages and otherwise unmarketable mortgage-backed securities
from the financial institutions holding those securities. In the
week prior to the passage of the bailout, the federal government,
through the FDIC and the Office of Thrift Services, forced the transfer
of $307 billion in Washington Mutual assets (including at least
$34 billion in non-performing loans) to JP Morgan for $1.9 billion.
The FDIC also “facilitated” the future transfer of more than $300
billion in assets (including at least $42 billion in non-performing
loans) from Wachovia to Citibank. There can be little question about
how the FDIC “facilitated” these deals. In these gun-to-their-head
transactions, the FDIC brought the gun. The FDIC, as the regulator
of WaMu and Wachovia, has the worldly power to shutter these banks,
liquidate their assets and sell those assets over to whomever it
desires. As it is neither a buyer nor a seller, it brings nothing
more than regulatory leverage to such a transaction. This fact is
palpably demonstrated in JP Morgan–WaMu takeover.

Developments
just prior to and immediately after the bailout illuminate interesting
political and potentially ominous market realities. The political
reality is that George W. Bush, unlike
his father, is most likely a Morgan man. Press reports indicate
that W himself was involved in these transactions. Comparing the
transactions shows that Morgan received the federal 800-pound gorilla's
unbridled support whereas federal coercion in the Citi-Wachovia
transaction was, by comparison, restrained. In “facilitating” the
JP Morgan–WaMu deal, the FDIC first wrestled WaMu to ground,
executing a midnight foreclosure and repossession of all its assets.
The FDIC then sold WaMu's $302 billion in assets to Morgan for $1.9
billion and wiped out the WaMu equity holders, including a group
that had invested $7 billion six months ago. Monday
JP Morgan further announced that had no intention of hiring or retaining
WaMu management. Wachovia was just the latest bone thrown to
JP Morgan. In another federally "facilitated" transaction,
on March 17, 2008 JP
Morgan acquired global securities giant Bear Stearns for $236
million, or $2 a share. After shareholders complained, JP Morgan
increased its "offer" fivefold, to
$10 per share. In February of 2008, Bear Stearns stock had a
market value $93 per share. Citi, by comparison, has not received
the same level of government support. In the Citi-Wachovia transaction,
the FDIC did not actually seize Wachovia's assets.
It only threatened to seize Wachovia's assets, allowed Wachovia
to survive as a legal entity and gave Wachovia until December 31
to close the deal with Citi. If W is not a Morgan man, then he is
not a good negotiator, because the delay has opened the door for
Wachovia to negotiate a better deal.

On the morning
of October 3, in a “surprise
announcement” Wachovia's management and board of directors seized
the little daylight left open in the Citi deal and negotiated a
deal with Wells Fargo to receive an additional $13 billion for their
shareholders in a transaction that, unlike the Citi transaction,
would not expose the FDIC (US taxpayer) to any direct losses. Wells
Fargo's offer, seven times larger than Citi's, was made the night
before the bailout, at a time when the probability of bailout, according
to Intrade trading,
was 90–95 percent. Wells' offer provides a lesson in Austrian
economics because it tacitly recognizes that Wells believed
that the bailout would cause Wachovia's subprime portfolio to become
more valuable overnight. It is a basic principle of Austrian economics
that those that are first in line when fiat money is created benefit
the most — the pigs that are first in line at the trough get the
fattest. Wells' offer illustrates this. Wells recognized that Congress
was going to pass the bailout and that as a result Wachovia's unmarketable
portfolio of subprime mortgages would have a willing buyer — the
US taxpayer with newly minted US dollars. Wells' $15 billion offer
($13 billion more than Citi agreed to pay) was the price it was
willing to pay to take Citi's place at the trough. This development
of course sent
Citi into a rage. Citi
and Wells
have both obtained court orders authorizing them to go forward with
their transactions as they fight over the right to be first in line
to receive taxpayer funds.

Most interesting,
however, is the FDIC's reaction. Erasing all doubt as to the federal
government's impartiality and in a stunning rejection of a private
company's right to enter into a free-market voluntary exchange,
FDIC chairman Sheila Bair indicated that the FDIC would continue
to support the coerced transfer to Citi. Ms. Bair, apparently a
Citi woman, objected to the Wells deal, a deal that was negotiated
in a free market exchange without the FDIC's “facilitation.” Never
mind the interests of the taxpayer (Citi deal placed additional
obligations on FDIC), never mind the interest of the Wachovia investors
and stock owners, never mind the fiduciary obligations of the Wachovia
managers and directors to obtain the best price for the company's
assets, Ms. Bair says Wachovia should stick to Citi deal that her
agency helped coerce: “the
agency is standing behind the agreement it made with Citigroup Inc.”
George Orwell's fiction
has become reality, the pigs are now in charge.

It should be
noted here that, although Wachovia apparently had a contract with
Citi, parties have the right to engage in activities that will result
in an “efficient breach.” That is, even if the Wachovia board executed
an agreement to receive $2 billion for its assets, if Wells has
agreed to pay $13 billion more for those assets Wachovia has the
legal right to breach its contract with Citi and take Wells' better
offer. Citi of course has a remedy in the form of a breach of contract
claim against Wachovia (and against Wells for tortious interference
with its contract with Wachovia). Citi has now brought such a lawsuit
and alleged $60
billion in damages if it is aced out of the Wachovia deal. $60
billion is the value Citi places on being first in line at the fiat
money trough. In the unlikely event that Citi's case goes forward,
it will be an interesting trial as Citi's damage claim will provide
a lesson in perverted fascist capitalism. Citi's counsel's opening
statement:

Ladies and
gentlemen of the jury, we will show you how the bailout gave us
the right to profit $60 billion by selling a portfolio of unmarketable
securities to you, the taxpayer, and further by buying Wachvoia's
$300-plus billion in deposits and branches for a mere $2 billion
in a deal that was facilitated by our friends, the FDIC. Wells
intentionally and maliciously interfered with our contract when
it had the temerity to pay Wachovia's shareholders $13 billion
more than we agreed to pay and further did not allow the FDIC
to facilitate their offer.

This is the
sad political reality behind the Citi-Wells-Wachovia dispute.

The market
reality following the bailout is potentially much more ominous.
Assuming that there has been no short-term market manipulation in
JP Morgan stock, either from the President's
Working Group on Financial Markets, the so-called “plunge protection
team” or others, then the price of JP Morgan stock may portend a
precipitous drop in the future value of the dollar. Hidden in the
financial news last week was the fact that, coincident with its
takeover of WaMu, JP
Morgan announced the sale, on a first-come, first-served basis,
of $10 billion in common stock at $40.50 per share. The infusion
of $10 billion in capital to the $165 billion JP Morgan of course
should have some diluting effect and put some downward pressure
on JP Morgan's stock. The new offering resulted in approximately
250 million new shares of JP Morgan stock, about seven percent of
the total 3.4 billion shares outstanding. One would expect to see
a seven percent decline in the JP Morgan share price following the
sale because of the dilution. Yesterday, however, JP Morgan stock
came to a crashing close of $39.32. This is an 18 percent drop from
September 25, the date of the WaMu takeover, and, more importantly,
almost 3 percent lower than the $40.50 offering.

All
of this is troubling because students of Austrian economics know
that the primary beneficiaries of monetary and fiscal inflation
are those who are first in line when the money is created. As of
October 2, the result of the federally orchestrated takedowns was
that JP Morgan was unquestionably first in line to receive perhaps
the largest share of the $850 billion-plus in funds that will be
created out of thin air (Treasury will issue bonds which the Federal
Reserve will buy with newly minted inflationary dollars) once the
bailout is enacted. Applying this principle, JP Morgan stock should
be skyrocketing up, not going down. The principle, however, applies
only where the fiat currency retains some marketable value. If the
fiat currency has no value, it doesn't matter where you are in line.
JP Morgan's share price over the last week may be just a snapshot
in time as JP Morgan's overall market capitalization is still up
approximately five percent since the bailout was announced, but
if JP Morgan's rapidly declining share price continues it will show
that the market believes that JP Morgan's right to be first in line
to receive as much as $850 billion in newly printed dollars is perhaps
as worthless as the securities sold in exchange. If this is true,
it is the end of the dollar. Wells Fargo should take note of this
fact before pushing forward with its acquisition of Wachovia's subprime
portfolio — the market may be telling Citi and Morgan that their
deals represent nothing more than an exchange of one pile of worthless
paper for another pile of worthless paper.

October
8, 2008

Bill
Butler [send him
mail] is a Minneapolis attorney and the owner of Butler
Liberty Law.

DIGG THIS

In proving motivation and intent, timelines often provide the best
evidence of why someone acted as they did. A murderer who insures
the life of his victim months before the crime provides the jury
with compelling evidence of his motive. When looking for reasons
for government action, it is often more difficult because government
and its accomplices are powerful, omnipresent and criminally adept
at hiding the real reasons for their actions. In looking for motivation,
one should therefore always follow the money.

One of, if not the primary, undisclosed motivation for the bailout
plan before Congress is to provide a financial windfall to the Rockefeller
(Citibank)
and Morgan (JP
Morgan Chase) banking interests. In order to see this, one must
look beyond the obfuscating din of Wall Street greed, executive
pay, HOPE for homeowners, neighborhood revitalization and other
such nonsense and look at the concerted actions of the Bush administration,
Citicorp and JP Morgan Chase over the last few weeks. The timeline
tells the tale.

On September 25, 2008, the FDIC foreclosed on Washington Mutual,
one of the most troubled and most at-risk banks and one of the largest
holders of subprime mortgages. The day before, the WaMu CEO had
been in negotiations with several suitors, including JP Morgan,
HSBC and Wells Fargo. Although the media reported that JP Morgan
directly acquired WaMu, it did not. JP Morgan purchased WaMu's assets
from the FDIC after the FDIC, through the Office
of Thrift Supervision, executed what amounts to an overnight
foreclosure and repossession. No bid, no auction and apparently
no discussions with WaMu's other potential suitors. In short, this
gun-to-their-head sale was about the furthest thing from an arms-length
"commercially reasonable" transaction. Not even the WaMu
board of directors, who were apparently on
a plane at the time of the takeover, knew of the takeover or
the preplanned and orchestrated asset sale to JP Morgan. Immediately
after the takeover, JP Morgan paid the FDIC $1.9 billion for WaMu's
over $307
billion in assets, including deposits and branches. Although
JP Morgan also acquired $34 billion in non-performing loans, acquiring
WaMu’s operations in other states was an unequivocal benefit to
JP Morgan. Last year, James Dimon, JP Morgan's chairman and chief
executive, presciently
predicted that JP Morgan would find a means to develop a toe-hold
in the coveted Florida banking market:

James Dimon, J.P. Morgan’s chairman and chief executive, has
long coveted Florida – as have his customers. Although WaMu is
dominated in Florida by Bank of America and Wachovia, J.P. Morgan
is likely to boost WaMu’s 3% market share in the state by tapping
into its base of New York customers who spend the winter months
in Florida.

Last year, one of those New York customers expressed frustration
at J.P. Morgan’s annual meeting, telling Mr. Dimon “it galls me”
that the bank didn’t have a presence there.

“It p- me off too,” Mr. Dimon said, drawing laughter from the
audience. “Believe me, we would love to be much bigger in Florida
and we’ll find some way to do it. You will see us there.

The effect of the FDIC takeover and immediate fire sale to JP Morgan
significantly impacted the WaMu equity holders, including an
investment group that had invested $7 billion just six months
ago. They were wiped out. As stated on the FDIC
website:

At this time, the FDIC as Receiver for Washington Mutual Bank
does not anticipate that equity and subordinated debt holders
will receive any recovery on their claims.

On September 29, in what at least facially appears to be a somewhat
less hostile and aggressive transaction, the FDIC "facilitated"
the transfer of Wachovia's "retail
bank, corporate and investment bank and wealth management businesses
to Citigroup." Wachovia is a large holder of subprime mortgages.
Although details of the deal are incomplete, Citi paid Wachovia
$2.1 billion directly to acquire some liabilities and most of its
assets, including a $312 billion pool of loans, $42 billion of which
are non-performing. Although Wachovia reported
assets of $812.4 billion as of June 30, 2008, it is unclear
how much of these assets will end up in Citi's hands. Citi further
agreed to tender $12 billion in preferred stock and warrants to
the FDIC. Although the deal appears consensual as the Wachovia shell
remains and the deal does not close until December 31, one can just
imagine how it went down. Pointing to the WaMu takedown just five
days earlier, the FDIC likely told Wachovia that if it did not submit
to the sale to Citi, the FDIC had the power and will to force the
transfer anyway.

Although the government's participation in these nakedly unjust
transactions that have violated the property rights of the Washington
Mutual and Wachovia equity holders is itself appalling, it is only
part of the story. The real story lies in the fact that two of the
biggest and most influential US Banks, with the help of the federal
government, have just mugged two of their drunken
friends and are now looking to fence part of their ill-gotten
loot — a pile of worthless or nearly worthless non-performing real
estate loans. This is what the bailout is all about and why it is
so important to the powers that be that it get passed. Any politician
that votes for the bailout violates his oath to protect and defend
the Constitution, in particular the Fifth Amendment which prohibits
government from taking property without just compensation.

All students of Austrian economics know that those who benefit
the most from an inflationary infusion of currency in a central-bank
fiat system are those that are first in line at the fiat money trough.
From 2001 to date, this was the no-bid military contractors who
were the first-in-line beneficiaries of an irresponsible fiscal
policy that spent money the United States did not have. George W.
Bush managed the war and the country according to the philosophy
of Judge Reinhold's character in the Ruthless People: "If
we can't afford it, we'll f***ing finance it!" From 2001 until
2007 this also included homeowners who responded to the Federal
Reserve's soma
of artificially low interest rates by refinancing and sapping the
equity out of their homes.

The real reason that the bailout is "necessary," and
"essential" is not that credit markets will freeze or
that the world will end. By forcing the takeover of WaMu and Wachovia,
the Bush Administration, Citi and JP Morgan have bet that together
they can coerce and lobby Congress into passing a law that will
allow Citi and JP Morgan to dump their newly acquired subprime loans
on the gullible and unsuspecting taxpayer. If the bailout is successful,
Citi and JP Morgan will have scored a two-fer. Not only will they
have vastly increased their market share and asset base in the FDIC
orchestrated takeovers, they will also be first in line at the fiat
money creation trough as the Fed prints the money that will fund
the Treasury's above-market purchase of their subprime booty. Nice
work if you can get it.

Those that claim that the government will "make money"
on the loans or that purchasing these unmarketable securities is
a good public investment are either fools or liars. It is of course
possible that Congress through the bailout and the Federal Reserve
by printing money can effectively double
the money supply and that this can, over a course of time lead
to a scenario where a $100,000 non-performing loan is satisfied
when the underlying property is sold for $200,000. This, however,
is not "making money," it is devaluing the dollar. By
the time the house sells for $200,000 gas will be $8.00 a gallon
and gold will be $1800 an ounce. The Federal Reserve and the Bush
Administration are complicit in the bailout because they do not
want to face the sobering reality of a crash on the Bush Administration's
watch and believe that they can inflate their way out of the problem.
Men plan and God laughs.

Bailout advocates have offered two powerful fallacies in support
of the bailout. The first is that credit markets are "frozen"
and that only government action can loosen them up. Although banks
generally are apparently now less willing to lend than they were
just a year ago, banks are businesses and businesses are profit-seekers.
Banks, like most businesses, are always willing to provide their
service or produce their good if the price is right. Banks will
not, however, lend at low rates when they believe that their own
borrowing costs or market interest rates will rise in the near future.
When the "market" price of money is consistent with their
projections of future costs, banks will lend. It is important here
to note that the Fed Funds rate and the prime rate are rates that
are artificially influenced by the Federal Reserve through its purchase
and sale of Treasury Securities on the open market. These rates
are therefore only an imperfect reflection of market interest rates.
Real market interest rates, like commercial
paper and LIBOR,
are beginning to rise. This is perhaps the best evidence that the
banks are beginning to "loosen up." Banks will lend, but
at a higher rate that accounts for the Federal Reserve's recent
inflationary actions. Note that the only rate in the LIBOR chart
linked above that has gone down in the last 30 days is the Fannie
Mae 30-year mortgage rate. This is more evidence that government
doesn't know the price of anything as it is creating an inflationary
arbitrage opportunity for homeowners.

The
second and somewhat compelling reason for supporting the bailout
is that the new "mark to market" accounting rule, FASB
157, has artificially caused solvent entities to become insolvent
and therefore the government must act to correct this artificial
situation. This is wrong because it assumes that the rule is dictating
the value of the non-performing loan. It is not. FASB 157 just makes
formal what the market would ineluctably recognize — a non-performing
mortgage loan is worth the value of the underlying asset less the
costs of liquidating it. Although FASB 157 is causing some firms
to become insolvent on paper and is giving banks and insurers fits
in managing their government-mandated reserve ratios, FASB 157 simply
compels that these institutions acknowledge reality — that is always
a good thing. If interest rates are on the rise, very few Americans
have sufficient savings to make the 20% down payment necessary for
a mortgage and there are millions of properties encumbered with
non-performing loans (large supply and no demand), then these non-performing
loans in a high interest rate environment may be worth as little
as 40 percent of their face value. Changing rules or pumping the
economy with increasingly worthless paper will do nothing to solve
this fundamental problem; indeed, it will just create more problems,
more asset bubbles, and bigger and broader future problems.

October
2, 2008

Bill
Butler [send him
mail] is a Minneapolis attorney and the owner of Butler
Liberty Law.

DIGG THIS

Whatever one's
religious denomination, a careful, dispassionate analysis of the
teachings of Jesus
of Nazareth compels the conclusion that Jesus was an uncompromising
political libertarian. Libertarianism is of course not a faith or
a creed, but rather a political
theory for organizing civilized society. The written record
provides strong, unambiguous support for the fact that Jesus was
a political libertarian who very likely had an Austrian
understanding of money.

Jesus believed
in and taught the importance of the following principles: (1) all
people must treat others as they would like to be treated (the "Golden
Rule"); (2) man's primary responsibility is to obey God
and his conscience, not man-made positivist
legal codes; and (3) that state actors who violate God's will
are morally responsible for their actions. Further, Jesus' parables
repeatedly recognize and implicitly support the ownership and responsible
stewardship of private property.

Before going
further, it is necessary to understand what most libertarians believe.
Libertarians believe that people have all right, title and dominion
over their own lives,
liberty and property. Libertarians believe that all people or
entities (organized groups of people) that infringe on others' lives,
liberty and property violate reason and/or Natural
Law. To most libertarians, government is legitimate only insofar
as it meets both of the following conditions: (1) government's power
derives from the voluntary "consent
of the governed" (i.e., everyone governed contractually
agrees on the laws and a method of enforcement that ensures due
process prior to restraining any single individuals' life, liberty
or property rights); and (2) government's enforcement methods
do not indirectly violate any individual's life, liberty
or property rights, including the rights of those not party to the
social contract.

The Golden
Rule

Libertarian
theory is different from all other political theories primarily
because libertarians reject the notion that government is entitled
to a monopoly
on violence or otherwise has license to violate reason, Natural
Law or the Golden Rule. Simply put, libertarians believe that the
Golden Rule applies to everyone, including government and its agents.
Thus, a government that deprives an individual of property without
prior consent violates reason, Natural Law and the Golden Rule.
This is the sine
qua non of libertarianism.

Did Jesus
believe that government was subject to the Golden Rule? Most clearly,
yes. Jesus lived in first century Iudaea,
a province of the Roman Empire. The governing authority was the
Roman governor, Procurator
Pontius Pilate, and his enforcement arm was the imperial Roman
army. Jesus and his kinsmen thus lived under the occupation of a
foreign army and foreign authority that, as imperial armies are
wont to do, extracted tribute from the locals in the form of taxes.

Although Jesus'
interactions with the state are limited, those few interactions
provide deep insight into his political views. Next to the legal
positivist Pharisees, the most reviled and universally hated characters
in the New Testament gospels are unquestionably the tax
collectors. These are the locals who served the empire by collecting
from their own people, often skimming or demanding their own personal
tribute. Although Jesus is kind and generous to the tax collectors,
including Zacchaeus
and his own disciple Matthew,
there is no question that he regards them as "sinners"
who have violated God's law and who must acknowledge
their sins and repent. It is more than their collaboration with
the Romans that makes these people sinners, for the gospels regard
the dishonest tax collectors like Zacchaeus — those that line their
own pockets with other people's money — as the worst of these bad
actors.

In the story
of Zacchaeus, in consideration for forgiveness and redemption, Zacchaeus
pledges half of his property (for abetting the Romans' unjust taxation)
and further pledges to return four times the money he has personally
extorted (300% interest to the victims!).

The other state
actors with whom Jesus fatefully comes into contact are of course
the Roman soldiers that put him to death and Pontius Pilate.

As he is being
executed, Jesus' prayer for the soldiers shows that he believes
they are morally responsible for their acts and in need of forgiveness:

Father,
forgive them, for they know not what they do. (Luke 23:34)

This prayer
is significant because, if Jesus believed that the soldiers were
not morally responsible for carrying out immoral orders, he would
see no need to seek forgiveness on their behalf. The record shows
that the soldiers did not falsely accuse Jesus of blasphemy and
sedition, the soldiers took no part in his trial before the Sanhedrin,
the soldiers were not present when Pilate interrogated Jesus and
they were not part of the crowd that demanded Jesus' crucifixion.
Yet Jesus' prayer for them indicates that he believes they are nevertheless
morally culpable for their actions.

Although Jesus
seeks forgiveness because the soldiers "know not what they
do," the soldiers' lack of self-awareness clearly is not sufficient
for their forgiveness. If it were, Jesus would not have to ask for
it. Jesus' prayer indicates that he believes that the soldiers,
and by extension all state actors, are not without sin simply because
they are unaware of the nature of their actions. He prays for the
soldiers because they are too obtuse to recognize
that their actions are evil. They receive forgiveness not because
of their ignorance, but because Jesus seeks forgiveness for them.

What about
Pilate? While Pilate attempts to "wash his hands" of any
culpability for Jesus' death, it is Pilate who imprisons Jesus,
Pilate who interrogates Jesus upon his return from the Sanhedrin
trial and it is Pilate's Roman soldiers that actually carry out
Jesus' execution. Although the gospels are somewhat opaque on the
Roman governor's acts, omissions and motivations leading up to the
crucifixion, it is clear, from Pilate's wife's warning — "have
nothing to do with this innocent man" — that his participation
in Jesus' execution was unjust and immoral.

Jesus on
Taxation and Sound Money

Statists
who argue that Jesus supported taxation and/or the state ignore
the many passages relating to sinful tax collectors and Jesus' unjust
execution by the Roman secular authority and instead point to the
"Render unto Caesar" passage in Matthew, chapter 22 as
evidence that Jesus was pro-state. In the story, Pharisees and other
"spies" attempt to goad Jesus, a middle-class Jewish tradesman
surrounded by Roman centurions, into foolishly fomenting a tax revolt.

The story begins
with Jesus' Pharisee inquisitor asking him whether or not the local
Jews should pay the taxes demanded by Caesar. Jesus responds by
asking him to produce a coin that Caesar would accept as a tax.
After the Pharisee produces the coin, Jesus asks him whose image
is on the coin and the Pharisee responds "Caesar's." Jesus
then recommends: "Render unto Caesar the things that are Caesar's,
and unto God the things that are God's."

While this
story offers many wonderful, nuanced and insightful lessons, the
story in no way offers moral support for taxation or the state.
Taken in context, the story sheds much more light on Jesus' views
on the role of money and pragmatic, non-violent civil disobedience
in response to overwhelming secular power.

To fully understand
the story, one must know a little about money and currency in first
century Iudaea. The story of the moneychangers
at the Temple shows that more than one currency was in circulation
at the time. History indicates that at least four currencies, Greek,
Roman, Jewish and Tyrian, were used as media of exchange. Because
only Jewish shekels and Tyrian coins were allowed in Temple ceremonies,
the entrepreneurial moneychangers opened shop outside the Temple
so that that the faithful could exchange their Roman denarii for
Jewish shekels in order to offer their sacrifices and meaningfully
participate in Temple ceremonies.

In this context,
with at least four separate currencies circulating in Iudaea, Jesus'
response to the Pharisee: "Whose image is on the coin?"
says a lot about what was going through his mind. Jesus wants to
know what authority issued the coin; that is, who "made"
it and who, therefore, accepts or demands it as currency?

When the
Pharisee responds "Caesar's," Jesus learns that the money
in question is that of the occupying imperial forces, is not allowed
in Temple ceremonies and carries the craven
image of Caesar, declaring him a "God." Given this
context, Jesus' response, "[r]ender unto Caesar the things
that are Caesar's and render unto God the things that
are God's," in no way sanctions taxation as moral or
justified. Nor do Jesus' statements support capitulation to the
occupying Roman army or secular authority. Jesus' response actually
evades the question entirely and instead provides a powerful statement
in support of private property, for Jesus clearly recommends that,
notwithstanding Caesar's confiscatory and illegal taxation, Caesar
remains entitled to the things that Caesar owns.

Jesus' sage
recommendation expresses contempt for the imperial currency and
at the same time subtly and paradoxically suggests that cooperation
and rebellion are not necessarily mutually exclusive. The implication
of the story, in the context of the voluminous anti-state and anti-tax
gospel evidence, is that Jesus seems to be saying, "thank you
for telling me that the coin is that of empire's, minted from ore
taken from seized
mines and debased
to satisfy the empire's military
ambitions; I say cooperate and pay the tribute the empire demands,
as it is prudent and may save your life, but do not materially support
the empire and the occupying forces by giving them anything of real
value; things of real value, like shekels, belong to God."

Jesus' recommendation
thus gives rise to the inference that he believed the Jews living
under Roman occupation should pay their taxes in overvalued denarii,
as the Romans likely demanded, and hold and perhaps shield their
wealth in the undervalued shekel and Tyrian money. This position
reflects both libertarian political views as well as a recognition
of Gresham’s
Law, according to which government-decreed bad money drives
undervalued good money out of circulation.

The Parables
and Jesus' View of Property and Contract

A cursory review
of Jesus' teachings would seem to indicate that he did not think
highly of property or property rights. From the Sermon
on the Mount to the conversation with the young
rich man whom Jesus instructs to sell all his possessions, Jesus
repeatedly decries the evils of worshiping things instead of God.
For Jesus, it seems a man's wealth is not only irrelevant to how
God views him, the two are inversely related as can be seen his
statement:

Again
I tell you, it is easier for a camel
to go through the eye of a needle than for a rich man to enter
the kingdom
of God. Matthew
19:24.

Furthermore,
Jesus and his followers lived a kind of communal existence, sharing
their food with one person responsible for the group's money. Based
on this evidence alone, one might conclude that Jesus had little
understanding of or regard for private property.

But to draw
broad conclusions from this limited evidence is to make a hasty
generalization, for the core of Jesus' teaching is found in
the parables and the parables are replete with spiritual lessons
drawn from material and commercial examples, including examples
relating to thrift,
entrepreneurship,
the productive
use of capital, negotiation
of debts, respect
for others' property, responsible
stewardship of one's own private property and freedom
of contract.

In the universe
of the Jesus' teachings, the anti-property lessons are not so much
anti-property as they are a warning to people who, in Jesus' view,
have misplaced priorities, people who mistakenly believe that ownership
of private property and accumulation of wealth is an end it itself
rather than a means to a higher end. The weight of Jesus' teaching
in fact shows that Jesus highly regarded private property rights
and, in order to illustrate the proper relationship between God
and man, repeatedly analogized the responsible use and stewardship
of private property to the responsible use and stewardship of life
received from God.

Jesus, Victimless
Crimes and Self-Defense

Jesus was
and is
infamous for socializing and dining with prostitutes and other "sinners."
While Jesus clearly did not sanction prostitution, his interaction
and defense of prostitutes and adulterers illuminates his political
worldview. Jesus' lessons indicate that he believed that prostitution,
adultery and other "victimless" crimes, although grievous
sins, were matters of conscience that could only be solved through
the internal action of the sinner.

In John, chapter
8, the Pharisees bring to Jesus an adulterous woman who, by some
accounts, was a prostitute and suggest that she be stoned to death
in accordance with Old
Testament law. Jesus stops the stoning and protects the woman
by stating: "Let he who is without sin cast the first stone."
As the crowd slips away and no accusers are left to "condemn"
the woman, Jesus instructs her to go and "sin no more."

Unlike the
tax collectors who must atone by paying back what they have taken,
Jesus recognizes that the woman's sins are a matter of internal
conscience. Jesus instructs the Pharisees that want to stone the
woman to examine their own consciences and correct their own sins
before seeking judgment against the woman who has harmed no one
but herself. Jesus thus shows that he does not believe that the
woman's crime can legitimately or practically be enforced by anyone
other than the woman.

Here it is
important to note that libertarianism is not synonymous with libertinism.
While some libertarians find nothing at all morally wrong with prostitution,
other libertarians (like Jesus) believe it is morally wrong but
understand that because it is a victimless
crime the state has no legitimate role in enforcing it. Prostitution,
like drug use and abuse, directly harms only the voluntary participant.
Jesus clearly understood and believed this principle. Jesus sought
to eradicate prostitution not through state or collective action,
but through individual self-examination and counsel.

With regard
to self-defense, Jesus did not use violence against those who aggressed
against him and advocated against
using violence at all. Although Jesus laid down his life for
a particular
purpose and although there is some
authority in his teachings for the use
of force in self-defense, the weight of evidence suggests that
Jesus was a pacifist.

The question
then is whether Jesus can at the same time be a pacifist and a libertarian.
In the big tent of libertarianism, he can. Although libertarians
believe that individuals have the right to use violence
commensurate with the threat in defense of life, liberty or property,
they do not believe that people have an obligation use
violence to protect themselves or others. As such, Jesus was a simply
libertarian who likely believed that the use of force was never
legitimate.

Conclusion

Christ’s words
and actions reflect the libertarian commitment to the rights of
person and property, and hint at the Austrian understanding of money.
Jesus taught the Golden Rule and believed all individuals, including
state actors, must observe it and must make reparations for violating
it. He believed that taxation was theft and a violation of individual
private property rights. He believed in wise, calculated, and non-violent
civil disobedience. He believed that neither the state nor any collective
group has a role in punishing or enforcing victimless crimes. Finally,
he believed in sound money. One does not have to accept any particular
Christian creed to know that politically, Jesus was a libertarian.

April
25, 2008

Bill
Butler [send him
mail] is a Minneapolis attorney and the owner of Butler
Liberty Law.