Yesterday, voters in Mississippi overwhelmingly passed Initiative 31, which will limit eminent domain condemnations for private benefit. Despite opposition from Republican Governor Hailey Barbour, 73 percent of voters supported amending the state constitution to prohibit that any “property acquired by the exercise of the power of eminent domain under the laws of the State of Mississippi shall, for a period of ten years after its acquisition, be transferred or any interest therein transferred to any person, non-governmental entity, public-private partnership, corporation, or other business entity” [PDF].
So following condemnation, the government condemner cannot transfer the property to any private party for 10 years. Initiative 31 granted the following exceptions:
(1) The above provisions shall not apply to drainage and levee facilities and usage, roads and bridges for public conveyance, flood control projects with a levee component, seawalls, dams, toll roads, public airports, public ports, public harbors, public wayports, common carriers or facilities for public utilities and other entities used in the generation, transmission, storage or distribution of telephone, telecommunication, gas carbon dioxide, electricty, water, sewer, natural gas, liquid hydrocarbons or other utility products.
(2) The above provisions shall not apply where the use of eminent domain (a) removes a public nuisance; (b) removes a structure that is beyond repair or unfit for human habitation or use; (c) is used to acquire abondoned property; or (d) eliminates a direct threat to public health or safety caused by the property in its current condition.
This is a huge step forward in protecting the rights of Mississippi property owners, although George Mason University law professor Ilya Somin explains why it isn’t perfect (note the above exceptions). Governor Barbour has long opposed enhancing property rights protections on the grounds that eminent domain condemnations for private benefit are necessary to promote economic growth. Reason magazine’s Damon Root wrote about crony capitalist Barbour’s veto of reform legislation in 2009.
In 2010, I explained in a CEI OnPoint whitepaper [PDF] why policy makers should be extremely skeptical of eminent domain condemnations used to promote planned redevelopment and economic growth. It was the U.S. Supreme Court’s infamous 2005 Kelo v. New London decision that set off a nationwide movement to restrict takings abuse, and Mississippi becomes the 44th state to react to the Supreme Court’s awful ruling. Now in 2011, the Kelo site cleared to make way for a planned mixed-use development project (since shelved) still remains empty.
In a recent Washington Times op-ed, Mark Hyman of the Sinclair Broadcast Group makes some compelling arguments calling for a spectrum inventory. His suggestion that the NTIA and FCC fulfill their mandate from President Bush in 2003 to increase spectrum efficiencies is on point and laudable. It’s certainly true that plenty of spectrum currently sitting in government hands could be put to better use, and thus a part of the problem is spectrum management. But that’s about all Hyman gets right.
His assertion that the “looming spectrum crisis” is a ruse manufactured by FCC Chairman Genachowski and parroted by major cell phone companies is completely erroneous. Hyman points to “the only independent study” on this subject to support this claim, one conducted by Citigroup. That report claimed that cellular companies were using just a fraction of the spectrum assigned to them. Critics have since eviscerated the Citigroup report, pointing to its use of outdated figures and misunderstandings of mobile technology as the cause of its flawed and ultimately inaccurate conclusions.
Hyman also alludes to public statements from Sprint and Verizon as proof that no spectrum crunch exists. Yet this September Verizon’s CEO declared that the AT&T / T-Mobile merger “was kind of like gravity” and had to happen in part because of the government’s inability to get sufficient amounts of spectrum to carriers. Such a statement bolsters claims that we do in fact face a spectrum crunch.
The FCC was actually aware of this problem at least as far back as 2002, when the Spectrum Policy Task Force issued its report. That report detailed how FCC’s allocations of spectrum in 1994 were based on predictions that there would be 54 million mobile users by the year 2000. In 2000 however the number of mobile users was more than double that base amount; the authors explained that the FCC and industry “have significantly and consistently underestimated the need for additional spectrum and the public’s utilization of new technologies and applications.”
Reading the tired, silly claims of left-wing, anti-Wal-Mart activists generally makes me yawn. But it annoys me to see some of my former neighbors from my hometown of Chanhassen, Minnesota, going around trampling on property rights and opposing the liberalization of the real estate market.
Let’s start with a demographic profile of modern Chanhassen. When my parents moved our family there in the early 1990s, large parts of the city were still undeveloped. It was on the fringe of the southwestern Minneapolis suburbs. Since then, the city has developed rapidly due to its close proximity to the Minneapolis-St. Paul core — leading to population doubling over the past two decades, with most of the growth coming from upper-middle class families with children. According to the 2010 Census, households are quite wealthy, with 48.6 percent of them earning at least $100,000 annually. Only 2.1 percent of families are below the poverty level, with the median family income hovering around $113,000 annually. High-quality housing, good schools, and recreational amenities abound. Things are so great in Chanhassen that Money magazine ranked it #2 on their 2009 list of Best Places to Live in the United States (it appeared at #10 in the nation in 2011).
Locals are fond of these mostly arbitrary rankings, almost as fond as some of them are in believing Wal-Mart will destroy their quality of life if the mega-retailer is allowed to open a store in Chanhassen. After several hundred angry, presumably wealthy NIMBYs showed up at a recent Planning Commission meeting to demand that a site currently occupied by a large vacant building not be put to productive use (yes, you read that correctly), the notoriously anti-development Commission denied the Wal-Mart request for a necessary upzoning (a designation that permits more intense development). It is now up to the City Council to decide whether or not it will listen to the city’s planning apparatchiki.
A couple of the irate NIMBYs, after finding a free website template online, created an online activist group called “Chanhassen1st.” For a city long known for its support of conservative Republicans (George W. Bush was the first president to visit Chanhassen in the run-up to the 2004 election and put on a huge rally for supporters), I found it odd that the Firsters were regurgitating the faux-arguments manufactured by multi-million dollar astroturforganizations funded by the United Food and Commercial Workers union (due to Wal-Mart ostensibly believing the same thing about unions as Whole Foods founder and CEO John Mackey: “The union is like having herpes. It doesn’t kill you, but it’s unpleasant and inconvenient, and it stops a lot of people from becoming your lover.”) and citing a propaganda film by far-left “documentary” filmmaker Robert Greenwald (perhaps most famous for directing the 1980 Olivia Newton-John box office flop “Xanadu”). Oh, and a barely-sourced article written by a North Carolina State University economist that does not even conclude that Wal-Mart’s entry results in net negative economic effects.
Can a private organization that has been delegated some government regulatory powers claim absolute government immunity against lawsuits when it engages in fraud against those it regulates — even when the fraud is at most distantly related to its regulatory functions? Amazingly enough, an appeals court said yes — a ruling that conflicted with another appeals court’s ruling — and the Supreme Court is now being asked to reverse that decision.
The Competitive Enterprise Institute joined Cato Institute in filing an amicus brief asking the Supreme Court to review that disturbing ruling shielding wrongdoing. The brief, which cites constitutional safeguards and separation-of-powers principles, can be found here. The case is Standard Investment Chartered v. National Association of Securities Dealers (NASD). NASD converted into an entity called FINRA after deceiving regulated members about the terms of the conversion. (FINRA’s CEO was shortly thereafter appointed by President Obama to head the federal Securities and Exchange Commission.) Cato Institute’s Ilya Shapiro describes the significance of the case here.
Should FINRA, the brokerage industry’s self- regulatory organization, have absolute immunity from lawsuits—even when FINRA issues a false and misleading proxy statement to its membership? As a former SEC attorney and owner of a FINRA-member brokerage for more than 20 years, in 2008 I thought the answer to this question was pretty simple. Almost four years later, I’m still waiting to learn whether FINRA is accountable to anyone.
Back in 2008 I was well aware that the degree of control FINRA had over the investing public was both remarkable and disturbing. . . .self-regulation of the brokerage industry involves an inherent and insurmountable conflict of interest. . . Investors pay a heavy price for conflict ridden self-regulation. . .[NASD boasted that] “The NASD has successfully resisted many proposals inimical to the best interests of . . . its members.” Very revealing—no pretense of concern for the nation’s investors in that boastful line.
Despite this unique history of largely unchecked power over investors, as a former securities regulator I figured there were limits to how far this maniacal monster could go. I was confident that if FINRA, an organization responsible under the law with regulating the truth and adequacy of statements by members of the brokerage industry, lied about the terms of a financial transaction, FINRA, like anyone else, would be held liable.
In 2008, my brokerage firm, Benchmark Financial Services, Inc. filed a class action lawsuit against FINRA on behalf of all FINRA-member firms alleging that FINRA had issued a false and misleading proxy statement to its members in connection with the merger of the NASD and NYSE. Also named as a defendant in the suit was its then Chairman and CEO, Mary Schapiro—the current Chairperson of the Securities and Exchange Commission. . .. The lawsuit focuses chiefly on the truth of statements made about a $35,000 payment that was made by the NASD to induce its members – firms such as Benchmark – to vote in favor of the merger of the NASD and NYSE. The merger closed in July 2007 leading to the creation of FINRA. . .. [NASD falsely] stated in the proxy statement that the tax code and the Internal Revenue Service had imposed a $35,000 ceiling on the payment to NASD members in connection with the merger. Through the course of the litigation, I learned that a much higher payment to NASD member firms was not only possible but feasible. In actuality, the NASD did not even receive an IRS ruling with respect to the payment until months after the proxy statement was issued to NASD members. Documents that the NASD subsequently filed with the SEC made it clear that the NASD’s mantra that the tax code imposed a $35,000 limit on the payments to NASD members was simply untrue. The IRS did not issue a private letter ruling to the NASD concerning the payment to members until March 13, 2007, nearly four months after the proxy was issued and nearly two months after the voting had closed. OK—so NASD fabricated the claim that the IRS limited the payment to a maximum of $35,000 . . .. Here’s the killer: The IRS private letter ruling . . . did not provide any specific limitation on the payment to NASD members. Instead it provided a range of permissible payments that would not affect the self-regulatory organization’s tax exempt status.
Remember New London, Connecticut, the dying industrial town that threw property rights under the bus thanks to 2005′s notoriously awful Kelo decision? I’m sure your blood pressure can answer that question. So, after the city was victorious in its case against homeowners, its planned redevelopment plans fell through after Pfizer closed its adjacent research facility. The cleared field that was once occupied by historic single-family homes became a home only for waist-high weeds and feral cats, as I noted on the five-year anniversary of the decision last year.
The Wall Street Journal today writes about how the Obama administration is repeating the “mistakes of the past by intimidating banks into lending to minority borrowers at below-market rates in the name of combating discrimination.” Assistant Attorney General for Civil Rights Thomas Perez has argued that bankers who don’t make as many loans to blacks as whites (because they make lending decisions based on traditional lending criteria like credit scores, which tend to be higher among white applicants than black applicants) are engaged in a “form of discrimination and bigotry” as serious as “cross-burning.” Perez has compared bankers to “Klansmen,” and extracted settlements from banks “setting aside prime-rate mortgages for low-income blacks and Hispanics with blemished credit,” treating welfare “as valid income in mortgage applications” and providing “favorable interest rates and down-payment assistance for minority borrowers with weak credit,” notes Investors Business Daily.
Under Perez’s “disparate impact” theory, banks are guilty of racial discrimination even if they harbor no discriminatory intent, and use facially-neutral lending criteria, as long as these criteria weed out more black than white applicants. The Supreme Court has blessed a more limited version of this theory in the workplace, but has rejected this “disparate impact” theory in most other contexts, such as discrimination claims brought under the Constitution’s equal protection clause; discrimination claims alleging racial discrimination in the making of contracts; and discrimination claims brought under Title VI, the civil-rights statute governing racial discrimination in education and federally-funded programs. Despite court rulings casting doubt on this “disparate impact” theory outside the workplace, the Obama administration has paid liberal trial lawyers countless millions of dollars to settle baseless “disparate impact” lawsuits brought against government agencies by minority plaintiffs, even after federal judges have expressed skepticism about those very lawsuits, suggesting that they were meritless.
Attorney Alan Ackerman has a post up highlighting and commenting on an article that argues that critics of Texas Governor Rick Perry from the right should temper their rhetoric with respect to Perry’s support for the Trans-Texas Corridor. It is true that condemnation of private property is all but inevitable in order for the state to assemble the highway’s right-of-way:
Former California State Assemblyman Chuck DeVore wants critics from the right and left to lay off Texas Governor Rick Perry, who proposed Trans-Texas Corridor, a 4000-mile north to south development with toll roads, rail corridors, and utility lines.
Texas’ growth has exploded in recent years, and it is likely to continue as shipping between Mexico, the United States, and Canada increases. The state needs this infrastructure development badly to support its own growth and increasing international trade.
While critics decry this as an exercise in big government, in reality this project would be privately funded and managed, without relying on tax increases or government budget cuts. Some also criticize Perry because the Corridor would require eminent domain. But as DeVore points out, roads and railways are quintessential public uses. The Constitution has always contemplated takings for infrastructure projects like the Trans-Texas Corridor and the (hopefully soon to be built) Detroit International River Crossing. Whether condemning agencies treat property owners fairly is, of course, another issue altogether. Regardless, these sorts of infrastructure projects will be necessary to support growth in the United States.
I think Ackerman raises some reasonable points about the legitimate (read: constitutional) uses of eminent domain. Texas is badly in need of new and expanded transportation infrastructure and the currently-shelved TTC-35 project was innovative in a number of ways, particularly in its reliance on private-sector financing (pp. 10-11). But to simply sweep away critics’ legitimate concerns over eminent domain abuse with, “in reality this project would be privately funded and managed, without relying on tax increases or government budget cuts” and claim that mega-takings are somehow not an “exercise in big government” is a bit much.
As I’ve pointed out, eminent domain condemnations are not only inherently distortionary, the burden is disproportionately borne by those with the least means to resist takings: specifically, poor minorities. Given that government at all levels spends an absurd amount of money attempting to spur entrepreneurship and economic development among low-income groups, their land-use and development policies are essentially shooting their misguided but well-intended poverty reduction programs in the foot.
People are going hungry, pulling their children out of school due to poverty, and joining criminal gangs to make ends meet in the poorest region of the Congo, the world’s second-poorest country. Residents of this African nation attribute this economic devastation to what they call “the Obama Law” — provisions of the 2010 Dodd-Frank financial “reform” law backed by Obama that have created a virtual embargo on minerals produced in the Congo’s desperately-poor mining towns. As David Aronson notes in TheNew York Times,
The “Loi Obama” or Obama Law — as the Dodd-Frank Wall Street reform act of 2010 has become known in the region — includes an obscure provision that requires public companies to indicate what measures they are taking to ensure that minerals in their supply chain don’t benefit warlords in conflict-ravaged Congo. . . the Dodd-Frank law has had unintended and devastating consequences, as I saw firsthand on a trip to eastern Congo this summer. The law has brought about a de facto embargo on the minerals mined in the region, including tin, tungsten and the tantalum that is essential for making cellphones.
The government is looking into the possibility of bailing out underwater mortgage borrowers, including speculators and McMansion owners. It’s also seeking to extract many billions of dollars from the nation’s largest banks (like Bank of America, whose stock price has fallen from $15 last year to $6.50 today, leaving Americans’ 401(k) plans, which commonly invest in banks, that much smaller). A letter in The Wall Street Journal wonders how many people who fraudulently obtained “liar loans” will end up being enriched by the government’s actions:
The Departments of Justice and the Treasury are in the forefront of the effort to penalize the major mortgage loan servicers a gargantuan $25 billion for some paperwork glitches that resulted in virtually no unwarranted foreclosure proceedings (“Banks Spar Over Loan Settlement,” page one, July 27). Meanwhile they are giving a pass to the many thousands of borrowers who committed the federal felony of lying on their applications for federally insured mortgage loans. It would be interesting to find out how many homeowners, who could be prosecuted for defrauding the federal government on their mortgage applications if the government chose to lodge the charge, are expecting a handout from the proceeds of the “offense” of shoddy paperwork that caused so little actual damage.
In 2010, Administration allies proposed a trillion dollar bailout that would use taxpayer money to bail out certain borrowers (those whose loans are held by two government-controlled mortgage giants, Fannie Mae and Freddie Mac). Fortunately, that has yet to transpire.
A report on Wednesday that the U.S. Treasury is considering “a plan that could help 1 million or more homeowners avoid foreclosure,” leaves some very disturbing questions unanswered. First and foremost: Why should taxpayers bailout McMansion homeowners and property speculators? According to Bloomberg, the proposal is “aimed at promoting modifications of delinquent or defaulted home loans, including writedowns of principal” for “mortgages that are bundled into mortgage-backed securities not issued by government agencies.” . . .According to the report, the plan would address the difficulty in writing down the principal balances of the “nonconforming,” privately securitized mortgages because “writedowns can’t happen under the covenants governing such securities.” Private-label notes represent about 20% “of the $6.8 trillion in mortgage-backed securities outstanding.”
won’t cost the Treasury a thing, while obviously forcing investors to take it on the chin. The securitized private-label mortgages didn’t conform to Fannie and Freddie guidelines for a variety of reasons. Some are “jumbo loans,” with initial balances exceeding the agencies’ limit. Others are loans with small initial down payments or other higher-risk “features” that caused the government-sponsored enterprises to stay away. Finally, many of the private-label securitized mortgage loans were collateralized by investment properties or second homes.
If the Treasury indeed announces this plan, while touting its aim of “helping families,” it will be very interesting to see if the families being helped include speculators, wealthy borrowers and those who enjoy a vacation homes in the Hamptons. Of course, if the government places, as President Obama put it, “some pressure” on banks to facilitate writedowns on the private-label mortgages, the banks — especially Bank of America (BAC_) — are likely to suffer as well, possibly beyond their current expectations.
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