Legal

$26 Billion Mortgage Settlement Rips Off Investors to Trim Banks’ Massive Costs of Bailing Out Deadbeat Borrowers

by Hans Bader on February 10, 2012 · 0 comments

in Bailout Watch, Economy, Legal, Politics as Usual, Property Rights, Zeitgeist

The $26 billion mortgage settlement announced yesterday is bad news for “bond investors including pension funds, according to Pacific Investment Management Co.’s Scott Simon,” notes Bloomberg News.  He says that the settlement rips off innocent investors and pension funds in order to reduce the banks’ costs of bailing out delinquent mortgage borrowers and others.  (As we noted earlier, the Justice Department, state attorneys general, and the biggest banks reached an agreement to provide $26 billion to delinquent mortgage borrowers and others, such as left-wing housing counseling similar to ACORN — in what the New York Post calls a “deadbeat bailout”).  As Simon notes,

“They’re using other people’s money to pay for a ton of this. Pension funds, 401(k)s and mutual funds are going to pick up a lot of the load.”

Asset managers are frustrated with the deal because, in addition to the debt the banks own, it gives credit to the lenders for changes to loans they hold no interest in and oversee for investors. That “treats people’s 401(k)s and pensions,” which hold mortgage securities, “like perpetrators as opposed to victims,” Simon said. The deal comes after all 50 states announced a probe into foreclosures in 2010 . . . costing bondholders as liquidations of bad debt were delayed.

“Think about this, you tell your kid, ‘You did something bad, I’m going to fine you $10, but if you can steal $22 from your mom, you can pay me with that,’ ” Simon said yesterday. . .

Laurie Goodman . . . who has advocated for mortgage forgiveness in testimony to Congress, joined him in criticizing the agreement yesterday. . .“There is a difference between principal reductions and giving banks credit for spending others’ people money.”

As we noted earlier, by ripping off mortgage investors, this deal will make investing in mortgages more risky, which will in turn drive up interest rates that homebuyers have to pay in the future.  This deal only covers borrowers at certain banks, not those borrowers who mortgages are held by the government-sponsored mortgage giants Fannie Mae and Freddie Mac, which (unlike the private banks) have never repaid their bailout, and are currently still being bailed out at an ever-increasing tab of $170 billion.

This deal is not the only way that federal and state officials are messing up the housing market.  The Obama administration is forcing banks to make risky loans (in the name of “fair lending”), thus planting the seeds of a future financial crisis. The Justice Department is suing banks that refuse to do so, and forcing them both to award preferential loans based on race, and to cough up money in “settlements,” some of which goes to left-wing “community” groups.

The Obama administration recently launched a multibillion dollar bailout for speculators. Bloomberg News reported that the administration is vastly expanding aid for certain “delinquent homeowners,” paying banks up to 63 cents for every dollar in principal they write off for such homeowners.  Speculators will benefit, because bailout recipients don’t even have to live in a house to get its mortgage principal reduced at taxpayer expense.

Principles of Law: Simplicity is Beautiful

by Ryan Young on February 10, 2012 · 0 comments

in Legal, Personal Liberty

Countries across the world have turned to democracy in recent decades. There are still a few monarchies here and there, and plenty of dictatorships. Cuba and North Korea are even keeping the last dying embers of communism alight. But more and more, democracy is seen as the way to go.

One of the first things a new democracy needs is a constitution. One of a constitution’s jobs is to establish the government’s structure — how the executive, legislative, and judicial branches are composed, what their powers are (and aren’t!), and a few rules of procedure.

The U.S. Constitution is a model of simplicity. You can read the whole thing in under a half hour. And that is the secret of its success. It doesn’t need to outline the specifics of agricultural or trade policy. That’s Congress’ job.

The EU’s de facto constitution runs well over 200 pages. Where the U.S. Constitution paints with a broad brush, the European Union fills in every last detail. Most countries, including the U.S., are turning to this top-down model and rejecting the Constitution’s more bottom-up approach.

The thinking goes, “How can something so simple be effective when the modern world is such a complicated place? The 21st century is very different from the 18th century.”

Good question. The answer is that those extra layers of complexity are precisely why a bottom-up approach is more important than ever. Top-down governance is hard enough even in a simple agrarian economy. It is impossible in a world like ours. Too many variables. The more rules there are, the easier they are to subvert.

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Massive Anti-Bullying Law and Bullying Initiatives Were Based on Misleading Publicity

by Hans Bader on February 9, 2012 · 1 comment

in Legal, Personal Liberty, Politics as Usual, Sanctimony, Zeitgeist

“It launched a hundred ‘anti-bullying’ initiatives at all levels of government, but much of what you think you know about” the Tyler Clementi case “is probably wrong,” notes legal commentator Walter Olson at Overlawyered, the world’s oldest law blog. Andrew Sullivan discusses this as well, linking to Ian Parker’s article in The New Yorker.

We wrote earlier about how the current panic over bullying is leading to attacks on free speech, political debate, and free association in the schools; political pandering; dishonest stretching of existing federal laws by federal officials; and violations of basic principles of federalism.

Reason’s Jacob Sullum writes about New Jersey’s massively-long “Anti-Bullying Bill of Rights,” enacted after Clementi’s suicide at New Jersey’s Rutgers University, and how it infringes on free speech and imposes illegal unfunded mandates. When New Jersey passed this incredibly complicated anti-bullying law, which contains 18 pages of “required components,” that gave a huge boost to a burgeoning “anti-bullying” industry that seeks to define bullying as broadly as possible (to include things like “eye-rolling,” or always associating with the same group of friends) in order to create demand for its services. Hundreds of New Jersey schools “snapped up a $1,295 package put together by a consulting firm that includes a 100-page manual.”

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Liberal Justices Complain About American Law Being Too Protective of Civil Liberties and Colorblindness

by Hans Bader on February 6, 2012 · 4 comments

in International, Legal, Personal Liberty

Recently retired Justice John Paul Stevens, who became the leader of the Supreme Court’s liberal bloc in his later years on the Court, complained recently about the 1964 Civil Rights Act, which he claimed was “poorly-considered” because its text literally forbids all racial discrimination — including against white people — and contains no exceptions. Justice Ruth Bader Ginsburg, a sitting Supreme Court Justice appointed by Bill Clinton, recently advised Egypt not to model its constitution on the U.S. Constitution, but rather on documents like the South African Constitution that provide less protection for free speech and civil liberties. “I would not look to the US Constitution if I were drafting a Constitution in the year 2012,” she said.

Justice Stevens’ remarks reflect his discontent with the fact that whites occasionally win racial discrimination cases under the Constitution and civil-rights laws. The Supreme Court initially held that racial discrimination of all kinds was prohibited by the 1964 Civil Rights Act in its unanimous 1976 decision in the McDonald case, which ruled in favor of whites who had been fired; but later on, the Court judicially created an exception to the statute in order to allow some discrimination against whites in its Weber decision, which admitted that creating such an exception contradicted the plain language of the Civil Rights Act, but claimed that doing so would lead to a more egalitarian society. Later, the Supreme Court extended this exception to uphold a college admissions policy that discriminated against both whites and Asians in the name of “diversity,” rejecting legal challenges under both the Constitution and the Civil Rights Act (in the Grutter case). However, over Justice Stevens’ objections, it struck down another college admissions policy that the Court viewed as using race too much and too mechanically (in the Gratz case), and it also invalidated racial discrimination against whites in voting, once again over Justice Stevens’ objections (in Rice v. Cayetano).

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The STOCK Act’s Muzzle — How “Insider Trading” Bill Could Shut Down Grassroots Communication

by John Berlau on February 6, 2012 · 3 comments

in Legal, Nanny State, Personal Liberty, Sanctimony

It’s April 2012. You are a conscientious congressional staffer who still takes seriously the need to be a steward of taxpayers’ money. (Yes, I know for a fact, there are more than a few of these folks around on Capitol Hill.) You are watching closely events surrounding an “omnibus” or “minibus” spending bill deemed even by conservative Republican members as “must-pass” because it funds the military as well as other parts of government.

Suddenly, you hear about an outrageous earmark about to be slipped into the bill that would enrich a Fortune 500 company. You know how these things work; once the bill hits the floor, it’s very hard to excise one provision. So you decide to alert a network of fiscal watchdogs you’ve met with over the years to wage an instant campaign against this piece of corporate welfare.

You have all the information in the e-mail and are about to hit “send.” But then you remember something from a briefing you attended a couple days ago. The subject was the STOCK (Stop Trading on Congressional Knowledge) Act – aimed at stopping “insider trading” by members and employees of Congress – that your boss and nearly every other member of Congress voted into law in February.

At the time, you didn’t think the law would affect you since the only trading you do is indirect, through your mutual funds and pension. You were surprised to learn, however, that you now have a broad “duty of confidentiality” that encompasses not just trading on “material, nonpublic information,” but disclosing information to those who might.

You sit back and think, “It is indeed possible that someone I send this to could buy stock in the company, or could short the company based on the coming outrage.” You stare at the computer screen wondering how virtually no one noticed how this law could have potentially criminalized an act of whistleblowing as abetting “insider trading.”

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Retaliation Charges Pose Growing Threat to Free Speech

by Hans Bader on February 5, 2012 · 0 comments

in Legal, Nanny State, Personal Liberty

Keeping quiet can seal your fate if you are a professor facing a campus kangaroo court after being wrongly accused of racial or sexual “harassment” based on your classroom speech. Civil-liberties advocates, like the Foundation for Individual Rights in Education, rely heavily on adverse publicity to save wrongly accused professors from being disciplined and fired by campus disciplinary bodies. They put to good use Justice Brandeis’s insight that publicity deters wrongdoing and helps cure social evils. As Brandeis once noted, “Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”

But as the plight of Lawrence Connell at Widener University School of Law illustrates, if an accused professor speaks up, resulting in possible adverse publicity for his accusers, he increasingly risks being punished for “retaliation” against them, even when harassment charge is baseless. Connell was convicted of “retaliation” because he and his lawyer denounced meritless racial harassment charges against him over his classroom teaching. Retaliation charges have become a growing threat to academic freedom, fueled by court rulings that provide murky and conflicting guidance as to what speech can constitute illegal “retaliation.”

Professor Connell was charged with racial harassment and removed from Widener’s campus because he discussed hypothetical crimes in his criminal law class, including the imaginary killing of the law school dean, Linda Ammons, who happens to be black. (He was also accused of harassment because he “expressed his philosophical concerns about the fairness and utility of hate crime” laws.)

But Connell did not select the dean for use in these hypotheticals because of her race, nor was there any evidence that he had a racist motive for doing so. (Comments are not “racial harassment” unless they target a victim based on her race, and are severe and pervasive, according to Caver v. City of Trenton, a ruling by the Third Circuit Court of Appeals, which has jurisdiction over Widener.) Far from being a racist, Connell had spent 15 years successfully working to save the life of a black man who had been sentenced to die after he was convicted of murder by an all-white jury.

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U.S. v. Jones and the Future of Privacy

by Nicole Ciandella on February 3, 2012 · 0 comments

in Legal, Tech & Telecom

Post image for <em>U.S.</em> v. <em>Jones</em> and the Future of Privacy

Last week, the Supreme Court handed down a decision in United States v. Jones. The Court held unanimously that because D.C. police entered a suspect’s car without a valid warrant or reasonable suspicion, they violated the suspect’s Fourth Amendment rights. But in the course of the decision, the Court raised — and ultimately failed to answer — a pivotal question about the future of privacy in America: Does the Fourth Amendment provide protection against warrantless electronic data collection and surveillance?

A great deal rests on the answer to this question. In order to fully enjoy the conveniences of the modern world, people today have voluntarily opted into GPS tracking on their mobile devices and in their vehicles. They’ve opted for E-Z Pass electronic tolling; for debit cards instead of cash; and for cloud web services instead of local storage. Most of us leave digital footprints, and we accept that it’s possible for someone to learn a lot about us from our footprints. But we’re also loathe to think that this information could be accessed by the government without probable cause.

The Supreme Court’s decision in U.S. v. Jones did not establish protections for electronically accessed information. The justices did, however, address today’s driving Fourth Amendment concerns, and they speculated on how recent jurisprudence will shape tomorrow’s digital age protections.

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More Criticism for Obama State of the Union Proposal on Schools

by Hans Bader on February 3, 2012 · 2 comments

in Legal, Nanny State, Personal Liberty, Politics as Usual, Zeitgeist

Syndicated columnist Steve Chapman is criticizing President Obama’s proposal in the State of the Union address to require students to attend high school longer before being allowed to leave. As I noted earlier, the president would like to require students to attend school until they are at least 18, and the National Education Association, one of his biggest supporters, wants to require students to stay in school until age 21.

As Chapman notes, “Most states now allow students to drop out at 16 or 17.” The reason for this is that while most students benefit greatly from staying in high school, “the youngsters who are most likely to drop out are the ones who are least likely to learn if they stay. If they are 1) struggling to pass, 2) unwilling to apply themselves, 3) chronically tardy and absent, or 4) simply not very bright, they won’t learn much from being [in] a classroom—for two extra years.” As Chapman points out, experts are skeptical of Obama’s proposal (skepticism echoed by analysts quoted in the Washington Examiner):

James Heckman, a Nobel laureate economist at the University of Chicago who specializes in education, is skeptical of the proposal. At the college level, he told me, “The returns to people who are not very able or not very motivated are typically quite low.” There is evidence that kids may get some benefit from being required to stay in high school until 16 instead of 15, he says, but “it’s a weak reed to lean on.”

Let’s also not forget that the highest dropout rates are in the worst schools. Even the kids who want an education often graduate from these schools barely able to read. Where does Obama get the idea that the reluctant students, compelled to remain, will reap a rich harvest of learning?

It might be argued that even if there is no benefit from keeping these students around till they turn 18, there can’t be any harm. But think again.

The presence of disruptive, unmotivated kids in a class is a drain on teachers, a distraction to other students, and a daily obstacle to learning. One of the best things you can do for students who want to do the right thing is to remove those who would rather goof off or make trouble.

It’s not clear that laws like this will even work. A 2010 Johns Hopkins University study found that when six states raised the mandatory attendance age, three saw no increase in graduation rates—and one saw a decline. . .

If you want to keep unwilling students in school, you can spend money on truancy enforcement, which means taking money away from the willing students. It would be more rational to use the funds on education improvements so more kids will choose to stay.

A private company—or a private school—whose customers are fleeing has to come up with ways to keep them around. In Obama’s public sector, there is a quicker solution: Lock the exits.

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12 More Law Schools Sued for Defrauding Their Students; Many More Class-Action Lawsuits Expected

by Hans Bader on February 1, 2012 · 0 comments

in Economy, Employment, Labor, Legal, Regulation

The Chronicle of Higher Education reports that a team of eight law firms have just “sued a dozen more law schools across the country, accusing them of luring students with inflated job-placement and salary statistics and leaving graduates ‘burdened with debt and with limited job prospects.’ The lawyers . . . said they planned to file 20 to 25 new lawsuits every few months . . . the lawsuits had been filed on behalf of a total of 51 graduates, and each suit was seeking class-action status. The targets of the latest round of lawsuits” include  “Brooklyn Law School,” “Chicago-Kent College of Law,” “DePaul University College of Law,” “Golden Gate University School of Law,” “Hofstra Law School,” “University of San Francisco School of Law,” “Widener University School of Law,” and several others. As the Chronicle notes, “Disgruntled law-school graduates who can’t find jobs are increasingly taking their complaints to court, asserting that the schools duped them into enrolling with misleading statistics about their chances of landing well-paying jobs when they get out. Last year similar lawsuits were filed against New York Law School, Thomas M. Cooley Law School, and Thomas Jefferson School of Law.”

As I noted earlier, much of what law schools teach their students is useless drivel, and law schools routinely exaggerate their students’ job prospects. Accordingly, there is no reason to require people to attend law school before sitting for the bar exam. As law professor Paul Campos notes, legal education is often a rip-off, since the typical law professor has little real-world experience practicing law, and “knows nothing about being a lawyer.” But since most states require people to attend law school before sitting for the bar exam, law schools have been able to increase tuition by nearly 1,000 percent since 1960 in real terms. For its part, the Obama Education Department has implemented policies that encourage colleges to jack up tuition and charge students even more, even as college students are learning less and less.

Justice Kagan Should Recuse Herself from Obamacare Case

by Hans Bader on January 30, 2012 · 1 comment

in Features, Healthcare, Legal, Regulation

Post image for Justice Kagan Should Recuse Herself from Obamacare Case

Only in Bizarro World can you claim someone is your attorney — and thus shielded by attorney work-product privilege — and then insist in the very next breath that they never represented you. But that is what the Obama administration and Supreme Court Justice Elena Kagan are doing. The Obama administration refuses to release its communications with Kagan about health care litigation back when she was the administration’s Solicitor General, on the grounds that they are covered by attorney work-product protection. Yet, contradictorily, it and Kagan insist that she never acted as the administration’s lawyer in the matter, and thus doesn’t need to recuse herself from hearing the constitutional challenges to Obamacare that will be decided by the Supreme Court this year.

Law Professor Ronald Rotunda, the co-author of a leading constitutional law treatise, says that Kagan should have recused herself from hearing the case based on the federal statute, 28 U.S.C. 455(b)(3), that forbids former government attorneys like Kagan from being involved in cases they earlier were consulted on, and the Judicial Conference’s ethical guidance for federal judges. As he notes:

[Commentators have been] calling on Justice Elena Kagan to disqualify herself in the ObamaCare litigation because of her role, as Solicitor General, in preparing its constitutional defense. These calls have intensified with the release of recent emails. Justice Kagan’s supporters respond that she testified in her confirmation hearings that she had nothing to do with ObamaCare

First, her phraseology was much more precise. She said she would only recuse herself from any case in which she “officially formally approved something,” or “served as counsel of record” or “played any substantial role.” But the statute requires disqualification if Kagan, as a federal employee (she was the former Solicitor General) “participated” as an “adviser” on a matter, even if she did not give any formal advice. She also must disqualify herself if her impartiality might reasonably be questioned.

In response to a Freedom of Information (FOIA) request, the Obama Administration has turned over some emails but it refuses to turn over many others because, it says, these emails are “protected by the attorney work product doctrine.” That doctrine, the DOJ affidavit explains, covers discussion by “OSG” (Office of Solicitor General) lawyers about “legal issues, arguments, and strategy concerning anticipated” litigation over ObamaCare. So, the DOJ is simultaneously claiming that it completely walled off Kagan from any discussions involving the constitutional defense of ObamaCare, while admitting that Kagan was participating in emails discussing “legal issues, arguments, and strategy concerning” the anticipated ObamaCare litigation.

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