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Rule of Law and All That: The Foreclosure Mess

Suffice to say, I take a different view of the current foreclosure – robo-signer – problem now confronting the mortgage industry. Where Greg calls the banks’ fraud upon the court “procedural laxities,” I say the banks are committing, wait for it, “frauds upon the court.”

Greg does a neat rhetorical trick, by shifting the focus from property rights to some kind of tort-based argument where the homeowner has to prove harm. Don’t be fooled. Property rights are not about harm. They are about who can prove superior title. And if banks bring fraudulent documents into court to assert that they own properties, they should be punished. In North Carolina, we call this Obtaining Property by False Pretenses, a Class H felony, punishable by up to 30 months in prison.

Where Greg says your home was foreclosed because you stopped paying it, I say your home was foreclosed because someone who could not prove an ownership interest in the home came along and committed a fraud by falsely asserting they could, thereby depriving you of your superior property rights in the home.

Where’s the “rule of law” I hear so much? Where are these sacred and inviolable property rights I hear about?

There’s been a lot of handwringing about consumers who should’ve known better when they were taking equity out of homes in 2005 and 2006. And about buyers who were mortgaging too much to buy those $400,000 homes on $50,000/year incomes. And about how, even though shady originators and greedy banks were selling these pipedreams, it was the buyer/consumer who should’ve known better because, after all, the buyer/consumer signed on the dotted line.

Now the shoe is on the other foot. In other words, cubicle dwelling robosigners (who I believe are not the real criminals, but merely patsies), were… ummm… not reading what they were signing.

Caveat emptor, and all that.

Yes, the timing is suspect because we’re in election season. This problem has been around for years. I first learned about it in detail last year, which means I was very late to the game. But better late than never, I say.

(I still contend that there was a better way to handle this mess, which was using bankruptcy to cramdown the mortgage.. But banks fought that tooth and nail because… a loan is a sacred contract etc. etc. and these were bargained for agreements. Well, indeed, they were, so if if you, as a bank, want to foreclose, bring the real documents to court and do it. By failing to provide a meaningful alternative that would’ve split the baby, we’re now in a place where it turns out banks themselves were mistaken about how much legal claim they had to certain homes.)

If some homeowners get some homes on the cheap, well, hooray for them. Banks should’ve invested something in maintaining their property rights – to wit, a decent filing system. And if they couldn’t have been bothered in 2005 and 2006 to do so, well, tough luck.

And investors who bought bonds backed by this… stuff… can take a hike.

Now, as to the stoic trial judge, I will say this: they tend to side much more with the consumer/debtor/homeowner than they do with the purported mortgage holder. And why’s that? Well, in certain states – North Carolina, for instance – judges are elected. Even where they’re not – federal bankruptcy court – they tend to frequently see better financed creditors overwhelming pro se or under-represented debtors. They’ll cut the debtor a break.

Where will this lead? It leads to an informal cramdown. Rather than getting the home free and clear, the borrower frequently settles, and in exchange, re-signs documents with the purported mortgage holder that, this time, the mortgage holder keeps in a safe place.

Now couldn’t this have been done more efficiently and fairly in bankruptcy court? Yes… Yes it could have.

Related posts:
  • The good news in the housing market? We may be witnessing the beginning of the end of the bad news in the housing market.
  • Who Is Facing Foreclosure?
  • Amazingly low foreclosure rate at a two year high . . .

  • 39 comments

    39 Comments so far

    1. Greg Fleischaker October 17th, 2010 11:45 am

      Great view point, I’m really enjoying the contrast in views on this topic. I have purposefully stayed away from these types of transactions as much as possible and prefer reading about them as opposed to having worked my way through them, but I am in agreement with you, if contracts are sacred when its convenient, sorry, but then contracts must also be sacred when it no longer serves your purpose.

    2. Greg Swann October 17th, 2010 2:11 pm

      > Where are these sacred and inviolable property rights I hear about?

      Those would belong to the lienholders, the actual injured parties.

      > Where’s the “rule of law” I hear so much?

      I think we usually hear soaring rhetoric when the law runs the other way.

      The lienholders did absolutely nothing wrong, and any errors or omissions that were made in their behalf were not done in pursuit of fraudulent objectives. It is obvious to everyone that dispossessing them of the security on their loans would be a grievous injustice, one totally unwarranted by the facts. There’s no telling what a judge will do, but it is not possible to argue with a straight face that the position taken in this post represents anything resembling true justice.

      Want to satisfy yourself that this is the case? Put yourself — and your child’s college fund — in the place of the patsy who invested his hard-earned money to purchase the mortgage.

      It’s easy to take the debtor’s side — unless you’re the creditor. If you want to make sure that no money will be available for rent to undercapitalized home-owners, screw investors out of their assets over paperwork errors, transferring their wealth to people no one disputes are in default. The words “rule of law,” in this context, simply mean the latest scheme for the grasshoppers to devour the ants.

    3. Greg Swann October 17th, 2010 2:18 pm

      > I have purposefully stayed away from these types of transactions as much as possible

      Good luck with that. What is at issue are not simply foreclosed homes, but, potentially, every loan written into the secondary mortgage market for god-only-knows how long. That’s Fannie, Freddie, FHA, VA, all those 80/20 conforming loans written in the early oughts, jumbos, etc. — any marketable note secured by real property. The only loans that might not be affected are hard-money loans and local-bank portfolio loans. Any loan that has been sold one or more times is potentially in “violation” of essentially-meaningless paperwork regulations.

    4. Ken Brand October 17th, 2010 2:53 pm

      Seems to me “technicalities” matter. Your take is appreciated. A sound argument can be made for both sides.

    5. Don Reedy October 17th, 2010 6:04 pm

      Fraud must be proved by showing that the defendant’s actions involved five separate elements: (1) a false statement of a material fact,(2) knowledge on the part of the defendant that the statement is untrue, (3) intent on the part of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result.

      I stopped using “sacred and inviolable property rights”, along with a host of other hollow legal phrases, once it was clear to me that the legal system is, well, just that….a system. Put in the correct amount of angst, add a dash of emotion, season with the local prosecutor’s political aspirations, and serve with relish to your legislative and judicial colleagues who eat at your table on a regular basis, and you have a description of the law served rare, medium rare, or overdone.

      “And if banks bring fraudulent documents into court to assert that they own properties, they should be punished.”

      Let’s get real. Banks had lawyers who told their clients that MERS was valid. Banks had lawyers who advised their clients of signing regulations. Did the bank’s lawyers, all of them, join together to intentionally create a fraud? Hardly. What has happened has happened because lawyers, bankers, investors, and homeowners bent the rules to their purported advantage.

      Res ipsa loquitur. The homeowners contributed to their own downfall by failing to meet the terms of their obligation. The banks contributed to their own downfall by failing to meet a standard of care most of us expected. The investors contributed to their own downfall by failing in their due diligence.

      Greg’s comments don’t seem so much a “rhetoric trick” as they do Common Sense.

    6. Greg Swann October 17th, 2010 6:23 pm

      > Greg’s comments don’t seem so much a “rhetoric trick” as they do Common Sense.

      Bless you, sir. Thank you. I do love to watch you strut.

      As always, I am not for any of this. We all know all the scummy stuff behind the current state of real estate — CRA, Fannie/Freddie, MBS/CDO/CDS, the bailouts. I am in favor of none of this. But at the level of the individual borrower and the individual investor, I think it is specious to argue that inadvertent errors with documents are in any way comparable to defaulting utterly on the terms of the note. As you observe, nothing prevents us from staining at gnats, but this is not something that can be called justice, and it is not a pattern of behavior likely to promote a peaceful, healthy civilization.

    7. Jim Whatley October 17th, 2010 8:38 pm

      This whole thing is like being in a bar with a whole bunch of drunks. As long as someone else is paying the tab everything is cool but when that guy runs out of money, everyone starts turning one everyone else. it always some other dudes fault. If your not paying the loan on the house you promised to pay for, You need to go. If you perpetrate a fraud on the court you got to go.
      As Al Pacino Said
      in And Justice For All -

      Y”OU’RE out of order! YOU’RE out of order! THE WHOLE TRIAL IS OUT OF ORDER! THEY’RE OUT OF ORDER!”

    8. jeffrey gordon October 17th, 2010 9:29 pm

      Greg, I find your take intriguing, certainly the opposite of my take having worked in the mortgage business and observing the bullshit underwriting/origination that took place between 2002-2007. The banks new they were breaking most of core rules about lending money to homeowners and only because they were able to dump the loans to others and supposedly remove their exposure would they ever have approved of them.

      Reading about Clayton finding 40% of pool loans failing to meet loan criteria only confirms my personal understanding of the crap that was sold by Wa Mu/CW/Etc. to the secondary market as AAA investment grade paper.

      The investment banks and Big four retail banks were printing money during this time. Most of them have been extended incredible support by Tarp and the FED to paper over the fact that they are insolvent.

      Can you imagine what would have happened if those same funds had been used to refinance every existing mortage in the country at .75% rate with streamline refis?

      We could have cleared up the “clouded title” issues that fall only at the feet of MERS and the lenders all the while providing a broadbased economic benefit to the entire population rather than to the favored financial s that brought this all upon their selves.

      My dear friend manages a portofolio of 27,000 residential loans and deals with JPM on many of them. JPM seems to find every excuse possible to misrepresent the of these loans and avoid repurchasing those files that either were not as represented or fraudlent.

      Combined with the sham of loan modification the lenders are getting what they deserve for failing to bargain in good faith. At worst most of these loans might be unsecured loans and the lenders will have to go in front of a judge to obtain judgements and then lien properties. Perhaps many of the lenders might be persuaded to finally negotiate in good faith with home owners to keep them in their homes and reduce the payments and principal to avoid even bigger losses resulting from taking them to REO status.

      Again none of this is inadvertent, MERS and the syndicators screwed the pooch and reduced the strength of their security, that is not specious, that is their screwup. The consequence is they can not use the foreclosure steamroller to force folks out of their homes since they dont have the paperwork. Too bad for them, now they have to convince a judge of their claims and incur the costs associated.

      If we follow the rules the big four banks will be taken over by the FEDS and broken up into smaller regional lenders. I suspect the servicers/trustees and title companies would also be nationalized as none of them will be able to survive the legal claims they face.

      The good news is that the investors in MBS’s will will judgements agains the investment banks that sold those crappy mortgages without improper disclosure and failed to convey legal title to the trusts on a timely basis.

      If that is the bottom, then I say lets get to it, and stop trying to pretend theses are insignificant issues and extending this cycle, time to find the bottom and start our way back up.

      jeffrey gordon

    9. Greg Swann October 17th, 2010 10:43 pm

      I’ve pointed this out to readers here again and again, but it always bears repeating: Evil is always rationalized with the logical fallacies tu quoque (“You do it, too!”) and two wrong make a right (“He hit me first!”). The objectives of a dispute resolution system should be equity, equality and equanimity, as much as can be attained, not vengeance and retribution. You don’t fight crime with more crime. You will not rid the world of cannibals by eating them.

    10. J Philip Faranda October 18th, 2010 5:06 am

      Damon, I side with you on this, as a guy who does quite a few short sales and interacts with distress borrowers daily. It saddens me that people who are in a mad dash to affect a short sale or loan mod must pray for a miracle to outrun the uncooperative lender, through serpentine, red tape hell, forced to jump through hoop after hoop in order to avoid foreclosure, when the lender, in fact got away with cutting massive corners.

      Nobody is disputing they are in default; but it is reprehensible that the deck is stacked against them and the game is rigged when they make earnest attempts to do right by the bank for as much as the market will bear.

      The architecture of lenders is still locked in the 1930′s, and that is not going to solve a 21st century problem.

    11. Jeff Brown October 18th, 2010 10:37 am

      This problem is really two stand alone problems, not one big one.

      1. The borrow defaulted. There is a remedy in law for the creditor. There is no moral foundation to let the borrower slide.

      2. The law clearly lays out how creditors can foreclose. If they openly and fraudulently lie to the court, breaking those rules, on what moral foundation do you let them slide?

    12. Damon Chetson October 18th, 2010 11:02 am

      Those would belong to the lienholders, the actual injured parties.

      Yes. And if the lienholders come to court with proper evidence of the lien, then there’s no dispute. But in fact the purported lienholders haven’t been able to do that. So they’ve committed fraud by purporting to show that they have some interest int he property, when they can’t.

      The lienholders did absolutely nothing wrong, and any errors or omissions that were made in their behalf were not done in pursuit of fraudulent objectives.

      That’s not true. The lienholders have claimed to have title to property, but can’t show it, so they’ve produced fraudulent documents. Their ultimate objective has been to claim superior title to property when they don’t have the documents to do it.

      Did the debtor have an obligation to pay? Sure. Does the debtor have an obligation to give up the property to anyone who comes along with any kind of piece of paper claim to be the lienholder? No.

      What has happened has happened because lawyers, bankers, investors, and homeowners bent the rules to their purported advantage.

      This is right, which is why I don’t know why the debtor/homeowner should be a particular object of loathing.

    13. Greg Swann October 18th, 2010 12:33 pm

      When the state robs innocent investors in behalf of defaulting borrowers, all in the name of proper paperwork, we have arrived at the final stages of Socialism, de facto cannibalism. When you wake up to find that your wealth has been expropriated on a pretext, don’t pretend to be surprised.

    14. Damon Chetson October 18th, 2010 12:50 pm

      Robs innocent investors? I think it’s the banks that claim to have title – but can’t show it – to these properties who have robbed investors.

      How do you know that these banks are the real owners?

    15. Sean October 18th, 2010 2:46 pm

      It appears every week there’s some new ugly twist. The link below is a good accounting of Wells Fargo HAMP Fraud and down right poor behavior. (err must be a paperwork snaffu).

      http://www.zerohedge.com/article/gonzalo-lira-what-brian-and-ilsa-said-their-bank-%E2%80%9Cshow-me-note%E2%80%9D

      And today’s potential buyer is f’ed by this mess as well. How does one make a large purchase of anything without basic price discovery?

    16. Greg Swann October 18th, 2010 3:37 pm

      > How do you know that these banks are the real owners?

      This is absurd. We know that a home was purchased with a note secured by the asset. We know that the note passed from investor to investor. We know that however that process was documented, the note was never retired by acceleration by the borrower. We know further that the borrower stopped paying on the note, defaulting on the terms of the agreement. We know that the note was foreclosed on, possibly in technical violation of state real estate laws written (by the NAR!) in the days of the Ford Model-T. If some third party investor wants to claim that the note is his property, and not the property of the investor who foreclosed on the home, that’s a colorable legal argument. But there is zero doubt that the borrower is in default, and that the foreclosure against the borrower is just on its face. The straining argument you are making here puts form before substance in a way that can only result in substantive injustice, where a condition of substantive justice already obtains.

      You are making an excellent case for market anarchism, however. Nothing could be worse than a government that turns a free market into the head of Medusa.

    17. brian October 18th, 2010 6:29 pm

      the banks are creating ‘new money’ when originating loans…

    18. Jim Klein October 20th, 2010 12:32 pm

      Hi Greg, just a question. In the free market agora without forceful coercion, what would happen in the case of a collateralized note if the note isn’t paid and the defaulting party isn’t willing to give up the property?

      Would “collateral” even have meaning in such a world, or would all genuinely collateralized property have to remain in the possession of the creditor, in order to actually be collateral?

    19. Greg Swann October 20th, 2010 7:10 pm

      > In the free market agora without forceful coercion, what would happen in the case of a collateralized note if the note isn’t paid and the defaulting party isn’t willing to give up the property?

      I’ve been thinking about this, too.

      > Would “collateral” even have meaning in such a world, or would all genuinely collateralized property have to remain in the possession of the creditor, in order to actually be collateral?

      That’s the better question. A mortgage is really a fiction devised to make the buyer feel better about being a 30-year tenant — or to fool the buyer into believing he is somehow not a 30-year tenant.

      In reality, a mortgage is just a contract-for-deed in camouflage. The borrower “owns” the property, but pledges it at the point of purchase in exchange for the funds to buy it. Had you bought your wife’s engagement ring that way, you two would have to go down to the pawn shop to see it.

      Back to the first question:

      > In the free market agora without forceful coercion, what would happen in the case of a collateralized note if the note isn’t paid and the defaulting party isn’t willing to give up the property?

      The terms of repossession upon default would be written into the loan agreement. The buyer/tenant/occupant might resist being removed from the property, but he will have consented to this outcome, in extremis, in advance. Aren’t car loans already written this way?

      Not comfortable with anything that forceful? Write a garnishment clause or an attachement clause, instead. There is no reason for you to risk your funds if their return, one way or another, is not provided for by contract.

      Important distinction:

      > without forceful coercion

      No, without systemic coercion. There is no possibility of totally non-coercive human social interaction so long as human beings still have corporeal bodies. We need not collide, and we should work hard to make sure we don’t. But we still will sometimes. In the case of a failure to quit the premises upon default of a lease or mortgage, the initiation of force originates with the defaulting tenant or borrower: He is retaining property that does not belong to him by adverse possession. If you would rather that your landlord or lender does not have your advance consent to enter the premises and evict you if you are in default, prepare to put a much higher security deposit/down-payment in escrow.

      On the other hand, what happens if you, as the landlord or lender, didn’t foresee a belligerent default and did not provide for the resolution of the dispute? Dang…

    20. Jim Klein October 20th, 2010 8:50 pm

      >>>On the other hand, what happens if you, as the landlord or lender, didn’t foresee a belligerent default and did not provide for the resolution of the dispute? Dang…

      This must be why profitable trading doesn’t happen with belligerence!

      Still, guys taking property pursuant to notes, looks the same to strangers as guys just taking property. If the latter can write, then they can be made identical, at least to strangers. I’m not sure I can spot that line you make with “systemic,” even as I concede that these days, “systemic” fairly well guarantees wrong!

      IOW I think “provide for” is a little amorphous there, in this imaginary garden. One can’t “provide for” belligerence meaningfully, with anything but preparation for belligerence.

      Besides, this is all resolved by the simple fact that individuals will be decent when those individuals choose to be decent. Not a moment before then, and there are an awful lot of individuals with both high incentive and lifelong programming, who wish to choose not to be decent. In this scenario, I guess the rules don’t really matter very much anyway. That’s why I wouldn’t be bettin’ any which way, on how all of this turns out. Brian would understand—I’m working with the Earth Form, but the race is being held on Mars!

      I think the answer is that property as collateral would be oxymoronic in your agora and hence a non-starter, except maybe for the cases where the creditor took physical possession, like a pawn shop. I’m sure RE would work itself out; the problem in that arena is how do you start. That strikes me as an easily surmountable problem among rational people, though.

      I noticed this on re-reading…

      >>>There is no reason for you to risk your funds if their return, one way or another, is not provided for by contract.

      That’s ambiguous IMO. They’re provided for by the will of the other party, presumably represented accurately in the contract. I’m not picking nits, but that’s very different from any implication that the contract itself is providing for it. The contract, of course, is just the symbolization of the volitional agreement.

      If the contract itself is supposed to be some justification for doing something coercive, then you’re right back where we started, with a “rational State” present to interpret the contracts and justify the force.

      That’s why I think “collateral” would be effectively meaningless in such a scenario. A man who’s decided that he’s going to interact on a volitional basis with other men, period, unless they invoke force against him, is not going to change his mind because some property is involved and some moocher didn’t pay his bills. Socially, those are more derivative values to such a man…the arguments about why theft and fraud are the same as being punched in the nose notwithstanding.

      On the assumption that he values his property dearly, my guess is that he’ll be tons more careful with his property…a good thing all around, I’m sure. But I don’t think it would trump the more basic social value of not dealing with others coercively. If it would, then Prudent Predation is logical now.

      Oh…maybe that’s what they’re saying!

    21. Greg Swann October 20th, 2010 9:55 pm

      Is it implausible to you that rational people could contract to be coerced according to terms set in a contract?

      I honestly don’t know: How is repossession provided for in the finance contracts for vehicles?

    22. Jim Klein October 21st, 2010 6:14 am

      >>>Is it implausible to you that rational people could contract to be coerced according to terms set in a contract?

      Of course that’s not implausible. Most people would say that’s precisely the situation we’re in!

      The thing is, a non-coercive agora (agorum?) is a non-coercive agora. Can a person contract themselves into a lifetime of slavery? More importantly, who do you propose shall set the rules?

      Whatever your answers, I’m pretty sure your vision is built around the /fact/ that ultimately, it’s an individual decision whether or not to abide those rules…not to mention an individual decision about what to do about rules violators.

      If rules-violation is grounds for non-defensive coercive response, then welcome home; that’s precisely what we’ve got. I believe the presumption has to be that rational men will both keep their words and not transform into cougars when others don’t.

      Even taking property loss as direct physical injury against a person, coercive response amounts to a fancy form of retaliation. You can call it “making it right,” but that’s what they call formal executions too. For that matter, that’s what half the population would call letting everyone stay in their houses without paying!

    23. Jim Klein October 21st, 2010 6:42 am

      Also, maybe it’s worthy to re-focus on Damon’s original point. He wrote, “Property rights are not about harm. They are about who can prove superior title.”

      In a /legal/ context, that’s precisely right and it goes all the way back to 1066. Further, most people (including you) would say that to speak of these sorts of “rights” in any other context, is meaningless. IOW, in any sort of legal context, there’s really nothing else besides the hierarchy of rules and the imposition of obedience to them.

      Otherwise, as you’ve also noted in other contexts, property–or even “rights” generally–is that which one has and can keep…as a factual or physical matter. Most people take that as a road into Hell, whereby everyone is fighting for every little scrap. But it needn’t be that way among rational men, since rational men recognize that values aren’t created by plunder and a million ways of retribution for wrong-doing, but rather by honoring one’s word and producing one’s ass off.

      This is why I hate the word “anarchy” so much. It implies a bunch of ants running around taking things from everyone else without a moment’s thought of what they’re doing. No wonder nobody likes that vision. As you well know, it’s quite the opposite…it’s fully cognizant people understanding that Splendor is the goal and that trade is one of the ways of achieving it, the key way socially.

    24. Greg Swann October 21st, 2010 7:09 am

      > Can a person contract themselves into a lifetime of slavery?

      Can a person consent to a contract of slavery for a term — once called indenture? How would you prevent this from happening without systemic coercion?

      (Agora ends in an ‘a’ because it is feminine in Latin, not because it is plural. Agorum would be neuter if singular, masculine if plural. More than one agora would be called agorae.)

      > More importantly, who do you propose shall set the rules?

      There are no fiat rules, which means that people can do as they choose, even if you would not make the same choices.

      Can a free man sell his kidney? Can he sell both of them?

      If your wife says, “Wanna fool around?,” has she not indicated a willingness to have her person repeatedly forcefully invaded?

      (This is why an agora is feminine, incidentally, because it is a thing that is entered, rather than a thing that itself does the entering.)

      Here’s where the question turns: Is coercion nothing but physical force, or is it any thwarting of the will? If the will is of two minds — another Latinly way of thinking — which is more significant, the prior formal consent or the contemporaneous resistance?

      My take: If the dispute resolution system turns on consensus for its de facto enforcement mechanism — as with the idea of boycotting in a Janioist agora — then this is not something either of us can decide. All we can do is wait to see how the marketplace responds.

      As a guess, I would expect most people to uphold reasonable prior contracts over later demurrers. Any other interpretation of human behavior would impoverish all the dentists with liability claims.

    25. Greg Swann October 21st, 2010 8:08 am

      > He wrote, “Property rights are not about harm. They are about who can prove superior title.”

      He’s playing lawyer games. Civil court actions always turn on injury — at least historically they have. Only in the criminal courts — or the by-now-criminalized civil courts — do imaginary victims get to wail about their imaginary pain.

      In a Janioist agora, crime is defined as injury: “A Politically Actionable Crime has occurred: one, when an involuntary social contact has taken place; two, when some one real person has been materially injured by that contact; and, three, when that one real person seeks redress for his injuries.”

    26. Greg Swann October 21st, 2010 8:29 am

      The idea that no one would lend against a pledged asset that is difficult to repossess seems unlikely to me. The implication is not just no mortgages, but also no leases and no circumstances under which I might toss you my car keys so you can run a quick errand. The key, as I mentioned in email to Teri, is how one chooses to negotiate:

      English common law owes way too much to the idea of a laird of the land. It makes debtors negotiate poorly — like serfs with hats in hand. It takes a thoughtful effort to remind yourself that both parties to a trade are seeking benefits they lack without that trade. Once you remember that, you can dicker as an equal. Too late for extant contracts, but it’s a change we can hope to see happen going forward.

      Suppose a landlord presents you with two leases. In the first, if you default on the rent, you consent to having the property repossessed by hired men-at-arms. In the second, there will be no physically-forceful response, but you consent to having your bank accounts attached or your wages garnished. Which would you choose? I would choose the first, simply because I know that I would never steal the owner’s property by retaining possession of it without paying for it.

      But: As a disclosure, right now we are paying our own mortgage three or four times a year, catching up on arrears when we accidentally have money. In essence, I am coercing short-term loans from my mortgagor with their reluctant forbearance but without their formalized consent.

    27. Jim Klein October 22nd, 2010 6:38 am

      I’m trying to pull the principles out, and it’s tough. In a non-systemically-coercive agora, is the injured party really “seeking redress for his injuries,” or is he more accurately “sharing the information of his injuries in order that the market responds”?

      You ask, “Can a person consent to a contract of slavery for a term — once called indenture? How would you prevent this from happening without systemic coercion?” I don’t know about prevention but the more relevant question, I think, is how shall you enforce it without systemic coercion? If you give me an ounce of gold now for a month’s work to come and I default on the work–or even die–then what? Agorically(!), you have nothing to which to plead except the sharing of the information; otherwise you’re talking about some sort of systemic coercion.

      WHO shall garnishee wages and why should the employer give a hoot anyway, except that he happens to agree with the decision? And he can do that, without any formal decision!

      I’m inclined to think that the greatest confusion arises from presuppositions that the agora consists of rational men who have decided not to deal with others by coercion. I can’t see anything making much sense without that foundation, and with that foundation most of these issues are moot.

      I gotta say, it seems pretty tough to imagine pipelines and nuclear plants in such a scenario. All I know is we better figure this stuff out soon before we learn that one important entry was left off the Endangered Species List!

    28. Sean Purcell October 26th, 2010 11:07 am

      I’m late to this discussion and I hope you’ll forgive a simple man’s confusion, but does an anarchistic agora in any way actually imply a lack of coercian? A lack of systemic coercian, I understand. But a lack of systemic coercian, by definition, means there is nothing to prevent any individual (or family, or group, etc) from coercing another, yes?

      When I lease a property from Greg we sign a contract expressing our agreement and our agreed upon remedies for default… at the time of signing. But when I decide to stop making payments, Greg must make a decision on what action(s) he will actually take. He may take the contract to a dispute resolution service, and I may decide not to attend or adhere. Greg might, faced with my complete obstinance, decide to be non-coercive and simply walk away from his property; or he might decide to physically evict me himself; or he might hire three pipe-wielding “friends” to evict me with extreme prejudice. These are all actions he may take with no systemic coercian to prevent him. And that’s as it should be. The only thing Greg cannot do, is lay claim to the right to coerce me, yes?

      Greg’s only external issue (and mine as well), is our standing within whatever agora we reside. Greg may estimate the market will shun me (which might include garnishing my wages) and so do nothing but simply wait for me to starve and regain possession of his house. Or he may physically coerce me from his property, hoping the market agrees with him but risking that it might lead to his own starvation. In any case, the market makes the final decision and both Greg and I, if we are rational beings, will make an estimate of the market’s reaction as a part of our decision-making. If we are not rational beings, we are probably not long for any agora. Either way, we are spared the evil that is absolutely avoidable: systemic coercian.

    29. Sean Purcell October 26th, 2010 11:17 am

      @Damon – I enjoyed your post and its implication of the slippery slope, but I agree with Greg. Causing lenders to lose or substantially lose their investment because of inadvertent paperwork errors (even if said inadvertence was caused by greed), is akin to handing out prison sentences for jay-walking. The pedestrian is technically wrong and, if we’re not vocal in our condemnation, we might slide down the slippery slope of grid locked cities over-run by jay-walkers… but the actual “crime” committed here is negligble and the proposed penalty is extreme.

    30. Jim Klein October 28th, 2010 5:38 pm

      >>>I’m late to this discussion and I hope you’ll forgive a simple man’s confusion, but does an anarchistic agora in any way actually imply a lack of coercian?

      I’m confident Greg would disagree, but my answer is, “Yes.”

      >>>A lack of systemic coercian, I understand. But a lack of systemic coercian, by definition, means there is nothing to prevent any individual (or family, or group, etc) from coercing another, yes?

      Not any more than there is presently, I’d say. Indeed, I’d say that coercion is encouraged these days by way of teaching, rewarding and subsidizing it.

      I answer Yes to the first question because with the presence of coercion, it’s not a marketplace…at least not in the Capitalism as Morality sense. I don’t know how many people have to be thugs before it becomes “systemic thuggery,” but I know how many people have to choose not to become thugs in order to have societal peace—all of them. I’m not saying this will ever happen, but I do think that those who would choose otherwise, at least absent our current educational problems, are an ultra-trivial set…I call them gnats. IOW, if we could get kids the hell out of Govco schools, I think ultimately the vast majority would prefer freedom and trade over being thugs…with very good reason, of course. But only reasoning beings can be motivated by reason.

      Back to the issue and your second comment, Sean…

      I don’t have any answers, at least not currently, but I think you and Greg are missing the question. Because you guys are so close to it, you’re not seeing the distinction between the note and the property IMO. That’s natural enough since it’s always been a collateralized note, but I think there are some important issues at play, which I believe Damon was trying to express.

      Greg especially should be interested since in any sort of free agora, there’s a major difference between my failing to pay you back a loan, and my stealing your property. Obviously this is not to say banks or servicers are stealing property, and it’s just as obvious that nobody should be staying in a home for which they didn’t pay. But the issues involved, particularly with appraisals, ratings, silly Govco rules and programs, as well as the claims for the current putbacks (which is the real mess if I understand it correctly), are quite a bit more than mere paperwork errors. They involve fundamental property rights, at least in a context of Rule of Law, and there appears to be enough fraud to go all around.

      In that context, the legal one, there are some interesting hierarchical principles at work, and I think Damon is touching upon those. “Now the shoe is on the other foot.” That’s a mouthful IMO.

      For my money, it’s yet more evidence that Rule of Law is a fantasy, all the wonderful intentions notwithstanding. Our current governments engage in practices–violative of both moral and legal principles galore–that make staying in a house for which you didn’t pay, look a bit like jaywalking itself.

      In the end, I want to pay for my house because of who I want to be, not because of the situation of my creditor…and least of all because of the force he can bring upon me if I don’t pay. Until people begin to think like that, none of this matters a hill of beans anyway. As it stands, everyone’s busy figuring out how they can maximally treat everyone else as apes, while minimizing how badly they get treated as apes themselves.

      No wonder “social order” is the supreme principle of the day. How else could you manage 7 billion apes?

    31. Sean Purcell October 28th, 2010 7:44 pm

      …with the presence of coercion, it’s not a marketplace…at least not in the Capitalism as Morality sense. I don’t know how many people have to be thugs before it becomes “systemic thuggery,” but I know how many people have to choose not to become thugs in order to have societal peace—all of them.

      I appreciate this argument and agree that most would choose freedom and trade. But the truth of an anarchistic agora is not that we gain systemic peace so much as we lose any concept of “thuggery”. As Greg said, so long as we are corporeal bodies we will still have disputes. Even if we were to save children from the factory of government education, we would still have disputes because my rational conclusion may differ from yours. Where we are saved is here: there will be no more thuggery! For thuggery to exist, systemic coercian must exist. Without systemic coercian, we can no longer utilize pejorative precursors to systemic coercian like “thuggery”. There is just your actions in the agora and my actions in the agora and the agora’s reactions to both.

      I like your vision of a rational (and rationally educated) populace where all of us may choose to act in our own best interests… IOW our splendor. But even the perfection of that vision does not mean our individual choices of “best interests” will not sometimes collide. Nor does it mean the anarchistic agora will not exist… one might even suggest that it’s at exactly those moments when the agora exists in its most pure form.

      One last thought re it’s yet more evidence that Rule of Law is a fantasy, all the wonderful intentions notwithstanding. I disagree. Once “Rule of Law” is understood for its real meaning: “Slavery by Force”, we see that it is not fantasy at all; it is our current system. It does not work, not because it’s a fantasy, but because it’s flawed in reality. And that is why “social order” carries the banner of the day. What better way to keep the “apes” under control…

    32. Jim Klein October 29th, 2010 7:48 pm

      >>>But the truth of an anarchistic agora is not that we gain systemic peace so much as we lose any concept of “thuggery”. As Greg said, so long as we are corporeal bodies we will still have disputes. Even if we were to save children from the factory of government education, we would still have disputes because my rational conclusion may differ from yours.

      All of that is spot-on IMO, but “dispute” means something so differently in such a scenario, that it barely rates usage of the word. Even in a business sense, like defaulting on a note, it means “having a different opinion about something.” It’s a dispute because I might strongly disagree, and perhaps even suffer damages for it, but it doesn’t come down in any effective way as meaning anything like it does today.

      Absent coercion, any sort of dispute resolution mechanism reduces to imparting information, and that’s it. What’s done with the information is whatever each person decides. But if they’re not using coercion, then it’s basically just strong opinions, or very strong opinions.

      >>>Where we are saved is here: there will be no more thuggery!

      That’s right, and let’s not forget the /only/ way that can happen. Here’s where I get confused, by both you and Greg…

      >>>For thuggery to exist, systemic coercian must exist.

      I guess I just don’t understand this. I’m not sure how you distinguish systemic coercion from, say, gangland coercion…or even if you do. Maybe you have a different meaning of “thuggery,” but isn’t a single rapist a thug?

      Aren’t terrorist acts instances of thuggery?

      >>>But even the perfection of that vision does not mean our individual choices of “best interests” will not sometimes collide.

      But it does, in a /social/ context. This was Rand’s point about there being “no conflicts of interest among rational men,” but it’s an odd bird who gets the point and agrees.

      I might want to paint my house purple and it might terribly upset others…and for some it’s no laughing matter, so hideous and distracting do they find it to be. Our choices and even our perceptions are in collision in an extreme way, but there is no collision about what is /socially/ in both of our best interests to decide—-tough break if you don’t like it, now carry on with your life.

      It’s got to be that way all around, and that’s what scares people so much. But socially, there are no alternatives if we wish to exist as rational beings. Either-or, humans or cougars.

      >>>There is just your actions in the agora and my actions in the agora and the agora’s reactions to both.

      I haven’t met that third thing yet! I’ve admitted my problem for years—no matter how hard I look, I just can’t see anything but individuals out there. Maybe if you could distinguish an “agora’s response” from a “systemic response,” I could grasp this a little better. Is there a difference?

      And I agree with your sentiments about Rule of Law, though I’d probably argue that’s not Rule of Law you’re talking about. Still, I was pretty sure those prisons were real!

    33. Sean Purcell October 29th, 2010 9:54 pm

      Here’s where I get confused, by both you and Greg…”For thuggery to exist, systemic coercian must exist.” Before I answer, let me make clear I don’t presume to speak for Greg…

      I’m not sure how you distinguish systemic coercion from, say, gangland coercion…or even if you do. Maybe you have a different meaning of “thuggery,” but isn’t a single rapist a thug? Aren’t terrorist acts instances of thuggery?

      When I was younger and England was still continuing its violent occupation of Ireland, I watched the IRA’s actions. Were they acts of terrorism or acts of freedom fighters? They were violent, to be sure; but thuggery, like beauty, is in the eye of the beholder. And that’s the point. You may find a person’s (or group’s) actions thuggish and I may not. We disagree as rational beings. You may shun them and I may celebrate them. We react as rational beings. When you say: “I know how many people have to choose not to become thugs in order to have societal peace—all of them” I understand “societal peace” as systemic coercian. IOW, I’m not interested in your (or anyone else’s) definition of societal peace because it implies systemic coercian. In an anarchistic agora, “Society” does not exist in any meaningful way. We are individual actors expressing our rational best interests (ignoring pychopathic behavior for the time being). A universal sense of “thuggery” requires a universal sense…

      This was Rand’s point about there being “no conflicts of interest among rational men,” but it’s an odd bird who gets the point and agrees.

      I guess I’m not an odd bird because I don’t understand the point. When I decide to stay in Greg’s house without honoring our agreement, we are in conflict. We may both be rational in our decision making (e.g. I have lost my job and must keep a roof over my children’s head even if it means the theft of Greg’s property for a while. Without ascribing right or wrong, we can still acknowledge rational thought if I believe the consequences to be less painful than the consequences of putting my family on the street. Greg, on the other hand, may decide that my theft prevents him from receiving the money he needs to feed his family and reach the conclusion that I must be removed, by reason if possible or by force if necessary, and if he believes the consequences of his actions will be less painful than his family not eating, he too has acted rationally). Your suggestion is it’s a tough break for Greg if he does not like it (or your neighbors don’t like your Barney house). But I suggest it is no less a tough break for me if Greg removes me by force (or your neighbors paint your house… or burn it down). “Tough break” simply means “stuff happens” and there is no centralized force to make the aggrieved whole again. And this is as it should be.

      Maybe if you could distinguish an “agora’s response” from a “systemic response,” I could grasp this a little better. Is there a difference?

      Absolutely. In the scenario I’ve been describing there is no systemic coercian; no centralized power enforcing what is “right”. (Think of the irony!) But there are repercussions. The agora – our neighbors and trading partners – will look at my actions or Greg’s actions (or yours and your neighbors’) and decide – each for themselves – whether or not it is in their best interest to continue trading and interacting with me, Greg (you, your neighbors). In a true anarchistic agora, the repurcussions of those decisions can have far reaching affects, including isolation and even death by starvation. The reaction of the agora is simply the aggregate of all the individual agora participants’ actions. Res ipsa loquitar one might say…

    34. Jim Klein October 31st, 2010 7:42 am

      Thanks, Sean. For now, I’ll just offer one point of serious disagreement between us and ask you to think about it.

      >>>When I decide to stay in Greg’s house without honoring our agreement, we are in conflict. We may both be rational in our decision making (e.g. I have lost my job and must keep a roof over my children’s head even if it means the theft of Greg’s property for a while.

      No. You are not being rational in your decision making if you believe–particularly in a non-coercive agora as we’re stipulating–that the best action for you and your family is the theft of Greg’s property.

      This amounts to a Prudent Predator argument with trivial details changed. If you wish to co-exist with Greg, as we are assuming if you’re in the same society as him, then both you and your family will be better off cooperating with him. Further, this is so as both a moral and practical matter, Rand being correct on that assertion as well.

      There are no conflicts of interest among rational men. There are differing derivative goals and wants, and sometimes even mutually exclusive desires, but socially the superior goals are congruent—an egoist (synonymous with rational man!) wishes to move forward and /create/. It is only a non-thinking animal who survives by taking what others may have. If a vulture needs to build a nest and there are no sticks around, then maybe he’ll tear down some robins’ nests to get them. A rational being has the glorious ability to figure out how to create more sticks, or devise an alternative.

      I know you know this. I’m just asking you to put it all together, at least on this particular sub-point. You see, if there are genuine conflicts of interest among rational men, then all of this is a waste of time. Unachievable and/or contradictory goals aren’t rational.

    35. Sean Purcell November 5th, 2010 9:00 am

      …if there are genuine conflicts of interest among rational men, then all of this is a waste of time. Unachievable and/or contradictory goals aren’t rational.

      I’d like to say this is merely a disagreement over semantics, but I’m not sure. I use “rational” as an exclusionary term; I wish to exclude from the discussion, as a matter of convenience, those people whose actions are not in alignment with their thinking. IOW, it’s not a measure of the moral or practical efficacy of decision-making. It’s simply a way of saying that I can reliably predict your actions if I am familiar with your priorities and logic. To be rational is to be consistent.

      The problem with a concept like

      There are differing derivative goals and wants, and sometimes even mutually exclusive desires, but socially the superior goals are congruent

      is that someone must decide which goals are “superior” and which are not. I know it may seem obvious to you which goals are superior, but that’s because they are superior for you, which does not, necessarily, make them superior for me.

      I’ll leave you with this: Ufr. NOTS again… and ask you: do Greg Swann’s goals – which are contradictory with the lender’s goals – make him irrational? Or is it possible for rational men to have contradictory goals?

    36. Greg Swann November 5th, 2010 9:59 am

      > do Greg Swann’s goals – which are contradictory with the lender’s goals – make him irrational?

      I’ve been thinking about this, too. If I’m in a corridor at the airport, for example, I am constantly jockeying for position. Even now, as an old, fat cripple, I can’t stand to walk slowly, so I will slip through holes in the throngs to move quickly — even though the airplane is still going to take off on its own schedule. If I misjudge how you are going to move, there is a chance we will make contact, perhaps jarring contact. That’s force. Is it coercion? Is it a conflict of interests? If so, which one of us is irrational. I understand what Rand was saying, but I’m not happy applying it to any number of real life circumstances I can think of.

    37. Greg Swann November 5th, 2010 10:04 am

      The above argument notwithstanding: I am definitely in the wrong with my mortgagor, along with a host of other creditors. My choice, for now, is to pay late or pay never. My belief is that paying late is a rational choice, in the sense that it is in the best service of my interests, of my business’ interests, and it is the course of action most likely to get my creditors paid off in full, with interest and penalties, in due course. I have never yet defaulted on a debt, but that simply means I have achieved a marginally-more-honorable state of theft. Facts are facts.

      (Incidentally, and without intending to absolve myself in any way: This is how an honest person admits to a fault. I am wrong, but I am not twice wrong by trying to deny my crime, campaigning to get my buddies to swear I must be right because I am a man of outsized exuberance, or trying to malign you for daring to tell an indisputable truth about my life.)

    38. Sean Purcell November 5th, 2010 4:34 pm

      I must say, this grows more interesting for me with each comment. I understand your analysis of yourself Greg: “I am definitely in the wrong…” and on that I have no standing to comment.

      But… in the anarchistic agora we’ve been discussing, does right and wrong exist beyond the self? If I wish to label an action of mine as right or wrong, so be it. But can someone else label my actions right or wrong? More to the point: In this agora, does right and wrong even exist beyond the self? It seems to me that a macro sense of right and wrong requires (or at least leads to) that structure from which systemic coercian arises. E.g. I may point to my neighbor’s actions and say: “I believe that is wrong.” But that’s quite different from pointing to my neighbor’s actions and saying simply: “That is wrong.” The former statement may guide me in how I rationally choose to interact with my neighbor. But the latter implies a communal sense of right and wrong; ethical group-think. I can not conceive of an anarchistic agora that’s compatible with a communal sense of right and wrong.

      I’m not expressing this as well as it’s expressed in Was America Great?, wherein Jim Klein does a nice job of explaining that the community does not exist in and of itself, but rather as an aggregation of the individual participants in that community.

      I don’t believe right and wrong will exist in our anarchistic agora other than on a personal scale. Therefore, rational men acting after their own best interests can and will conflict. In this hypothetical world of Voluntaryism, we rid ourselves of systemic coercian and I say GREAT. But I also say that is the limit of this “fix.” Rational man in an anarchistic agora will most likely act in ways that lead to much less conflict, but not none. Some people will still run me down in the airport terminal…

    39. Richard Dillon November 11th, 2010 1:18 am

      Don’t blame the state, the borrowers, the developers or the buyers – it’s the banks.