Eminent Domain vs. Banking

Monday, August 26, 2013

Government officials from several municipalities across the country are attempting to use their constitutional power of eminent domain to force banks to sell loans for less than they are worth. (It was tempting to say "misuse", but I think the founders were wrong to include this power in the first place.)

Richmond[, California], working with San Francisco-based Mortgage Resolution Partners, offers $150,000 to buy a $300,000 bank loan on a house that is now worth $200,000 and is in danger of foreclosure.

If the bank agrees, the city and the company then obtain the loan at $150,000. Richmond and the company then offer the homeowner a new loan of $190,000, which, if accepted, lowers the monthly payments and improves the owners' chances of staying.


If the bank refuses to sell the loan to Richmond, then the city invokes its power of imminent domain and seizes the mortgage. It would then offer the bank a fair market value for the home.
Wow. But for the fact that government officials are involved, this is no different than the following scenario: I go into a store, decide that some big-ticket item I want costs too much and then "offer" to buy it, gun in hand, for some made-up, lower price. If the merchant balks, anyway, I then take it and leave whatever made-up price I deem "fair" on the counter. Oh, and maybe I leave a note to the effect that my "purchase" is okay because it will somehow prevent urban blight.

These officials may think they are on firm legal ground. Maybe they are: Slavery was once enshrined in the Constitution, after all. But if they are, that is law that ought to be repealed as it clearly is at odds with protecting individual rights. (Yes. Even people in the banking business are individuals and have rights.)

The article correctly notes the danger to the banking system that the successful use of such a tactic would represent. That this is even being considered seriously is cause for concern.

-- CAV


Grant said...

Imminent domain isn't completely wrong. It has legitimacy in some - very limited - contexts. Say, for example, that the navy of a hostile foreign power is sailing for our shores. The military has looked at the situation and has determined that there is a particular piece of land that is strategically crucial for the country's defense (a radar station or missile silo or whatever). That piece of land just so happens to be owned by a person who, for whatever reason, doesn't want to sell it. I think that in this instance it would be legitimate for the government to seize that land. If that person can not - or will not - understand that the sanctity of his right to private property will be violated anyway once the foreign power (successfully, because of his decision not to sell) invades, then - quite frankly - screw him. I would support the seizure of the property not for his sake, or even my own (which are both legitimate reasons), but if only just for the sake of the individuals who constitute "the military." They should be able to defend their own rights, and the fact that they have to violate the land owner's rights in order to do so does not make it immoral (it would be immoral not to, IMO). It is collateral damage, and it's a decision is being made under duress. The blame for the rights violation lies with the foreign power, not the US Government.

Just food for thought.

Gus Van Horn said...

"I would support the seizure of the property not for his sake, or even my own (which are both legitimate reasons), but if only just for the sake of the individuals who constitute 'the military.' They should be able to defend their own rights..." [your emphasis omitted]

I would have to think more about this example to definitively rule out the military use of the land, but I am inclined to disagree for the same basic reason that I am against the draft -- even of someone who would be a great general, like a George Washington.

We have an inalienable right to our lives, liberty, and property. If the government drafts him (or anyone), it will have shown itself unfit to govern. If he doesn't see the need to volunteer, then (assuming the cause is deserving and he isn't better able to defend himself as, say the industrialist building our arsenal), he doesn't deserve his freedom. (And I still have no right to attempt to make him fight for mine.) I also see the land seizure as similar to taxation, which Rand was against.

In any event, even if I were to see limited seizures -- I'd call it "commandeering" and not "eminent domain" -- as legitimate (on a temporary basis, perhaps?) in times of emergency, I'd disagree with the reasons you give. No individual's rights trump another's.

Grant said...

Thanks for the thoughtful reply. You wouldn't "violate the rights" of an innocent person to protect your own? I would. It's collateral damage - no different than dropping bombs on a known Nazi headquarters, or an Islamic terrorist camp, even though there is a grade school next door. If no other strategic option is possible, so be it. The violated rights of those innocents are on the Nazi's and terrorist's hands, not America's.

Gus Van Horn said...

The problem with your further question is that the purpose of our government isn't to protect the rights of anyone who isn't a citizen. Innocents in a country we have declared war with are indeed in danger, due to the actions of that enemy, from our efforts to defend ourselves. This is not the same thing as our government deciding to violate the rights of its own citizens. If the government should ever commandeer property, as in your example, the conditions under which it should ever do so should be far more restrictive than eminent domain.