Tuesday, September 21, 2010

RealClearMarkets - Gold Isn't Expensive, Instead the Dollar Is Cheap

RealClearMarkets - Gold Isn't Expensive, Instead the Dollar Is Cheap: This is a really good article about gold and international monetary exchange.

As for China, for Geithner et al to suggest that a stronger yuan will make Chinese goods less competitive on the world stage (thus supposedly making ours more desirable) is the equivalent of a restaurant chef arguing that a shorter minute would reduce the amount of time necessary to cook a soufflé. In truth, money is only a veil, and if the yuan rises even more against the dollar, Chinese goods will continue to arrive here (thankfully) en masse much as Japanese goods did after 1971 when the yen began a 20-year climb against the dollar.

The above is the case because while goods priced in yuan will be more expensive in dollar terms, the costs of goods necessary to manufacture Chinese products will by definition decline. In yuan terms everything will become cheaper for Chinese manufacturers, which means any yuan strength will be mitigated by reduced costs of production.

Even better for China, a revaluation upward would be dynamite for an economy suffering from a devaluation authored in the U.S. The seen here is China's growing economic clout, but the unseen is how much greater China's growth would be if its currency weren't pegged to an inflationary dollar which, on the margin, is making investment in China more of a challenge too.

Friday, September 17, 2010

Constitution as Partnership?

This is a continuation of a Comment that I posted at AmericanThinker.com. This is what I began below:

Mr. Roth comes close to a working theory that I have been considering for a number of months now. Unfortunately, I must say that my conclusion is not quite the same.

I am an attorney in private practice who practices trust & estate law and corporate law. Consequently, I actually use these concepts in daily practice and have to argue their consequences in court. As I see it, if this theory is laid out well within the doctrine of law, it becomes less an analogy and more a working theory driving future lawsuits and arguments to the Supreme Court.

I contend that the theory of the Constitution as a partnership agreement has severe flaws. Where it is strong, my theory reinforces those strengths.

What did the founders believe they were writing? They were writing an agreement, yes. Who were the parties? Clearly the states were parties in their capacity as independent, sovereign states (i.e., now referred to colloquially as "countries" except in International Law). If one views a state as sovereign, like an anointed king, this is the end of the discussion. But the Constitution in its preamble identifies the parties to the agreement as "We, the People, of the United States do ordain and establish." The whole notion of who are the parties or as the United States Supreme Court Justices would put it, "Who has standing to litigate the Constitution?" Court precedent deprives many people of the right to contest Constitutional issues. Yet the Constitution identifies the parties as the People. Not the States.

If this is an agreement between the States, the States should be identified as the parties to the agreement. They are not. Were the States named as parties, this agreement, this Constitution, would clearly be best analyzed as a partnership agreement or shareholders' agreement in a new corporate entity.

The States are not the parties. The parties were the People of United States of America alive at the time of the writing of Constitution.

In Common Law partnerships, a partnership ceases to exist at the death of anyone of the partners (modern statutes have significantly modified this practice because of the problems mentioned below, but let's stick with the Common Law for a minute). When the Founders (the signers and ratifying voters of the Constitution) put this process into effect, they did not have a mindset of entering a partnership. If a citizen died, the partnership would dissolve. That wouldn't work because citizens died every day.

Something deeper was in play.

The problem that the Founders left us in at that step is that they did not define what a Constitution is. For the some of the reasons I recited above, it is not a partnership agreement.

The Founders were granting (legal word meaning "give property to") some of their sovereignty to a new organization using a written document with specific grants of power and certain limitations. What is sovereignty? It is a property right. In English law it is the right of the king to control his subjects without answer to a higher authority. Using Locke's logic, the American Founders treated sovereignty as belonging to the People.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed,

--That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.
(Paragraphs added for ease of reading.) So the People have rights. The People establish governments. Such governments' power derives from the consent of the governed. The People alter and institute government.

Governments as sovereign is not a principle that any informed American can stomach.

What are governments if they are readily subject to abolition or alteration by those who receive the benefit of this entity?

Corporations are entities granted rights by government to a few persons. Their main purpose is to regulate its activites and limit the liability of the investors to encourage risk taking. That may sound like what the Democrats have in mind, but I doubt that is what the Founders had in mind. Every shareholder has a piece of paper describing his limited rights in the corporation. Leaving is easy: sell your shares.

Partnerships are alter egos of the partners and may or may not have any agreement on how the enterprise should be run. Leaving is easy: quit.

Most other forms of entities fit within the range between these two. Yet do not accurately describe the American Constitution.

"We, the People, of the United States of America . . . do ordain and establish this Constitution for the United States of America." The Founders believed they were creating a new entity and giving it almost holy duties like a priest being ordained.

They did not "agree". They did not "go into business with."

In the history of English Common Law, this has a strange history. The word "law" in the Common Law context is the rights and duties of the king's subjects that the king would grant justice on a petition for a writ, arising from a treaty between King Stephen and the future King Henry II in 1154. The Common Law was limited in scope but was so efficient that grew to be the ideal method for resolving many disputes. This was focused on contracts, money, and land.

In parallel another court arose under the auspices of King's Chancellor with heavy reliance on Canon Law (church law) and principles of fairness, referred to as equity. This body of law was focused on family related issues, including perpetuating the family's wealth, fairness, and issues outside of contracts or business.

The choice of our Founders to "ordain" the Constitution does not make the Constitution a matter of these principles of equity, but the word choice is striking in its reference to a church term rather than a contractual term such as "grant" or "donate".

Since the Founders quickly became enmeshed in the daily requirements of governance, the amount of legal theory discussed and preserved after the Constitution's adoption seems worthy of note. Some like Madison continued to deal with these issues. Some came to it as a matter of their position, like John Marshall, most did not delve into the issues repeatedly.

The consequence of this is the Founders did not completely address what body of law should inform interpretation of the Constitution.

Let's assume for a moment that the Founders did have an existing body of law that they would have selected to use to interpret the Constitution. I have already suggested that corporate law and partnership law are not good candidates.

Would the Founders have been comfortable with Trust Law? The difficulty with Trust Law is that few of the colonists would have been well informed on such law. The Founders may not have been either.

Yet there is much that recommends Trust Law as the best source of rules for interpretation. Trusts are agreements between a Trustmaker (i.e., grantor, settlor, or trustor) and a selected person to manage the Trust, the Trustee. The Trustmaker sets the rules for managing the assets in the Trust. The Trustee agrees to abide by these rules. If the Trustee fails to abide by the rules of the Trust, the Courts can discharge the Trustee and hold him liable.

Trusts were in operation in and around the days of the Constitution's founding and still create legal issues today (e.g., Dartmouth University's trust and management disputes of recent years).

If the Constitution and other similarly created governments are merely Trusts, what effect does that have on interpreting the document and the role that government officers play?

A Trust could be interpreted as having an expiration date (e.g, the Rule against Perpetuities). I doubt such a requirement is what the Founders (other than Jefferson) would really have intended.

A Trust could be interpreted as being interpreted within the original intent of the Trustmaker. If the Trustmaker's intentions could not be met, under the doctrine of cy pres, the Court would attempt to approximately as closely as possible. Under this notion, the Court specifically states (1) that the Trustmaker's intentions are impossible to accomplish, and (2) that the Trust is modified to have new terms and conditions to reasonably conform to the Trustmaker's intentions. This identification of impossibility would be beneficial in modern opinions. It would force the judge to be more honest.

"The First Amendment deals with Presses and Speeches and Exercise of Religion. It does not deal with Blogs, Radios, and Television. It is impossible for us, judges, to comply with the letter of the Constitution. Our best approximation would be to allow free communication to mass audiences in writing without being limited to pressing the word onto paper. If we could unilaterally modify the Constitution, we would include Blogs, Radio, and Television within First Amendment protections. We have no such power.

"However, the First Amendment is informative of the Founder's intent and informs us as to how to interpret the Constitution and the Ninth Amendment. The Ninth Amendment overcomes the Common Law rule that presumes a list is a complete definition unless the list is clearly to provide merely examples. Consequently, we know that Founders recognized rights as being broader than what was stated in the Constitution or its Amendments.

"We find that rights recognized by Cicero, Locke, Montesquieu, Blackstone, and others did not cease to exist by writing down some rights in the Constitution. In fact it is to preserve those rights that the Constitution was intended to function. Under the Doctrine of cy pres, freedom to write, speak, and pray cannot be limited under the Ninth Amendment."

If this were a mere contract that whole opinion would be impossible. If a contract obligation is impossible, it either causes the whole contract to fail, or, in the presence of severability clause (a clause allowing removal of impossible or illegal provisions without causing the contract to fail) , the problem phrase is eliminated. Notice that the Constitution has no severability clause.

Even more importantly than court decisions, it would force the wider population to take a stricter look at how a Trustee should handle somebody else's money. The strict rules for care would apply. The strict rules for not favoring one beneficiary over another would be easier to see.

In short, Trust law is about asset management and watching out for the beneficiaries' interest.

The whole notion of States' Rights would be harmed (sorry, modern day Confederates) since it would clearly show that the State is just another subtrust. The need for abolition of the 17th Amendment may arise again to allow for a better balancing of interests between the States. (Note: I am not a four-square advocate for this. Such a change would require a study of the problems of seating senators under the old rules. Very problematic.)

Just some food for thought.

Wednesday, September 08, 2010

Higher Debt: Is the student loan industry headed for a meltdown? « » Print The Daily Caller – Breaking News, Opinion, Research, and Entertainment

Higher Debt: Is the student loan industry headed for a meltdown? « » Print The Daily Caller – Breaking News, Opinion, Research, and Entertainment:

In my bankruptcy practice, I see this problem as far worse today than even this good article does.

I have spoken to recent graduates and parents of current students. Both are drowning in debt now.

For parents, it is far worse. They are trying to pay student loans for their kids and prepare for retirement.

The bubble has already burst. We just haven't felt the consequences yet.

Obama nationalized student loan financing along with healthcare. That default rate is going to show in the national deficit now. $849 billion of loans with 20% default rate since 1995. That rate is skyrocketing right now as parents with debts become unemployed. Any bankruptcy practioner can quickly tell you about the millions of dollars in student loan debt that their clientele represent. I haven't been at bankruptcy long and my clientele is already pushing toward the first million dollars quickly.

Congress is going to need to cut this program and soon.

When the mortgage bubble popped, I first experienced it with a deal gone sour in April 2007. It took 18 months for many people outside the real estate industry to face the same facts. Acquaintances of mine from Las Vegas have stories that go back many months earlier than my experience.

The same thing is already in play for student loans. Kantorwitz is smoking dope. He doesn't see the problem because he is dealing with people entering the pipeline. He is like a mortgage broker. They are the last to see the problem. Their job is to keep filling the pipeline until people on the other end, like me as a bankruptcy attorney, say there is no more room in the pipeline.

Obama's nationalization of the student loan market has temporarily hidden the problem from general view. He has made the ultimate collapse later and larger.

Sound like Fannie Mae all over again?

Tuesday, September 07, 2010

A Tsunami Approaches: The Beginning of the Great Deconstruction | Newgeography.com

A Tsunami Approaches: The Beginning of the Great Deconstruction | Newgeography.com: "-

H/T Wretched at belmontclub.

This article hints at only one of the great Ponzi schemes running through government today: pensions.

Let's not forget about government-guaranteed, highly inflated student loans; Social Security; Medicaid; union healthcare promises.

When states start going into default, it may be too late to correct these government problems at the state level the right way: using the Bankruptcy Code.

Bankruptcy refers to the medieval practice of money changers sitting on benches called "banca" (Latin, Italian) or "banque" (French). When the money changer became insolvent the banker's guild would supposedly break the insolvent money changer's bench. The word for broken was "rupta" (Latin), "rota" (Italian), or "route" (French). The money changer would be banca rupta, banca rota, or banqueroute, respectively.

In modern practice, a person is not collaqu0lly referred to as bankrupt until he files for bankruptcy proceedings. In historic origins, though, a person was technically bankrupt when he was insolvent, that is his current liabilities exceeded his current revenues with little disposable assets to bridge the gap.

The fact is that the States are tending toward this insolvency definition of bankrupt. They don't have enough revenue to meet their current expenses. The problem is that no Chapter of the Bankruptcy Code allows the State to seek the protection of the Bankruptcy Court to reorganize the State's debts.

GM could strip itself of its liabilities to the UAW in part through bankruptcy. Currently, the States have no ability to do the same thing.

Politicians can't do what is necessary to fix their problems. Their best solution is to pass the consequences of their carelessness to federal politicians.

Wednesday, September 01, 2010

Back To School - Walter Russell Mead's Blog - The American Interest

Back To School - Walter Russell Mead's Blog - The American Interest: What a great article explaining what a student should seek out of college education. Regrets for those pursuing architecture, engineering, or the arts. This article does not deal with how to handle those pursuits.