'A Nation Adrift From the Rule of Law'

Excellent piece in the Wall Street Journal by David Keel, a professor at the University of Pennsylvania, about how the idea of the rule of law has been gutted over the last few years:

Consider the litigation that led to the recent $25 billion National Mortgage Settlement, which was brought by the state attorneys general and quarterbacked by the Obama administration. The plaintiffs alleged that five of the nation's largest banks used "robo-signers"-law firms that filed large numbers of foreclosure documents without bothering to check the details-and added unnecessary fees such as overpriced insurance during the real-estate bubble.

These actions deserved to be punished, but the settlement had almost nothing to do with the allegations. A large majority of the settlement will go to mortgage relief for homeowners who weren't affected by the robo-practices, or to provide a bailout to the states. Both steps are illegitimate uses of the judicial process.

Or consider the Dodd-Frank Act's new resolution rules. They require the Federal Deposit Insurance Corporation to liquidate the troubled financial institutions it takes over.

The liquidation requirement is a bad idea, but its purpose is clear. When California Democratic Sen. Barbara Boxer proposed the requirement, she insisted that the rules would only be used to shut down the institution. All "financial companies put into receivership . . . shall be liquidated," she insisted in May 2010. "No company is going to be kept afloat."

Yet as the FDIC has made plans for implementing the resolution rules, it has simply ignored the requirement, announcing that it will use the new rules to reorganize institutions and keep them going.

A sad irony of these developments is that rule-of-law values have been one of America's greatest contributions to world-wide economic development in recent decades. When the economist Hernando de Soto tried in the 1990s to determine why economic growth is so limited in much of the world, he concluded that respect for basic property rights is essential.

Lest anyone accuse Prof. Skeel of partisanship, he also points to the 2008 TARP legislation and actions by the Fed as examples of willfull violation of the law.

This is a problem we've had with the executive branch for most of the last half century. Some, like Obama, are worse than others but all of them have acted above the law for the sake of expediency at one time or another.

Unless we're carefuly, we'll end up with a society that will look more like a banana republic than America.


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