Reuters reports that California Lieutenant Governor Gavin Newsom has asked the Justice Department to ???investigate ???threats??? against local communities considering using eminent domain to seize and restructure poorly performing mortgages to benefit cash-strapped homeowners.???
What he???s talking about is legalized theft. Local governments within San Bernardino County have been thinking about seizing ???underwater??? mortgages from the financial institutions which issued them, employing precisely the abuse of the Kelo decision???s expanded eminent-domain powers that dissenting Justice Sandra Day O???Connor warned about. The government would be seizing, not the property itself, but the balance of the mortgage??? which would then be given to other private financial interests, to re-sell to homeowners with a reduced balance and lower monthly payments. The government would decide what a ???fair??? value for the mortgage is, take it away from the institution that currently owns it, and sell it to someone willing to refinance the politically-determined ???fair??? value.
According to Retuers, Newsom evidently stopped short of endorsing this practice, but told the Justice Department he ???wants communities in California to be able to ???explore every option??? for solving their mortgage burdens ???without fear of illegal reprisal by the mortgage industry or federal government agencies.??????
Newsom had previously lectured the Securities Industry and Financial Markets Association about ???Making threats to the local officials of San Bernardino County.??? Those ???threats??? evidently consisted of telling the San Bernardino officials that they might ruin the mortgage industry with these Kelo seizures. That???s an entirely logical warning. What bank in its right mind would sell mortgages in a county whose banana-republic government has demonstrated its willingness to seize and redistribute them? And what happens to the national credit industry if such mortgage seizures are emulated by populist governments across the country? Nobody likes being in debt, everyone would love to see big loan balances disappear, and faceless bankers make great fall guys for a ???victimless crime.??? If this idea catches on – if politicians get to re-define legal commerce and binding contracts signed by consenting adults as a form of theft, for the benefit of constituents and cronies – where does it end?
A more specific ???threat??? was cited in Newsom???s new complaint to the Justice Department: ???In his letter, Newsom says a ???major??? New York-based hedge fund threatened a company that was involved in a municipal program to purchase mortgage loans by using eminent domain. In an email that was copied to 21 other investment firms, the unnamed hedge fund manager wrote: ???This move to pick the pockets of investors in the mortgage market will have far-reaching implications on your business.??????
Have we really reached the point where that???s considered a ???threat??? worthy of investigation by federal law enforcement, rather than a simple statement of fact?