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Town fathers of Norway, take note. You have a new adversary in Ellen Anderson. Ms. Anderson is the Minnesota state senator who is pushing legislation to freeze foreclosures on homes with subprime mortgages in the name of “protecting the American dream.” The economic chill from such a move–and from other attempts to protect “the American dream” from mortgage meltdown–would likely be felt around the world by pension plans, banks and municipalities that have invested in mortgage-backed securities. As it happens, a number of Norwegian towns are reeling from losses on investments that they didn’t realize were vulnerable to Wall Street’s recent subprime woes.
Minnesota’s governor, Tim Pawlenty, is threatening to veto the bill that Ms. Anderson is pushing, officially called the Minnesota Subprime Foreclosure Deferment Act. But the smart money says that it is Ms. Anderson who will prevail. Those on the side of mortgage relief usually do. Those on the side of mortgage enforcement tend to lose out. Homeownership is compelling; the property rights of lenders are not. That, at any rate, appears to be the current American consensus.
“The Dirty Dozen” adds the most value with its discussion of the court’s astounding subordination of property rights over the past three quarters of a century.
“The Dirty Dozen” tells us how misguided Supreme Court decisions have helped us to arrive at that consensus and others. Robert A. Levy and William Mellor, both constitutional lawyers, examine 12 notorious court opinions affecting everything from wartime internments and medical-school admissions to tax policy and the rights of the homebuyers. The starting point for their survey is 1933, their reasonable assumption being that modern American law began with the New Deal. They went about compiling their list by asking other lawyers and scholars to name the cases they considered to be the most damaging to our constitutional rights.
Some of the dirty dozen are predictable. One is Korematsu v. United States, which produced the 1944 opinion sanctioning the wartime internment of 120,000 Japanese-Americans. Another infamous case is Grutter v. Bollinger, the 2003 ruling that supported the University of Michigan law school’s affirmative-action policies and, as result, endorsed the raising of obstacles to university admission for those who happen not to fall into favored groups.
It is useful, if unsettling, to be reminded of such examples of Supreme Court overreaching. “The Dirty Dozen” adds the most value with its discussion of the court’s astounding subordination of property rights over the past three quarters of a century. By now many of us have heard of Kelo v. City of New London, the 2005 eminent-domain case. Mr. Mellor’s own think tank, the Institute of Justice, represented Susette Kelo, the woman from New London, Conn., who was forced out of her gabled Victorian house by the city so that condos and an office building might be built there.
But the authors note that the precedent for the arbitrary confiscation of property by public authorities came a half-century before, with Berman v. Parker (1954). In Berman, a department-store owner in a run-down section of Washington, D.C., fought to keep the property from being seized by the city and resold to a developer in the name of “urban renewal.” Congress had given the district the right to use eminent domain to acquire land with the purpose of developing it and eliminating “blight.” It was a new interpretation of the “Takings Clause” of the Constitution specifying that private property shall not be “taken for public use without just compensation.” The Supreme Court sided with Congress in Berman, and thereafter, we’re told, “courts routinely deferred to legislatures and planning commissions in eminent domain actions . . . even for private development.”
One of the “Dirty Dozen” opinions is especially germane today: Home Building & Loan Association v. Blaisdell, decided in 1934. It will perhaps not come as a surprise that the mischief occurred in Ellen Anderson’s home state, where the Minnesota Mortgage Moratorium Law of 1933 was enacted with the intent of helping farmers who were struggling to hold onto their property in the teeth of the Depression.
John and Rosella Blaisdell sought to use the law to keep their 14-room house and garage even though they were paying a fraction of the mortgage payment every month. The lender, Home Building & Loan, went to court to get its money–but the state court ruled that the mortgage-moratorium law would protect the Blaisdells from foreclosure for two years. During that time they would have to pay just $40 a month to compensate Home Building for lost rental income.
American law had, until then, protected lenders’ rights–as James Madison said, “laws impairing the obligation of contracts are contrary to the first principles of the social compact.” But when Home Building took its appeal to the Supreme Court, Chief Justice Charles Evans Hughes, backing the Blaisdells, presented the social compact and the private contract as an either/or proposition and chose the compact: “The question is no longer one party to a contract as against another but of the useful means to safeguard the economic structure upon which the good of all depends.”
Messrs. Levy and Mellor write that Blaisdell represented “a new hierarchy of rights based on class and found nowhere in the Constitution.” In fact, “nowhere in the Constitution” is a good phrase to describe how so many court decisions go wrong.
Amity Shlaes is a senior fellow at the Council on Foreign Relations and the author of The Forgotten Man, a New History of the Great Depression. AEI’s National Research Initiative provided assistance to Ms. Shlaes while writing her book.
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