Archive for September, 2009

Danish Mortgages & Negative Equity

Posted in Econ on 20090928 by Avenging Sword

In his new book, Richard Posner (HT Tyler Cowen via Steve) notes an interesting aspect of the Danish mortgage system I’ve previously advocated:

The Danish model has another critical and innovative feature.  Holders can retire their own mortgages by purchasing the same face amount of mortgage bonds at the prevailing market price.  To prepay a mortgage by purchasing bonds, the home owner must give advance notice of several weeks to the MCI [mortgage credit institutions], which designates by lottery the specific bonds to be purchased.  Thus, if rising interest rates or other factors cause mortgage bonds to trade at a discount, home owners can reduce the principal or retire the whole mortgage by purchasing an appropriate mortgage bond at a discount.

Cowen terms this “implicit insurance against the prospect of negative equity in the home”, a feature previously noted by Alan Boyce.

When I first read Boyce’s paper & presentation, it took me a little while to explain – to myself – exactly how the Danish system (effectively) ensured against negative equity.  This post is my attempt at such an explanation.

1.  Recall that, under the Danish mortgage system, a given mortgage is funded by bonds having the same interest rate, face value, & duration as the mortgage itself.  These bonds are “callable“, in that a borrower can pay them off at will prior to their maturity date.

2.  Note that a mortgage’s principal (P1) is, basically, the Present Value (PV1) of a stream of payments (S1) at the interest rate (I1) & term (T1) of the mortgage in question (*).  Of course, if the prevailing interest rate rises to a level (I2) greater than I1, PV1 decreases (and, with it, the value of a given mortgage, and the bonds associated therewith).

3.  However, due to the mathematics of amortization calculations, that same higher interest rate (I2) would also decrease the amount of principal (P2) that a notional borrower (having creditworthiness equaling that of the original borrower) could borrow, assuming the same term (T1) & monthly payment stream (S1) as the original borrower.  This is the mechanism whereby rising interest rates clobber house prices.

4.  Ergo, given #2 & #3:  Changes in interest rates affect the values of both mortgage bonds & houses in the same way, via the same basic mechanism.

5.  Hence, under a Danish-style system of mortgage financing, you’d never have to worry about rising interest rates leading to underwater homeowners (**).  A homeowner’s house value might fall as a result of rising interest rates, but the market value of a quantity of bonds equal to the face value of that homeowner’s mortgage would fall by approximately the same proportion.

(*) This makes sense when you think about it; from the standpoint of a bondholder owning a 100% interest in a given mortgage, the “principal” is basically the amount the bondholder is willing to pay in exchange for receiving a stream of payments – w/ interest – over a certain span of time.  That amount, of course, is the present value of such a stream.

(**) Of course, negative equity could still result from other causes – e.g., localized insanity leading to a housing bubble (and subsequent bust) in a given region.


Random Thoughts on US v. Sullivan

Posted in Law, Poli-ticks on 20090923 by Avenging Sword

Reading about this incident, wherein Andrew Sullivan apparently caught a break from selective prosecution, brought to mind several things.

1.  Favoritism:  Yes, prosecutorial resources are limited.  Yes, you fight the fights you can win.  Neither appears to be in evidence here.  Perhaps the federal prosecutors in this district have standing orders to seek dismissal of charges in cases where someone’s immigration status is at risk?

2.  Jerry Pournelle’s notion of “anarcho-tyranny“.  It’s not difficult to imagine this sort of prosecutorial behavior developing into a client-patron relationship.  (No, I’m not saying that’s what’s happening here.)

3.  Red Emma’s recent post, which has me wondering whether l’affaire Sullivan is unusual only because some federal district judge bothered to complain about it in writing.

4.  Presidential Pardons:  I.e., the proper way to seek criminal-justice favoritism.  (Not via de facto dereliction of a prosecutor’s duty to enforce the law.)  Were the people of this country ever foolish enough to elect me President, I’d be strongly tempted to start issuing pardons, as a matter of course, to anyone charged with a federal crime which a) carried a mandatory minimum sentence of excessive severity, and/or b) struck me as being unconstitutional.  E.g., all federal drug offenses.

5.  ISTM we actually have two justice systems in this country.  There’s the formal one, with actual civil & criminal trials like in Law & Order and John Grisham.  Then there’s the “shadow” one, comprising (inter alia) plea bargains & probations on the criminal end, and ADR & civil settlements on the civil end.  I really must read about the shadow one at some point.  I wonder what the relative market share is between the two systems….

Grant, Lee, Parole, & Treason

Posted in Law on 20090916 by Avenging Sword

When I first read James McPherson’s Battle Cry of Freedom, I came across this interesting nugget regarding the surrender of the Army of Northern Virginia:

The terms [of surrender] were generous:  officers and men could go home “not to be disturbed by U.S. authority so long as they observe their paroles and the laws in force where they reside.”  This clause had great significance.  Serving as a model for the subsequent surrender of other Confederate armies, it guaranteed southern soldiers immunity from prosecution for treason. [1]

Alas, McPherson cited no source for his conclusion regarding the significance of the clause he mentions.  This provided sufficient cause for me to make an on-and-off hobby, over the past few years, of running down information regarding the legal significance of the surrender at Appomattox.

My current understanding is that there isn’t any court decision [1a] on whether the terms of the Confederate surrenders effectively granted immunity to Confederate soldiers.  However, Jean Edward Smith’s biography of Ulysses S. Grant does contain this interesting anecdote:

Led by the New York Times, much of the nation’s press began a crusade to try Lee for treason.  Benjamin Butler…told [President Andrew] Johnson that Grant “had no authority to grant amnesty” at Appomattox, and Attorney General James Speed, acting at the President’s behest, provided a legal opinion that “the terms of capitulation were strictly military,” implying that they provided no shield against subsequent civil action.  This was the context when, on June 7, 1865, a federal grand jury sitting in Norfolk indicted Lee, Johnston, Longstreet, and a host of other Confederate generals for treason. [2]

Upon hearing this, Lee sounded out Grant via mutual acquaintances, whereby he learned that Grant stood by the terms of Appomattox, and favored pardoning Lee.  Lee then forwarded his petition for a presidential pardon to the General in Chief, who in turn forwarded it to Secretary of War Stanton with the following endorsement:

In my opinion the officers and men paroled at Appomattox C.H. and since upon the same terms given to Lee, cannot be tried for treason so long as they observe the terms of their parole.  This is my understanding.  Good faith as well as true policy dictates that we should observe the conditions of that convention.  Bat faith on the part of the Governm’t or a construction of that convention subjecting officers to trial for treason, would produce a feeling of insecurity in the minds of all paroled officers and men.  If so disposed they might even regard such an infraction of terms, by the government as an entire release from all obligation on their part.

I will state further that the terms granted by me met with the hearty approval of the President at the time, and of the country generally.  The action of Judge Underwood in Norfolk has already had an injurious effect, and I would ask that he be ordered to quash all indictments found against paroled prisoners of war, and to desist from further prosecution of them.” [3]

However, when Stanton – who lacked Grant’s enthusiasm for Lee’s cause – failed to press the issue, Grant went directly to President Johnson.  As Smith tells it:

When Grant when to the White House, he found Johnson unyielding.  The President said he wanted “to make treason odious,” stating that Lee and other rebel leaders had to face punishment.  Grant objected.  He told Johnson he could do as he pleased “about civil rights, confiscation of property, and so on,” but the terms of Appomattox had to be honored.

“When can these men be tried,” asked Johnson.

“Never,” replied Grant.  “Never, unless they violate their parole.”

Johnson persisted, demanding by what right “a military commander interferes to protect an arch-traitor from the laws.”

Grant, who rarely lost his temper, was livid.  He told the president that as the responsible commander in the field he had an obligation to destroy Lee’s army.  “I have made certain terms with Lee, the best and only terms.  If I had told him and his army that their liberty would be invaded, that they would be open to arrest, trial, and execution for treason, Lee would never have surrendered, and we should have lost many lives in destroying him.  My terms of surrender were according to military law, and so long as General Lee observes his parole, I will never consent to his arrest.  I will resign the command of the army rather than execute any order to arrest Lee or any of his commanders so long as they obey the law.”

Andrew Johnson was a stubborn man, but he knew when he was overmatched.  He realized that without Grant’s support his administration would be in serious trouble.  He did not doubt Grant meant what he said, and so he backed down.  On June 20 Attorney General Speed instructed the United States attorney in Norfolk to drop the proceedings.  Grant then wrote to Lee, enclosed a copy of his endorsement of Lee’s request for clemency, and without mentioning his discussion with Johnson, said simply that the government had accepted his interpretation. […] [4] [Emphasis in original]

So it appears this particular legal question was never actually adjudicated.  At least not in the courts of the United States.  Instead, it was decided by the President…mainly on the strength of an amicus curiae brief filed by Gen. U.S. Grant.

As for Lee’s pardon…that is a story with two parts.

The pardon petition submitted by Lee (and endorsed by Grant) was never acted upon.  Initially, this was because the petition failed to include the oath of allegiance required under Johnson’s initial amnesty proclamation [5].  However, when Lee attempted to correct this oversight a few months later, the notarized oath he submitted got misfiled by the State Department.  Meanwhile, Secretary of State William Seward apparently gave Lee’s pardon petition to a friend as a souvenir [6].  As a result of such incompetence, Lee never received a specific pardon during his lifetime.  However, as noted by the War Department in 1936 (HT Bob Huddleston), the terms of President Johnson’s on Dec. 25, 1868 amnesty proclamation were broad enough to encompass Lee [7].

Even after being pardoned, however, Lee remained subject to the political disabilities imposed by the Fourteenth Amendment, until his death in 1870.  An Act of Congress [8] rescinding such disabilities was passed in 1898, but since that law “was not intended to have any posthumous effect” [9], posthumous restoration of Lee’s full rights of citizenship required an additional Joint Resolution (passed over a century after Lee’s death, in 1975) [10].


[1] James McPherson, Battle Cry of Freedom, at 849 (1988).

[1a] Then again, the June 8, 1865 issue of Philadelphia Inquirer apparently carried the following excerpt from Judge Underwood’s charge to the Norfolk grand jury.

To the inquiry which has been made by an officer of the Court, whether the terms of the parole agreed upon with General Lee were any protection to those taking the parole, the answer is, that was a mere military arrangement, and can have no influence upon civil rights or the status of the persons interested.

Simon, infra note 3, at 150.  It’s not clear to me whether or not this charge could serve as legal precedent of a sort.  One of these days, I’ll try & run down a copy of the court records from this case (along with Attorney General Speed’s opinion on the matter).

[2] Jean Edward Smith, Grant, at 417 (2001).  Aside:  I see the rule of law had friends back then, as well as now….

[3] John Y. Simon, ed., 15 Papers of Ulysses S. Grant, at 149.

[4] Smith, supra note 2, at 418.

[5] Proclamation of May 29, 1865, 13 Stat. 758

[6] Elmer Otis Parker, “Why Was Lee Not Pardoned?” Prologue, Vol. 2, No. 3 (Winter 1970), p. 181.

[7] Proclamation of Dec. 25, 1868, 15 Stat. 711

[8] Act of June 6, 1898, 30 Stat. 432, Ch. 389

[9] H.R. Rep. No. 94-324, at 6 (1975).

[10] Act of August 5, 1975, 89 Stat. 380.

Reflections on (America’s) Remembrance Day

Posted in Random on 20090911 by Avenging Sword

What was I doing when the planes hit the World Trade Center & the Pentagon?  Honestly…I was asleep.  I’d been up way too late the night before, hanging out with friends while watching “Con Air” for the first time; and, being a grad student with a cushy assistantship, my work hours were a bit more flexible than the standard 9-to-5.  The lady in whose house I was boarding had long since left for work, so I had no notion of what had happened until, perchance, I bumped into a friend in the physics building (where I worked).  As she narrated the morning’s events –  first a plane hit one of the WTC towers, followed by a second plane hit the other, and a third one striking the Pentagon – my thoughts rapidly swung from, “Wow, that’s a heck of an accident,” to “Oh, hell, we’re under attack.”  Then I was on my work computer, simultaneously attempting to 1) gather more info on the attacks, and 2) email my family to let them know I was okay.  I wasn’t the best at keeping in touch under normal circumstances; however, being cognizant of my target-rich surroundings, I figured some reassurance was in order.

Of course, I didn’t get any work done that day.  I don’t think anybody did where I was.  My only other memory of the “workday” was a moment of blinding rage, which in turn bought to mind these lines from “Babylon 5”:

“They deserve no mercy.  Strike them down, follow them to their base and…and kill them, all of them, ALL OF THEM!  NO MERCY!”

Ironically, that recollection served to calm me, as I also recalled the events that (in the B5 storyline) were triggered by that utterance.

Eventually, went home with some friends; for whatever reason, I didn’t feel like being alone at that time.  We watched recycled news footage from the morning all afternoon, while I gradually got in touch with my family & friends.  In most cases, this was routine; but one of my college friends actually worked in downtown Manhattan, and saw the WTC go down.  I was quite reassured to hear her voice….

As for the long-term effects:

1.  Although, intellectually, I’d always understood the importance of the military & national defense, 9/11 brought this home to me.  That said…9/11 didn’t factor into my decision to become a Marine; I’d already decided that over a year prior, and I was simply waiting to finish grad school before enlisting.  9/11 merely reinforced a decision already made.  Indirectly, it did affect the course my life subsequently took, since it’s hard for me to imagine the Iraq war – and hence my deployment to that country – occurring sans 9/11.

2.  Prior to 9/11, my attitude towards the rest of the world was a good deal more cosmopolitan; and I found it easier to see myself as a “citizen of the world”.  After 9/11, my outlook became more nationalist, more unilateralist, more prone to favoring American interests over those of other nations.

3.  My flirtation with neoconservative neocolonialism began soon afterwards.  This was due to several factors:  a) a pre-9/11 encounter with this essay in Parameters; b) the influence of neocon friends; and c) my pre-9/11 belief that the existence of failed states & poverty abroad could be largely boiled down to bad governance.  This infatuation persisted for a couple of years, but started to ebb when I attended several Marine Corps briefings on the Iraqi culture (as a prelude to my deployment to that troubled land).

As for the things that didn’t surprise me about 9/11 (or the aftereffects thereof):

1.  The tactics employed in the attack.  As an avid Clancy fan, who’d read Patriot Games, The Sum of All Fears, and Debt of Honor, I was well aware of the potential threat posed by terrorism, along with the notion of suicide-bombing-via-civilian-airliner.  Indeed, a little over 5 yrs prior to 9/11, I was briefly a member of a Tom Clancy newsgroup, which one day featured an avid discussion of how to defend a city (say, Washington, DC) from such an attack.  Lots of guys with military experience in that NG; and “TC” himself even made appearances on occasion.

2.  Existence of people who hated us:  I’d paid some attention to foreign affairs in the years preceding 9/11; the notion that our foreign policy might generate hatred abroad was therefore unsurprising to me.

3.  I found much of Americans’ response to 9/11 – e.g., desire for retaliation; occasional xenophobia; support for military – unsurprising, given the obvious analogy to Pearl Harbor.

4.  The use of emergency powers:  Unlike most Americans, I’d previously made a hobby of reading about the exercise of emergency powers in previous wars (e.g., Civil War, WWI, WWII), and was therefore unsurprised by the post-9/11 use of such powers by Bush et al.  From early on, my preference was for Bush to obtain Congressional sanction for the use of such powers, in keeping with the examples of Lincoln & FDR.  I found his failure to do so (barely) acceptable, given the possibility that Congresscritters more concerned about civil liberties than security might deny such sanction.

5.  The notion that America wasn’t immune to threats:  I grew up during the tail end of the Cold War, and remember worrying about nuclear war.  The notion that we lived in a dangerous world was hardly foreign to me.  Moreover, while many Americans’ “holiday from history” might’ve lasted a decade, for me it lasted little over a year:  from our victory in Desert Storm, ’till I read “The War in 2020” (which imagined a world wherein America wasn’t on top).  I walked away from that book a bit less sanguine about our position in the world.

…And that’s all I have to say about that.

(*) Besides the obvious, my use of this term is also a reference to Harry Turtledove’s Timeline-191.

In Re Birthers

Posted in Law on 20090909 by Avenging Sword

While I did encounter the “birthers'” strange notions before the election, a brief visit to Snopes was sufficient to disprove them.  (Whereupon I returned to more interesting perusals, e.g., following the unfolding financial crisis with rapt attention.)

It’s worth noting, however, that questions were also raised regarding McCain’s eligibility under the natural-born citizenship clause…and that such questions (in contrast w/ those surrounding Obama’s) managed to provoke a few interesting law review articles.  See here, here, here, and here.  There was also this this post by Solum, as well as this one by Lindgren.

At first, I found it the law reviews’ silence re. Obama’s citizenship noteworthy.  Upon further consideration, however, such silence makes sense:  Unlike with McCain’s citizenship, which does present some interesting legal questions, the question of Obama’s citizenship is one of fact, not law.  If Obama’s birth certificate is authentic, then there’s really nothing worth writing about.

Aside:  I do find it slightly amusing that both major-party candidates in the 2008 election faced challenges under the Natural-Born Citizen Clause.

Extrajudicial Detention, Real & Imagined

Posted in Law, Poli-ticks on 20090902 by Avenging Sword

Were I a “man of the Right”, I’d hang my head in shame upon reading this recent gem from WorldNetDaily (HT Jon Henke):

Rep. Alcee L. Hastings, D-Fla., has introduced to the House of Representatives a new bill, H.R. 645, calling for the secretary of homeland security to establish no fewer than six national emergency centers for corralling civilians on military installations.

The proposed bill, which has received little mainstream media attention, appears designed to create the type of detention center that those concerned about use of the military in domestic affairs fear could be used as concentration camps for political dissidents, such as occurred in Nazi Germany.

Since I’m no such man, the aforementioned excerpt instead merely elicits a chuckle or two.  Particularly when one actually reads the text of H.R. 645, and finds it completely devoid of any provisions authorizing (say) detention of civilians without charge or trial, or suspension of habeas corpus, or the like.

Contrast such silence with the provisions of Executive Order 9066:

…by virtue of the authority vested in me as President of the United States, and Commander in Chief of the Army and Navy, I hereby authorize and direct the Secretary of War, and the Military Commanders whom he may from time to time designate, whenever he or any designated Commander deems such actions necessary or desirable, to prescribe military areas in such places and of such extent as he or the appropriate Military Commanders may determine, from which any or all persons may be excluded, and with such respect to which, the right of any person to enter, remain in, or leave shall be subject to whatever restrictions the Sectary of War or the appropriate Military Commander may impose in his discretion. The Secretary of War is hereby authorized to provide for residents of any such area who are excluded therefrom, such transportation, food, shelter, and other accommodations as may be necessary, in the judgement of the Secretary of War or the said Military Commander, and until other arrangements are made, to accomplish the purpose of this order. […]

I hereby further authorize and direct the Secretary of War and the said Military Commanders to take such other steps as he or the appropriate Military Commander may deem advisable to enforce compliance with the restrictions applicable to each Military area hereinabove authorized to be designated, including the use of Federal troops and other Federal Agencies, with authority to accept assistance of state and local agencies.

…or the statute (*) associated therewith:

That whoever shall enter, remain in, leave, or commit any act in any military area or military zone prescribed, under the authority of an Executive order of the President, by the Secretary of War, or by any military commander designated by the Secretary of War, contrary to the restrictions applicable to any such area or zone or contrary to the order of the Secretary of War or any such military commander, shall, if it appears that he knew or should have known of the existence and extent of the restrictions or order and that his act was in violation thereof, be guilty of a misdemeanor and upon conviction shall be liable to a fine of not to exceed $5.000 or to imprisonment for not  more than one year, or both, for each offense.

…or the Emergency Detention Act of 1950 (**):

SEC. 103. (a) Whenever there shall be in existence such an emergency, the President, acting through the Attorney General, is hereby authorized to apprehend and by order detain, pursuant to the provisions of this title, each person as to whom there is reasonable ground to believe that such person probably will engage in, or probably will conspire with others to engage in, acts of espionage or of sabotage.

(b) Any person detained hereunder (hereinafter referred to as detainee”) shall be released from such emergency detention upon-

(1) the termination of such emergency by proclamation of the President or by concurrent resolution of the Congress;

(2) an order of release issued by the Attorney General;

(3) a final order of release after hearing by the Board of Detention Review, hereinafter established;

(4) a final order of release by a United States court, after review of the action of the Board of Detention Review, or upon a writ of habeas corpus.

…or Proclamation 2525 (***), issued under the authority of the Alien Enemies Act:

Alien enemies deemed dangerous to the public peace or safety of the United States by the Attorney General or the Secretary of War, as the case may be, are subject to summary apprehension. […] Alien enemies arrested shall be subject to confinement in such place of detention as may be directed by the officers responsible for the execution of these regulations and for the arrest, detention and internment of alien enemies in each case, or in such other places of detention as may be directed from time to time by the Attorney General…and by the Secretary of War…and there confined until he shall have received such permit as the Attorney General or the Secretary of War…shall prescribe.

…or the Habeas Corpus Act of 1863 (****):

That, during the present rebellion, the President of the United States, whenever, in his judgment, the public safety may require it, is authorized to suspend the privilege of the writ of habeas corpus in any case throughout the United States, or any part thereof. And whenever and wherever the said privilege shall be suspended, as aforesaid, no military or other officer shall be compelled,. in answer to any writ of habeas corpus, to return, the body of any person or persons detained by him by authority of the President; but upon the certificate, under oath, of the officer having charge of any one so detained that such person is detained by him as a prisoner under authority of the President, further proceedings under the writ of habeas corpus shall be suspended by the judge or court having issued the said writ, so long as said suspension by the President shall remain in force, and said rebellion continue.

Of course, Corsi’s paranoid musings are vaguely reminiscent of those executive order lists that (still!) float around the web, and which purport to have uncovered secret plans for dictatorship in the bureaucracy’s attempts at post-nuclear-warfare disaster-management planning.  I remember once reading one of those lists back in the day, and then being underwhelmed by the actual text of the cited executive orders.  I am similarly unimpressed by Mr. Corsi’s allegations.

Then again, perhaps I’m just overly naive….

(*) Act of Mar. 21, 1942, 56 Stat. 173, formerly codified by 18 USC 1383

(**) Act of Sept. 23, 1950, 64 Stat 987, 1021 et seq.

(***) Dec. 7, 1941; 55 Stat. Pt. 2, 1700

(****) Mar. 3, 1863; 12 Stat. 755