YOU CAN'T BREAK A CONTRACT? OH YES YOU CAN

AN ESSAY

Yesterday I satirized AIG’s Financial Products Executives for receiving colossal bonuses from government bailout money despite their active roles in ruining the economy last year. Two days ago, the New York Times revealed that AIG executives received over $165 million in manager bonuses. Although that amount pales in comparison to the $150 billion allotted to rescue AIG, it is the insolence that offends. At a time when most Americans struggle to find work in a toxic economy, these rapacious executives award themselves huge bonuses with government money intended to help the weak. It is something akin to stealing welfare money to buy a yacht. Yet here we see the institutional problems associated with the government bailout plan. We have given out so much money to so many private companies. Obviously we cannot account for all of it. And private companies are private companies; we cannot rightly be shocked that some executives will “take a little extra for themselves.” For wealthy corporate leaders, money is the ultimate temptation. Put them in a room with money and they will not keep their hands off.

But I do not write today simply to criticize rich corporate people. I enjoy doing that, but I recognize that it can easily descend into shrillness. Rather, I want to address a more troubling legal aspect to this bonus boondoggle: The contract issue.

Who allowed AIG executives to receive their bonuses at a time like this? Did anyone consider how bad it looks to hand government bailout money to wealthy executives, especially the ones who created the problem in the first place? Why is government allowing this? Yesterday, President Obama reacted to the outrage over the bonuses by swearing to stop the payments. But a different administration spokesman said he could do nothing to stop the payments, because AIG was “contractually obligated” to pay them. Lawrence Summers, Obama’s Director of the National Economic Council, said: “We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system.” In other words, as wretched and tasteless as the bonuses may be, the government could do nothing, because these executives signed contracts with AIG last year, and now AIG must pay the bonuses. After all, according to Mr. Summers, we are a “country of law,” and a “country of law” does not intervene to break promises made between two private parties.

I beg to differ. Our “country of law” enforces contracts between private individuals by sovereign grace. Courts may weigh legal fineries in order to determine who owes whom what. Indeed, scholars and jurists have penned endless tomes concerning the ornate technicalities of individual contractual obligation. But in the final analysis, a judge’s words mean nothing without the sovereign’s sword to enforce them. For example, a company may promise to deliver 40,000 tons of steel in return for another company’s promise to pay $40,000,000. If the selling company fails to deliver, the aggrieved buyer can go to court and sue for contract breach. He may obtain a judgment entitling him to money damages or specific performance. In other words, the law fully supports the buyer’s position. But once the judgment issues, it falls to the sovereign to force the seller to pay money or deliver the goods. If the sovereign says: “I will not enforce this judgment,” the buyer has no remedy. In this example, we see that contract law means absolutely nothing without brute executive force. In reality, the executive overwhelmingly enforces legal decrees involving contracts because it wants people to feel assured in their bargains. Yet that does not change the fact that the executive retains the final discretion whether to enforce a contractual obligation. After all, the law deals with compulsion. No one feels compelled to do anything unless a stronger party puts a gun in his face or twists his arm with sufficient strength. The executive has the guns and the arm-twisters. Without it, courts mean nothing.

Mr. Summers said: “There are contracts. The government cannot just abrogate contracts.” Yes it can. If President Obama really wanted to, he could stop the payments to AIG’s executives. True, he would face enormous opposition from lawyers and jurists, but as a practical matter, he has the power to interfere with private contracts. Courts would rule in the executives’ favor. If AIG refused to pay the bonuses, the executives could sue AIG for breach; and they would win. After all, the law favors vested contract rights; and vested contract rights favor those with superior bargaining power. But after the executives win, they would have to turn to the executive to force AIG to pay. Here, President Obama (or his State law counterpart: The Governor of New York) could intervene. He could order the Sheriff to stand down and refuse to enforce the Court’s judgment against AIG. At that point, the executives would probably try to sue the executive on constitutional grounds. They would argue that the President’s action deprived them of “property” without Due Process under the Fourteenth Amendment, or that the State Governor’s action “impaired the Obligation of Contracts” under Article I § 10. The Supreme Court would probably agree with the AIG executives, since Chief Justice Roberts and his Republican majority invariably support business and contract rights. Again, however, the Court would have to turn to the executive to enforce its long-winded legal reasoning. Do you think the executive would take action against itself? Of course not.

This is not as radical a position as it sounds. There is precedent to support a President’s refusal to heed the Supreme Court’s conclusions. In 1832, the United States Supreme Court held unanimously that President Andrew Jackson could not relocate the Cherokee Nation to Oklahoma from its ancestral home in Georgia and Tennessee. Worcester v. Georgia, 31 U.S. 515 (1832). The Court reasoned that the United States entered into a treaty with the Cherokee, and the treaty forbade such territorial incursions. The President said: “John Marshall made his decision; now let him enforce it!” Jackson sent an army into the Cherokee Nation and evicted the natives from their homes. The Supreme Court’s judgment had no practical effect, even though the law favored the Cherokee. This example shows how a determined executive can utterly ignore judicial pronouncements, even if he acts contrary to law. Again, we see that law depends on force, and only the executive controls State-sanctioned force. If the executive wants to ignore the law, there is little the other branches can do. Congress could try to impeach the President. But impeachment has less to do with the law or the Constitution than with political favoritism. If the President has enough allies in Congress, he will not face impeachment. Andrew Johnson faced impeachment in 1867 because a Republican majority in Congress detested his Reconstruction Policy. Bill Clinton faced impeachment in 1998 because a Republican majority in Congress did not like him as a person and because he was a Democrat. Neither President committed a gross infraction against the Constitution; politicians in Congress simply did not like them.

President Obama enjoys immense support in Congress. Nancy Pelosi and the Democrats would never take action against him if he intervened to stop bonus payments to AIG’s executives. In fact, such a move would be entirely consistent with the President’s mission to “clean up Wall Street.” The AIG executives would whine and moan and wave the Constitution in the air. But Presidents must think beyond the law. President Obama is trying to rebuild trust in an economy that nearly destroyed itself through avarice. Men like the AIG executives are prime suspects in this meltdown. While those executives technically hold enforceable rights to bonuses under established contract law, this is a case in which the law stands at odds with historical circumstances. If contract law simply functions “according to plan” in these circumstances, the men responsible for destroying the economy—and triggering the bailout—will actually receive a windfall at taxpayer expense. In other words, these men would not have gotten any bonuses if AIG collapsed last year, but because they acted wrongly, they prompted a government bailout. And now the bailout lets them get their bonuses. This is a perverse result; but it is also the legal result. I argue that the President has discretion to set aside “normal legal procedure” when “normal legal procedure” would fatally undermine public confidence in the entire system. This is precisely such a case.

Process-minded legal theorists will undoubtedly disagree with this approach. They will argue that legal rules—especially contract rules—can never be relaxed, no matter how ridiculous (or even ironic) their consequences. Contract rules are intended to provide predictability and reliability in commerce, and if the government denies their effect in one case, then commercial men will never again take chances because they will never know whether the State will uphold their bargains. In this case, they would say that AIG must pay the executives’ bonuses because “bargains are bargains,” and our economy depends on confidence that the law will honor every private bargain. Process theorists would likely agree that it looks terrible to pay bonuses to men whose conduct caused the economic crisis, but they would say that maintaining faith in legal process is more important than averting a perverse result.

I do not eschew legal process. It plays an essential role in our constitutional order. But I venture that blindly following legal rules in every circumstance is more dangerous than making prudent exceptions when real crisis beckons. Today, we find ourselves in a unique moment. Never before has government so massively intervened to prop up private enterprise. This is a new adventure for government, and it will not succeed unless the People have faith in its purposes. If the economy collapses, neat contract rules will mean nothing. To that extent, maintaining public trust in government action should be the President’s foremost concern. The public rightly loses trust when it sees scoundrel executives taking government money to pay for their bloated bonuses. Although the executives may have contractual rights to their money, honoring those rights may do more harm than good to the overall recovery effort. I argue that maintaining public trust in the recovery effort takes precedence over private contract rights in these limited circumstances. If the recovery effort fails, everyone loses. But if the government stops AIG executives from receiving their bonuses in this unique case, only those few men lose money they do not even need. Balancing those harms against each other, I conclude that the President should refuse to enforce the executives’ contractual claims for bonuses. I am strengthened in my conclusion that the executive has even greater discretion because the AIG managers would not even have been in the position to receive bonuses if the government had not supplied the bailout money to pay them. He who pays the piper calls the tune, and in this case, that means the government can impose some restrictions on pre-existing contract rights.

There is nothing sacred about contract rights. Government compels private parties to adhere to their contractual obligations because that is the most efficient policy for society, not because some magical force animates private promises. Commerce functions best when people do what they promise. But there is nothing intrinsically good or noble about contracts. They function by sovereign grace, not a priori principle. Thus, there is no fundamental truth to the assertion that “contracts are contracts.” Contracts are valid only to the extent that the executive is willing to enforce legal decrees. And the executive has many duties beyond enforcing private contract judgments. Today, the executive confronts a massive financial crisis that threatens countless Americans. It is attempting to redress that crisis through bold, general action. That general action will inevitably impact some specific rights.

President Obama should not miss the forest for the trees in this situation. He can deny effect to these executives’ contracts without undermining faith in contract law as a whole. I think most Americans would understand his reasons if he did exactly that. Permitting the executives to benefit from government bailout money in this case sends a far worse social message than interfering with a particularly unjustifiable private bargain. After all, these bargains would have meant nothing if the government had not supplied the money to honor them. In that light, can the executives really complain that the government modifies those bargains?

These scoundrels are still getting their massive salaries. They still have homes, high-paying jobs and nice things. That is a whole lot more than most people have as they struggle to cope with this crisis. Frankly, their whining about “contract rights” falls especially flat when I consider just how many other advantages they enjoy. In a crisis like this, government must make exceptions that will anger a few private interests. That does not mean the government does not care about the law. In fact, sometimes a government best preserves faith in the law by refusing to apply it in cases in which it arouses public disgust. This is exactly such a case.

THANK YOU LETTER FROM AIG EXECUTIVES TO PRESIDENT OBAMA

Dear President Obama,

My name is Mr. Herbert F. Lessmann. I am a Senior Fund President in American International Group’s (AIG) financial products department. Although AIG is primarily an insurance company, in recent years we built a solid reputation consolidating loans and other financial products for industries worldwide. Unfortunately, last year we discovered that our collateral was not as robust as we would have liked and our entire business almost collapsed. Thankfully, the Federal government intervened to keep our company afloat. With the Federal money, we once again have resumed issuing credit-default swaps and other financial products intended to stimulate capital growth in a new economy.

Federal money also helped award me a $9,500,000 bonus for 2008. True, my fund caused millions of private owners to lose their homes in the subprime mortgage debacle, but I am a skilled financial manager. AIG’s Board of Directors knows top performers when they see them, and I am no exception. Under company contracts I signed in early 2008, the Board promised to pay me a bonus if my fund sold at least 120,000 financial products in Fiscal 2008. My fund sold 121,107 financial products in Fiscal 2008. For that reason, the Board was obligated to pay my bonus. At one point late last year, it appeared that the company would fold and I would not get my bonus. But then the Federal money came in, and now I will get the bonus I deserve. I worked hard for that bonus. Mr. President, thank you so much for allocating the funds needed to reward me for my hard work on behalf of American families.

I am so glad that I received my bonus. For a while, I was genuinely nervous that I would only receive my annual salary of $4,000,000 in 2008. My wife was especially concerned because she is redecorating our kitchen, and she was counting on my bonus to bring in the best marble cutters from Italy to get the job done. Additionally, my son has been bothering me about buying him a new Lamborghini. His friends at Whipporwhill Academy have been teasing him about it, and it’s only fair that he gets what he wants. After all, he got a C+ in biology, and I promised I would buy him any car he wanted if he got at least a C in that class. Promises are promises, and contracts are contracts. How could I go back on my word? How could I not honor my obligation to my son? Mr. President, thank you very much for allowing AIG to honor its obligation to me, and for allowing me to honor my obligations to my son and wife. We will put that money to good use.

Your administration is doing a great job. You understand that America’s companies need great managers, and great managers do not stay at their jobs without great bonuses. Although I disagree in principle with government bailouts, I have no objections when government bailouts are necessary to pay my bonus. I voted against you in the November election, Mr. President. But since then I have come to see my error. You said that you wanted to treat “Main Street” as well as “Wall Street.” However, I know now that you are not some closet communist. You knew that taking care of Wall Street actually takes care of Main Street, too. When you took care of me, you ensured that I would keep doing my job for American homeowners everywhere. I need a $9,500,000 bonus because I am worth it. I sell mortgage-backed securities and credit-default swaps to banks all over the world. I enable people to get rich and live in dream homes. True, the economy collapsed last year, but that was not my fault. I am no Bernie Madoff. I never stole from anyone. I just tried to help people make more money than they already had.

My bonus money will go to good use. Because you helped me get my bonus, I think it’s only fair that I tell you what I plan to do with it. First, I will put about $2,000,000 in my personal medium-yield money market. Then I will put another $1,500,000 in my kids’ special trust fund so they can buy things they want while I am at work. Third, I will take $1,000,000 and go on a nice month-long vacation with my wife in Maui. That will be very nice; I need to relax after all the anxiety about my bonus. Not only that, vacations help me stay focused. American homeowners need me to be productive in order to help them make money. Next, I will take $2,000,000 as a down payment for my daughter’s new home in Manhattan. She can’t live just anywhere; I need to find her a place on Park Avenue on the Upper East Side. I can’t worry about my daughter. With the remaining $3,000,000, I will buy my son’s Lamborghini and pay for my wife’s kitchen renovation. That will leave some cash for jewelry, new suits, antiques, maybe an armchair and a sofa. It all depends on what my wife wants to do.

You know what you’re doing, Mr. President. Money spent on executive bonuses is always money well spent. After all, our economy depends on men like me. We know the ups and downs. We don’t get frazzled every time the DJI drops a few hundred points. We stay in there and sell our products, come hell or high water. We are financial experts and we have hard lives. It is not easy to manage the fortunes of millions of Americans. We are more important to the average American than religion or mental health. We make money for people, and money creates jobs. To that extent, we deserve every penny we make. If we do not receive bonuses, we will not be able to rescue our economy. In these dark times, our economy needs bold business leaders, not defeatists. And bold business leaders do not work for small-time pay. It would be unfair to us and to the American people if we do not receive the bonuses we deserve. Well-paid executives do what is right for America. By paying us well, you guarantee a better future for America. That is what the President is supposed to do, isn’t it?

In sum, I was wrong about you, Mr. President. You are not some bleeding heart socialist who wants to provide top-notch medical care to beggars and criminals. No, you spend money where it should be spent: On executive compensation. Against all opposition, you earmarked funds intended to save AIG from destruction. In the process, you paid the executives who make this country run. That is a bailout in the word’s truest sense, because when we get our bonuses, everyone survives. I can promise you that our economy will recover. I can also promise you that I will really enjoy the money you gave me. Have you ever received a $9,500,000 check for talking on the phone, sitting in conference rooms and looking at computer screens for a year straight? Let me tell you, it feels good. Really good. I know you probably like your job, but you don’t get $9,500,000 every year in addition to a $4,000,000 salary. Well, to each his own.

I know that people will give you a hard time when they hear that I received my bonus. Don’t listen to them. You know that fixing the economy begins with paying the important guys. People will say that it’s wrong to reward men who got us into this pickle in the first place. All lies. We did no such thing; there is no way we could have predicted that the economy would fall apart last year. Risk comes with our trade. The market rises and falls. Does that mean we should not get paid for putting our necks on the block every day? Of course not. We drive the economy because we take risks. If we did not take risks, no one would succeed. No one wins when everyone plays it safe. People want winners, not wet noodles. Sure, we invested in some risky mortgages, but our clients wanted big returns. And you can’t get big returns without taking some chances. We get paid because we take the risks that everyone wants us to take. You understand that. You understand that we need bonuses to feel good about our work, whether we win or lose. We are risk-takers. We deserve high pay for that. Consider it hazard pay. Put simply, Americans don’t want wimps controlling their financial lives. They want brazen, sword-swinging, throat-cutting financial swashbucklers who go for the treasure chest, not the penny pouch.

That is what we do. We go for the treasure chest. When we get the booty, everybody gets some. And no one complains when the market is good. When we receive bonuses, we stay hungry. When we’re hungry, we swashbuckle for America. You know that, Mr. President. That is why you guaranteed that we received our bonuses this year. Swashbucklers don’t swashbuckle for free. America needs us. You need us.

Thank you very much for paying our bonuses. Good luck during the rest of your term.

Sincerely,


Herbert F. Lessmann

Senior Fund President, American International Group
Financial Products Department
The Billion Bunch® Honorary Key Holder 2007

OWN A HOME? PAY LESS FOR CAR INSURANCE

OESTERHOUDT STRIKES

I do not typically watch television. I have two reasons for this. First, I do not like most programming. I just do not have much interest in watching people fight alligators for cash prizes, strive to become famous singers while enduring brutal public humiliation, repair their homes on a limited budget or learning about Brad Pitt’s current whereabouts. It just does not interest me. On the other hand, I do like watching documentaries and some news channels. For the most part, I get my news from prowling several different national and international sources on the internet, but sometimes it is refreshing to watch an American newscast.

Second, I do not generally watch television because I absolutely detest advertising. I have written at length about advertising. I call it “the language of commerce,” and I despise it for that reason. When I can, I shut my ears to it. Advertising appeals to as many human senses as possible. It attempts to implant impressions in the human mind. Only human sense can lead to human impressions, and advertisers know that they have a better chance to make impressions when they can appeal to several human senses at once. Television provides them an opportunity to appeal both to sight and hearing. For that reason, advertisers wheel out their best efforts for television audiences. After all, they stand a better chance to stand out in a viewer’s mind through television than they would if they merely put up a two-dimensional billboard on a highway. Television allows the advertiser to directly target a listener in his own home both with memorable sights and sounds. Advertisers also know that their listeners are voluntarily sitting there watching a program they want to see, so they will be hesitant to change the channel. That indirectly forces them to watch their commercial message. In short, there are few better ways to make an impression than to use television.

If I want to watch television, I use TIVO. I locate the programs I want to see, then I record them. When my schedule permits, I replay the recordings and skip the commercials. It is wonderful. And it makes me feel good to deny advertisers their chance to influence me. I have always relished opportunities to spite powerful interests. Muting advertisers is one way to accomplish that goal. I do not allow them to dictate what will be said at a particular moment. I choose what I want to hear, not what they want me to hear.

But it is really not so revolutionary as all that. In fact, I do not like most advertising because it is incredibly petty. So you’re selling a Sham-Wow “shammy” dishrag? That’s wonderful; I don’t give a shit. So you’re selling an industrial strength stain remover for only $14.95 plus shipping and handling? Great, I don’t need an industrial strength stain remover, so I really don’t give a shit about all the carpet-cleaning antics designed to impress me. So you’re selling an erectile dysfunction drug? That’s fine, but my erectile capacities are naturally sufficient, so I don’t give a shit about the drug’s side effects, or the grayed fiftysomething actor who comes on screen to tell me how much the drug improved his late-middle-aged sex life. There is a commonality at work here: Selling things about which I don’t give a shit. When I engage in commerce, I know what I want. I go online and buy it. I don’t need a sales pitch or a misleading gimmick to sway my undecided mind. And should I really be undecided when it comes to buying a dishrag? These are not the kinds of things about which to feel morally divided. You buy or you don’t. It is not complicated.

Yet advertising irks me for a more subtle reason than simple pettiness. Advertising also makes normalizing assumptions. It makes moral judgments as well as financial ones. Through its commercial appeals, it condescends. The new Progressive Car Insurance advertising push provides a ready example. In it, a sprightly, dim-witted insurance saleswoman—who allegedly “loves her job”—answers questions about the company’s insurance products. She asks the prospective buyer whether he “likes discounts.” “Who doesn’t like discounts?” he answers. Who indeed doesn’t? In commerce, you want to spend less money, not more, and discounts cost less than full prices, right? Then the saleswoman recites a whole list of characteristics that qualify insurance buyers for discounts. “Are you a safe driver?” she asks. “Yes,” responds the buyer. “Discount!” she says with a giggle. “Are you a homeowner?” “Yes,” responds the buyer. “Discount!” she says with a louder giggle. In the end, the company logo appears along with a phone number to call. After all, what good would a commercial message be without information about how to buy?

Why did this advertisement bother me? It bothered me because it makes morally normalizing assumptions about people. In essence, Progressive offers “discounts” to people who do not get in accidents and who own homes. In other words, only “responsible” people get to pay less. “Irresponsible” people have to pay more. Is this fair? After all, it falls in some measure to good fortune whether a person gets into a traffic accident. Drunks slam into the best drivers sometimes, whether or not they drive the speed limit. But what about owning a home? Can a poor person really control whether he owns or rents? It takes a lot of ready money and credit to buy a house. Millions of people cannot afford a home. Millions more have credit problems, and not always because they are irresponsible rogues. They have to rent. Yet according to Progressive’s implicit moral judgment, these people are “irresponsible” and they do not deserve a discount.

Am I “irresponsible” because I can’t afford to put $45,000 down on a house? I am so crushed with education debt that I can barely scrape an additional $400 together at any particular time, let alone $45,000. Does this make me “irresponsible?” I don’t get a discount because I don’t “own?” I am just a scumbag renter, huh? That is what Progressive is saying, whether or not they know it. This bothers me because here advertising goes beyond mere attempts to seduce a new buyer. Instead, it passes judgment on people for forces beyond their control. I can deal with pettiness in advertising, but when advertising starts branding me “irresponsible” because I can’t afford to buy a house, I get upset.

Yet this is commerce. It both implies and requires inequality. There are those blessed with money and those not so blessed. There are those who own and those who rent. Some people make $100,000 a year; others make minimum wage. There are those who inherited prosperous family businesses and those with impecunious fathers. Those fortunate enough to have lived relatively stable lives with jobs and salaries can buy homes and get special treatment from the car insurance company. Those who struggle enjoy no such special treatment. Meanwhile, they hear about the special treatment that “responsible” get and they feel worse about themselves because they do not “own.” Nobody likes knowing they are inferior.

I find this significant because commerce involves more than mere buying, selling and talk about buying and selling. It represents a moral perspective, too. It represents a value code premised upon property ownership. People who win success in commerce have particular values; they are “responsible.” Like any moral system, those who follow it look down upon those who cannot fulfill its mandates. But is it fair to look down on someone who cannot achieve commercial success? Today, it is not easy to win in commerce without good fortune and a substantial head start. It is virtually impossible to be a “self-made man” anymore; there is just not enough property to go around. It is already taken. According to prevailing rhetoric, education opens the way to success. Yet for most Americans, debt is the only way to education. And debt constricts freedom: In the end, who can afford to buy a home when he owes thousands every month to loan creditors? More to the point, how can a debt-ridden person afford to buy anything extra? Many people would love to fit the advertiser’s criteria for “responsibility,” but for one legitimate reason or another, they cannot. In my view, failing to meet impossible criteria does not warrant an advertiser’s moral judgment. It is simply unfair to hold people accountable for failings over which they had no control.

In sum, advertising does more than bore me with talk about worthless trinkets and drugs. It condescends toward me with normalizing judgments about “responsible living.” I cannot escape commerce. To some extent, we are all economic entities. I simply choose to do my own research about my material needs. I would rather not hear a biased pitch about a product I do not want from someone who stands to gain from selling it. And I certainly do not want to hear moral judgments mixed in with crass solicitations to buy.

VLADIMIR PUTIN ON CHRIS BROWN

СЕГОДНЯ ИЗ МОСКВЫ

By : Vladimir Vladimirovich Putin, Acting Prime Minister of the Russian Federation; Former President of the Russian Federation; Former Agent, KGB; Bold Russian Unafraid to Show Chest to United States

Зтот Крис Браун мне совсем равен. This Chris Brown means absolutely nothing to me. For some reason, the American press wastes valuable time reporting about this—do I say this correctly?—“R/B Star.” I am worried about Georgia, Poland and Czech missile defense program. But these Americans blather about this criminal boy who strikes women? This happens every day in Russia. If the man hurts the woman, the police come and arrest the man. He apologizes. Then he goes home and drinks vodka. End of story—конец истории. We have more important matters to discuss.

What is the big deal with this singer of Pop song: “Run It?” So the Americans like to dance to this so-called “khip-khop” music? Is this so important? What about the Imperialist War they wage in Iraq and Afghanistan? Is this “Run It” singer more important? In Russia, we worry about significant matters. We are currently conducting oil exploration in the Arctic Sea and in Siberia. We talk about rebels in Chechnya in our news, not about people named “Chris Brown,” “Rikhanna” and “Paris Khilton.” We even talk about our ill grandfathers and uncles who sit all day in a drunken stupor. Yes, our youth in Russia likes the “khip-khop” music—they even dance to this “Run It” song under Russian name “Быстро Бегать с Этом” (“Quickly Running With It”)—but we do not waste valuable State news service time talking about men who bitch-slap. It is completely incomprehensible to the Russian mind.

I am curious to see what happens with new American President, Barack Obama. At present, he has said nothing about Russia. Does he want to restrict our oil-gathering activities? Is he going to pull a Condoleeza Rice on us and say we must be peaceful? This Bush made me laugh. He said Russia had no right to invade Georgia in order to protect our borders because it is no longer 1968. I said: “You are right; it is not 1968. But it is quite close to 2003, the year you invaded Iraq in order to protect your borders.” What goes for you goes for Russia, Mr. President. Thankfully this new President Obama has focused his energy on problems at home. This is what the President Bush should have done. Instead, he wasted all resources on foreign adventures. He even made me angry and I threatened to aim nuclear weapons at Poland. What an idiot. This Bush said he could “look into my soul” when he met me at a Ranch in 2001. To be blunt: О моей душе вы ничеґо не знаете—about my soul you know nothing. In fact, you know nothing about many things, dear President Bush.

Here in Russia we consider important questions. But in America you talk about Chris Brown. What is the meaning of this? During Cold War, you spoke about spying and nuclear submarines. Now you speak all day about Rikhanna and Chris Brown. You pose serious questions about whether this young “khip-khop artist” should face criminal charges for hitting a woman. Is this important State policy? Shouldn’t you be asking what we Russians are doing? Yes, we would like to be your friends if you treated us with respect. With new President Obama, you have chance to normalize relations with Russian Federation. But no, you would prefer to talk about “khip-khop Star” and private college youth basketball tourney. Этоґо я не понимаю—I don’t understand it. I suppose you can talk about whatever you want, but if I were U.S. President, I would be thinking about European alliances and oil reserves, not Chris Brown and his big gold chains. So what he did not appear at Grammy’s? Is this important State business? And so what about Rikhanna? She is cultural ambassador to Republic of Barbados. Is American relationship with Barbados more important than relationship with Russian Federation? Какую глупость я никогда не увидел—such stupidity I have never seen.

Сейчас у меня идея—Now I have an idea. While you Americans fixate your attention on March Madness and Chris Brown, I will instigate actions in Ukraine and Poland. I understand also that Latvia, Lithuania and Estonia express interest in rejoining the Russian Federation. While you Americans talk about Rikhanna and “khip-khop Stars” who dress in oversize sport T-Shirts, I will quietly move into Belarus, Georgia and Kazakhstan. After all, you are too concerned about Chris Brown to worry about what Russia is doing in Central Asia. With luck, you will not even notice when I move nuclear weapons closer to the Polish border. What do you care about Poland? You would rather talk about spring training baseball and new Justin Timberlake MTV premiere.

I am pleased that I no longer have to deal with President Bush. Although he supplied me with many opportunities for jokes, it really got to be bothersome dealing with him and the Condoleeza Rice after a while. It is, after all, difficult to speak with people of low intelligence who take instructions from Baptist Church instead of reason. This Obama will be more interesting. He is an educated man. He is a lawyer, not a failed oil excavator who later found religion. I, too, am a lawyer by trade. Perhaps I will see this man in a better light than his predecessor. I do not know yet. He says he wants to reform American free market system. Here in Russia, we have free market system with some modifications. This Obama probably will not like our modifications. And he probably will not like the fact that we now increase the size of our Armed Forces. Who knows what he will do. I will simply look at him suspiciously. I look at everything suspiciously. Just look at my eyes. I trust nothing and no one. Я просто подосрителный человек—I am just a suspicious person.

In a way, I am thankful for this Chris Brown. He gives me now opportunity to consolidate my plans in Georgia, Eastern Europe and in the Arctic. The less interference I receive from United States, the better. Let the Americans worry about Rikhanna’s face and Chris Brown’s prison term. They can listen to the “khip-khop” song “Run It” all they want while I move soldiers into Kiev and Riga. Americans are easily distracted. I will take advantage of their distraction to restore Russia to its rightful place. Soon there will again be two superpowers, not just one. As long as the Americans waste valuable resources talking about Chris Brown, Russia will grow stronger every day.

Благодарю Крису Брауну—thank you, Chris Brown. You have no idea how important you are to the geopolitical fortunes of the great Russian Federation. From the Kremlin, I say again, thank you. Your complete insignificance will actually prove significant for Russia.

PRIVATE ENTERPRISE UNITED FOR A MILITARY RESPONSE TO OBAMA-ERA REGULATIONS

By : Mr. D. Albert Ludlow, M.B.A, M.S.; Chairman and Chief Executive Officer, Wellman Pharmaceutical Solutions Co., Inc., a Fortune 500 Company

Private enterprise means prosperity for all. Our free market system rewards the strong and passes their hard work on to everyone else. Although we believe in democratic ideals and equality, we do not believe that everyone should possess equal advantages in this country. There are owners and there are renters. There are debtors and there are creditors. There are payors and there are payees. The playing field is not exactly equal. And there is nothing wrong with that. After all, no one would work hard if the goal were merely to be “equal” to everyone else. In the free market, men work in order to become unequal. Why toil harder if you reap no special reward for your efforts?

For over two centuries, the United States has thrived as a free market economy. True, our economy has endured difficult times. But we have always prevailed because we retained our essential free market identity. Even after the government began regulating private markets in the 1930s, our free enterprise system has remained largely intact. Individuals and private corporations still own the essential means of production and distribution in our economy. Individuals and private corporations still provide most professional services. And individuals and private corporations still compete with one another to guarantee the best quality and lowest prices for the buying public. All the while, individuals retain their incentive to work hard and advance, because they know that our system will reward them for beneficial activity.

Things changed in 2008. During a seasonal economic downturn, Americans lost their nerve. Due to failures in the banking, securities and housing markets, Americans began clamoring for increased government regulation. In a dramatic move, they elected Barack Hussein Obama, a radical black man determined to bring “change we can believe in.” Now, he threatens to undermine our free market system with crippling government intervention. He threatens to buy out struggling banks and impose oversight on all the others. In essence, he intends to reduce our economy to State control. The American people blindly play along. Obama says he means no harm to the free market. We are not fooled; we see the danger. We will not let Obama succeed.

Our free market system follows a cyclical pattern. There are good times and bad times. Private enterprise responds to supply, demand and world market pressures. Inevitably, these variables at times combine to depress economic activity. If there is not as much oil one month, oil prices will increase. If there are too many lawyers, lawyers will have a hard time finding work. If companies do not have enough money to maintain healthy returns for their investors, they will not hire more employees. Private enterprise answers immediate needs; and needs are not always immediate. To that extent, our system necessarily ebbs and flows. We have always weathered the hard times. In 2008, we encountered another hard time. Yet unlike past recessions, this time Americans lost their nerve. Rather than trust private enterprise to bring America through the storm, they elected a President who wishes to scrap the entire system. Americans said they do not want the recession/boom cycle any longer. This was a grave error. And President Obama has no idea what he is doing—or whom he is crossing.

President Obama believes he can just waltz into Congress and pass massive initiatives that take power away from private enterprise. He thinks he can subject major companies to oversight and control their day-to-day affairs. He thinks he can cap salaries and seize our property at will. He thinks he can redistribute our products to people who cannot pay for them. He thinks he can entice us with government funds. He is wrong on all counts. President Obama will not regulate us. He will not force us to comply with horrific paperwork requirements. He will not force us to pay more taxes or cede our products without compensation. He will not force us to pay our workers more or provide them with costly health insurance. And he will never seize our facilities. We know what’s coming: Interventionist Socialism. We will never cooperate. We will never surrender.

President Obama, we are Private Enterprise United for a Military Response to Obama Era Regulations. United we stand. We say this: “You can regulate us—but you’ll have to kill us first.”

For too long, government has enjoyed a monopoly on military power. Yet private enterprise provides the wealth that sustains government. Without private enterprise, there would be no factories to build bombers, tanks or rifles. Without private enterprise, there would be no nifty body armor, helmets or even uniforms for the troops. The government buys all these things from private businesses. Every piece of every Abrams tank comes from a private contractor. Do you think private contractors are going to sit down and be regulated? Certainly not. Private enterprise will unite to stop Obama’s tyranny. We have the wealth. We have the money. To build an effective army, all you need is money. And with an effective army, no one can tell you to do anything. They can try, but they won’t get away with it without a fight.

We intend to establish private armies to resist Obama’s tyranny. For example, the pharmaceutical industry will pool its resources to purchase attack helicopters, anti-tank rockets and Bradley fighting vehicles to protect its operations. We have enough money to buy military equipment at market prices. And we have enough money to lure trained military men away from the United States Armed Forces. If a Master Sergeant earns $1,000 weekly in the Army, we will offer $4,000. If a Captain earns $1,100 weekly in the Army, we will offer $6,500. This is legitimate business competition. We are confident that Army personnel will make reasonable economic judgments and fight for us. Once we raise our private armies, we will welcome President Obama’s efforts to inspect our premises and take our land. We will welcome the President’s efforts to tax us. Go ahead and raise taxes. We will not pay. Come and collect: And you had better bring a few regiments of infantry with you, because we are not budging. This is war.

Industry should be allowed to purchase anything it wishes. If a business can afford an F-16 fighter, it should be allowed to buy it. If a business can afford a squadron, it should be allowed to buy it. We refuse to submit to governmental regulations concerning what we can and cannot buy. This is pure meddling. If a person can afford something, he should be allowed to pay market price for it. In the free market, reasonable men should be allowed to bargain for whatever they wish. Yet Obama presumes to interfere with our judgment and steal our property. He presumes to prevent willing buyers from bargaining with willing sellers. He presumes to modify our contracts and tax our sales. Worse, he spends the money he steals from us to pay for free health care and food stamps. We could have used that money for capital investment, job creation and year-end bonuses. But Obama snatched it and used it for Medicaid. That is not free market sense. That is socialist lunacy.

We have a simple message for the President: If you want to reform the free market, you will have to fight us for it. In the past, we grudgingly acceded to new government regulations in particular markets. But this is getting out of hand. Government-owned banks? Burdensome filing requirements? Oversight and accountability requirements for hospitals, pharmaceutical companies, car manufacturers and utilities? Whatever happened to private autonomy? Obama seems to think that we cannot be trusted to protect the people. He can think what he wants; now let’s see him try to impose his new regulations. When the IRS man comes calling, our private army will block the doors. If the IRS man tries to arrest a company officer for tax evasion, we will order our troops to open fire. We are confident that the U.S. Army will not follow the President’s orders. After all, virtually every trained soldier will have found better employment opportunities in our private armies. Private enterprise always finds a way. And it will not accept commercial indignities any longer.

Some say that the U.S. Armed Forces will not respond to our employment offers. They say that some soldiers love their country and would prefer to fight for honor than higher pay. True, there are probably soldiers and officers in our Armed Forces who genuinely love the idea of national service. But we believe there are more soldiers and officers who love money. In that light, if the Armed Forces ever came into conflict with our private armies, we are confident that our armies would win, because people who love money outnumber those who love their country. Furthermore, arms contractors will more willingly do business with us, because we will pay more competitively than government buyers. With time, we will own all the military hardware; the government will be stuck driving yesterday’s models. To that extent, let Obama think that he can outgun us. He is wrong: We will outgun him.

This may all sound belligerent. Although we are determined to resist Obama’s regulations by military means, private enterprise does not want war. We want peace. Peace guarantees orderly commerce and healthy profits for all. Peace guarantees safe transit for goods and a safe environment for professional services. Consumers need peace in order to shop; no one can purchase beachfront property or a new television when bullets fly and bombs fall. As private businesses, we just want to do business as usual. We want a stable environment in which to develop and market our products. We want the opportunity to provide consumers with the best possible value for their money. And we want to be able to live the American dream. We want our hard work to matter again. We want to enjoy our money, go on vacation and buy condominiums for our children. We are sick and tired of government’s greedy hands rifling through our just rewards. To achieve these goals, we must resist force with force. While we shrink from military action, we believe it is the only way to stop Obama’s socialist regulations.

You should care about this issue because it affects you. You don’t want government bureaucrats telling you how much money you can earn, do you? You don’t want government bureaucrats deciding which doctor you can see, do you? You don’t want to pay higher prices for prescription medications, do you? Well, this is what will happen if you allow Obama to regulate us. The free market needs you. Think about the free market; it gives you everything you want. It lets you be the person you want to be. It treats you fair. It lets you keep your money and buy what you want. Yet if you allow the government to tie our hands and raise our costs through meddlesome oversight, taxes and regulations, you will make it impossible for us to sell you all the things you need.

Support us. Support private armies. It is the only way to equip private enterprise against marauding socialist incursions. Government will be hesitant to interfere with us if they know we can effectively resist their efforts. Government only wins when it feels confident that it can force its will upon us through arms. But we can undermine that confidence by taking up arms ourselves. This is not a revolt; this is self-defense. We are defending our way of life. In fact, we are resisting a revolution in government. We do not tolerate free lunches in this country, nor do we tolerate efforts to poison the spirit of work. It is time to end the madness. We will take up arms to protect our right to bargain without fear or paperwork requirements. We will take up arms to protect our right to sell stock without telling the government about it. We will take up arms to hire and fire as we please. And we will take up arms to save our money from Obama’s rapacious redistributionists. Believe us: You will thank us for it. After all, we have your best interests at heart.

If you are an able-bodied man or woman and you need a job, join up. We need troops in our private armies. Fight for something higher than national pride. Fight for free enterprise; and make more money in the process. Even buck privates in Wellman Pharmaceuticals’ Army make $50,000 a year with no college degree. We supply training, equipment, good clothing, outstanding benefits and a purpose. Forget about patriotism; think about yourself for once.

HEALTH INSURANCE FUND MANAGER'S MOMENT

By : Ms. Priscilla Puggett-Hartmann, B.S. (Hotel Management), Senior Adjuster and Health Fund Manager, U-Sick-U-Pay Insurance Company, Inc. (a Delaware Corporation; DOW: USUP).

At U-Sick-U-Pay Insurance Company, Inc., we are pleased to provide competitive insurance products to individuals, businesses and local governments. Through effective asset management and prudent decisionmaking, we ensure that all our customers receive timely, efficient medical attention from physicians in our professional network. We believe in cost-effective solutions that work. For over 17 years, our company has provided medical coverage to millions of Americans. We are proud to keep America healthy. We believe that we are living proof that America’s health care system is not broken: At U-Sick-U-Pay, we make sure that our customers see a doctor when they need one; provided it is an in-network doctor (See individual policy for details; restrictions apply).

Despite our positive outlook, unemployed people with cystic fibrosis really piss me off. As a health insurance fund manager, I need to constantly evaluate whether to pay medical claims. Some medical treatments are more expensive than others. When I certify a claim, that means money goes out. Management does not like it when money goes out; they like it when money comes in. In that light, I hate paying claims. When I pay too many claims, I get yelled at. Meanwhile, my colleagues win praise when they deny claims. I would much rather deny a claim to avoid heat from management, but then I risk getting scolded by consumer protection advocates, insureds and even lawyers. Sometimes it makes more sense to just pay a claim than to deny one and face the legal hocus pocus. In any event, I try my best to deny claims. I won’t lie: It is a hard road, no matter how you slice it.

But people with cystic fibrosis piss the living hell out of me. Do you know how much it costs to keep these wheezing, mucus-filled people alive? Do you know how much it costs to suck out all that disgusting fluid from their lungs every day? Do you know how much it costs to hook them up to respirators and give them oxygen? You have to keep them in the hospital, and hospital stays cost money. You could be talking about a $1,000,000 claim within 5 days. Sometimes they even need lung surgery. That’s open-chest; we’re talking big money now. After surgery, you have to let them rest in the hospital under a doctor’s care. Plus they get meals. Then they get therapy. All the while, you need to constantly suck out that nasty shit from their lungs, and that means A LOT of money. In the industry, we call people with cystic fibrosis “high-risk insureds.” I call them a fucking pain in my ass.

My job is hard enough without having to worry about someone with cystic fibrosis. It gets really bad when some guy’s son or daughter has cystic fibrosis and they try to squeeze the little brat under daddy’s health insurance policy. When that happens, I roll my eyes and say: “Oh, no you didn’t! Oh, no you didn’t!” In most cases, I can disallow coverage because daddy did not disclose the fact that his kid had cystic fibrosis when he signed the policy. But in some cases a guy actually tells us his kid is sick and he pays the premium every month. Next thing you know, the kid is in an ICU getting snot sucked out of her 24 hours a day. And the little fucker just doesn’t die; she hangs in there and amasses a $4,000,000 bill. You think I want to tell my boss about that one? Hell no, I don’t. You try talking to my boss. When you spend one dollar over the monthly operating budget, you know you’re not going to have a good day. Anyone who says being a health insurance fund manager is easy doesn’t know what they’re talking about.

Still, it is not all doom and gloom at U-Sick-U-Pay. There are ways to maximize customer satisfaction while advancing company interests. For example, there is the conservative approach: Only handle healthy insureds in their 20s who have jobs. These people are excited about working and paying their bills. They never fail to pay their premiums and they never get sick. Occasionally the males get injured at bars or in gyms, but generally speaking, their treatment does not cost much. Maybe a few stitches here and there, a cast or maybe a sling. In any event, they usually don’t have cystic fibrosis, cancer or HIV. After all, those things don’t just spring up overnight; you need to tell us about them before you get insurance. Put simply, health insurance professionals who take the conservative approach make money for the company without paying much out. On the downside, young people do not pay much for their health insurance, so if you take the conservative approach, you will not be making huge amounts. And management wants more than just a money tinkle; they want a money flood.

So how does an insurance fund manager generate a money flood? Simple: The aggressive approach. Under the aggressive approach, health fund managers sell insurance to high-risk customers who must pay big premiums. The risk is obvious: The high-risk customer comes down with Parkinson’s and winds up costing the company millions. But a good health insurance fund manager knows how to navigate risks. To effectively implement the aggressive approach, health fund managers must know their policies inside out. They must know every procedural rule. They must use a lawyer’s craft to convincingly deny claims. And they must anticipate objections. This requires the ability to scour medical histories and sniff out frauds. If a high-risk customer “mysteriously” suffers kidney failure two months after claiming that he had no “pre-existing kidney conditions” on his premium application, a good health insurance fund manager will scrutinize the medical record to prove the applicant lied. In so doing, the manager saves the company from spending $5,500,000 on a kidney transplant operation AND gets to keep the customer’s premium. That is the aggressive approach. It generates a “money flood,” not a “money tinkle.” The best fund managers use the aggressive approach. As we like to say: “No risk, no glory.”

I receive complaints every week from angry customers. They say I do not care about their medical problems and that U-Sick-U-Pay gladly takes their money, but never spends it on them. They complain that I treat their health like a commodity. Well, I certainly do; but what is wrong with that? U-Sick-U-Pay is a private health insurance company. You may purchase our products for your health, but we are not in this business for our health. We are here to make money; why else would be listed on the New York Stock Exchange? You may think that health insurers want to guarantee your health, but you are wrong. We simply want to take in more money than we pay out. We pay when it would be less costly than refusing to pay, but our principle is profit, not your health. Profit dictates that we take any measures necessary to avoid quarterly losses. That means refraining from expending more money in one month than we take in during the same period. To that end, we have many ways to deny your claim: We can say you did not pay your premium on the agreed date; we can say you had a pre-existing condition; we can say your treatment was not covered under the provisions of the policy you purchased; and we can say that your treatment falls under an exclusion to coverage. In short, we have ways to make our profit. Our detractors simply do not understand that we do not hold their interests at heart. We have our own interests at heart.

Yet this is not an easy job. Even with all our methods, at times we cannot deny claims. Sometimes we have to bite the bullet and pay for surgery. Of course, we do all we possibly can before paying a dime, but we cannot always find an exclusion or a fraud. And customers sometimes pay their premiums on the correct date. When that happens, we have no choice but to cover treatments. If we are lucky, the treatment may only be a colon cleansing or a doctor visit. We can handle that. But if some asshole gets cystic fibrosis, or if some woman has a difficult childbirth, it can really ruin my goddamned week. When customers send me $3,300,000 hospital bills every month, I sit at my desk and shake my head. “What am I going to tell my boss?” I say to myself. “I can’t deny this claim, and I need to ask him for a reimbursement check. Fuck, he is going to tear my head off for this.” Damn, this can be a hard job.

I have worked long and hard for U-Sick-U-Pay. I have had my ups and downs. I won Claim Denial Awards in 1996, 2000 and 2002. I was even promoted to Senior Fund Manager in 2004. I am proud to work for such a great company and to help Americans stay healthy. But I still hate customers with cystic fibrosis, chronic asthma, bowel dysfunction, diphtheria, long-term cancer and everyone who needs costly surgery. You sons of bitches make my life a living hell. And you cost our company a lot of money. Our shareholders don’t like you, either. If it weren’t for you, we all could have gotten a raise or a dividend. But because you required us to pay out $15,000,000 for your stupid bone marrow transplant, we’re still stuck at $145,000 annually, with a smaller bonus than last year. So you survived cancer. So what? I’m still living in the same condo as last year. Screw you and your wife. I’m glad you’re happy, because I certainly am not. You’re lucky I didn’t deny your claim, you bastard.

I need to get back to work. Come to think of it, I need a vacation.

TO REGULATE OR NOT TO REGULATE : GOVERNMENT IN COMMERCE

AN ESSAY

Yesterday I ran across an interesting passage in the introduction to Germany’s Civil Code (Bürgerliches Gesetzbuch). Unlike England and America, Germany applies civil law, a legal system in which virtually every legal rule finds expression in statutes passed by the legislature. That differs substantially from the Anglo-American tradition, in which many basic legal rules filter down from the supposed wisdom of unelected “common law judges” who make decisions on unique factual issues, which in turn provide binding guidance for similar factual issues in the future. This “judge-made” law dominates private legal ordering, especially in the economic field. The whole notion of “contract” in England and America derives largely from judicial rumination on private transactions. Judges say what “prudent commercial men” should do in particular circumstances, and judges lay down rules that provide legal recourse against naughty bargainers. In theory, these rules are supposed to allow an “equal exchange” between two willing private parties through fair bargaining. But parties to economic exchanges are rarely equal. One party always has something the other does not. This creates a fundamental power disparity that allows the stronger party to force unfair terms on the weaker party. With the industrial revolution and postmodern distribution systems, the disparity in power grew even more. If common law rules provided the only guidance for economic exchanges in this environment, weak parties would not stand a chance. Stronger parties could tyrannize them—legally.

Legislatures in America recognized the dangers inherent in private commercial common law late in the 19th Century. During the so-called “Progressive Age,” they attempted to impose regulations on private dealings between economic actors. They mandated lower work hours, better working conditions, fair prices, mandatory overtime pay, product quality controls and other measures intended to level the playing field between stronger economic actors (industrialists, manufacturers, wholesalers, etc.) and weaker ones (employees, consumers, etc.). Legislatures did this because existing commercial common law actually permitted stronger economic actors to pay workers 5 cents a day under horrific working conditions. In fact, the common law prescribed no standards for pay, working conditions or “fairness;” as long as two parties bargained for something, the law would not question its substance. Of course, this “liberty to contract” existed only in fantasy. Workers take jobs “freely,” but they must work to feed their families and pay their rent. To that extent, workers are not really “free” to choose work terms. They act under economic compulsion: Work or starve. Is that a “free choice?” In the late 19th Century and early 20th Century, employers could dictate any terms they wished. The common law courts called this “freedom to contract.” In practice, it led to blatant unfairness and tyranny. After all, how could a poor worker negotiate with the massive company that paid his wages? If he complained that the contract was “unfair,” a court would merely say: “Well, you bargained for it. So you must adhere to it,” even if the employer reaped all the benefits from the employee’s work.

Fairness does not matter in the commercial common law. The only question is whether two parties voluntarily agree to do or not to do something in return for a promise or performance. If they do, there is no further discussion concerning the fairness of the relationship or the terms it imposes. Nonetheless, legislatures saw that this system led to unfairness. Perhaps they acted from conscience when they began to meddle in commercial affairs. Perhaps their Christian impulses could not countenance weak parties suffering under unfair contracts while strong parties got away with anything they wanted. Whatever their motivation, they took action and laid the foundations for the modern “regulatory State.”

They did not have an easy time, either. In 1905, the United States Supreme Court invalidated New York State’s attempt to limit bakers’ working hours as an “encroachment on the fundamental liberty of master and servant to bargain with one another.” Lochner v. New York, 198 U.S. 45 (1905). In other words, the Court protected employers’ rights to tyrannize their employees because they had a “fundamental liberty” to bargain for contracts as they saw fit. In essence, the Court used constitutional liberty guarantees to advance commercial common law. According to the Court, strong parties in commerce have the “liberty” to bargain any way they damn well please, even if that means forcing workers to labor for 12 hours a day with no overtime. To avoid slavery problems, they must merely say: “If you don’t like it, you can quit.” But can a worker really quit if he has mouths to feed? Therein lies the illusion of freedom in commercial life. Only the strong party has real freedom. The weak party must adhere to the strong party’s terms or he does not get wages or products he needs to survive. This is what happens in unregulated commerce. And the law actually facilitates it.

During the 1930s, the Supreme Court overruled Lochner. See, e.g., Nebbia v. New York, 291 U.S. 502 (1934). By that time, the public could no longer tolerate unchecked commercial power. After all, unregulated business led to the Crash in 1929. That convinced even the moderates that commercial common law could no longer persist; government had to intervene in relationships between private economic actors. With the legal way now clear, Roosevelt’s New Deal ushered in a whole new era of government intervention in commerce. No longer could strong parties force terms on weaker parties. They had to comply with basic norms and standards prescribed by the government. Although this seems “only fair” to us today, it was revolutionary at the time. In commerce, fairness was never the goal—and it still isn’t. Yet legislatures and the People believe that it should be. This fundamental tension stokes the perennial debate between private enterprise (deregulation) and government activists (regulation). Private enterprise wants to do business without interference, while government activists want to stop private enterprise from exploiting its power to tyrannize the weak.

In the decades since the New Deal, private enterprise has adapted its approach. Aided by well-paid lawyers, it complies with regulatory requirements in letter. But in spirit it has slowly reasserted the commercial common law. For example, companies comply with the Food and Drug Administration and Securities & Exchange Commission because if they do not they face fines or prosecutions. When there is an external obligation, they conform. Yet in every case in which regulations do not apply, private enterprise will exploit its power. When private enterprise can tyrannize, it will tyrannize. If private enterprise does not have to provide health insurance to workers, it will not. If a landlord can charge $10,000 per month for a small apartment, he will. In essence, private enterprise follows a simple rule: “I will charge as much as I want because I can.” If someone complains: “Why are you charging me so much? That is unfair,” private enterprise responds: “Because I can.” As long as private enterprise does not violate an external legal obligation, the commercial common law applies. And the commercial common law gives private enterprise a free hand in private dealings.

Unfairness and commerce go hand in hand. In fact, companies “earn the right” to be unfair because unfairness guarantees success. In other words, success entitles the winner to unfairness. Fairness implies that everyone has an equal chance to win in a particular enterprise. Unfairness implies that one party holds superior advantages that reduce or eliminate the other party’s chances to win. If a person has a choice, don’t you think he would prefer to be unfair? After all, you can’t lose if you act unfairly, and who likes losing? This may sound simplistic, but commerce is simple. It is a game, and money is the prize. If an economic actor can maximize his chances to win through unfairness, he will.

Yet unfairness offends our sensibilities. When we fall victim to unfairness, we feel embittered and hurt. When we hear about unfairness that affects others, we feel the same way, even if to a lesser extent. We also feel resentful that strong parties continue winning a “rigged game.” This bitterness and resentment propels us to use the government to curtail unfairness in commerce. When a business practice really rankles us, we employ the regulatory State to crush it. To that extent, the regulatory State provides us a means to correct unfairness in commerce. On the other hand, politicians control the regulatory State. If their constituents benefit from unfair business practices, they will not use the regulatory State to correct those practices. In that sense, commercial unfairness exists as a matter of political grace. If “business hostile” politicians control the government, they will make it harder for private enterprise to tyrannize weak parties. But if “business friendly” politicians control the government, they will refrain from regulation and give private enterprise a free hand. Thus, while government regulation in commerce looks good in theory, it actually does not work without the political will to intervene in private dealings.

So it goes, at least in the United States. But perhaps not in Germany. As mentioned, Germany applies a Civil Code to provide a framework for private economic dealings. Like the United States, Germany is a free market economy. It also has enormous regulatory mechanisms to rein in the unfairness that inheres in private economic dealings. But unlike the United States, Germany has different reasons for regulating private enterprise. While the American government seems to apply regulations only when there is public outcry about particularly atrocious business excesses, Germany appears to regulate on principle. Consider this passage (I translate):

“According to our current understanding, the government’s ordering task cannot limit itself to establishing formal rules of conduct and responsibility in commercial intercourse. Rather, the government must intervene much more, if and to the extent that serious dangers to social justice arise from the exercise of private autonomy. For that reason, the task increasingly falls to the law to protect those who are economically weak…In the field of private law, the main problem for legislation and jurisprudence is—and remains—to fairly deal with and overcome the tense relationship between economic freedom and social justice.” Dr. Helmut Köhler, Einführung in das Bürgerliche Gesetzbuch, München : Deutscher Taschenbuch Verlag (61st Edition 2008).

Here, we see a slightly different approach to “the fairness problem” than we saw in American legislative responses to the issue. As was the case in American law, the Germans appreciate that “private law” (i.e., “commercial common law” in America) is not enough to protect the public. As Dr. Köhler says, “the government cannot limit itself” to prescribing general rules for conduct and responsibility in private commerce. After all, we saw that unregulated commercial common law leads to unfairness, exploitation and—as Dr. Köhler calls them—“serious dangers to social justice.” In the German view, the government has an essential “task” to combat “dangers to social justice.” In the American view, regulation arose to allay public outcry about unfair business practices. It was not concerned—as a matter of principle—with “social justice.” In that sense, the German impulse to regulation has a more principled rationale: It is the government’s “ordering task” to defend social justice as much as it is to provide formal rules for commercial intercourse. The German view also supports the notion that these “serious dangers to social justice” arise from “the exercise of private autonomy.”

This directness is refreshing. In German law, legislators and judges understand that “private autonomy” goes hand in hand with “dangers to social justice.” In the commercial common law, American courts fabricated an artificial reality in which “fairness” flowed from the theoretical “liberty of master and servant” to freely bargain with each other, even though—as a practical matter—the master always had superior power. In the German view, however, the law takes a more realistic approach: It knows that private autonomy grants all power to the superior party. After all, that is what creates “serious dangers to social justice.” In that light, government intervention in commerce is mandatory. In German law, fairness is a governmental concern, because unfairness damages “social justice.” And because the government has a duty to protect “social justice,” it also has a duty to constrain unbridled “private autonomy.”

This interests me because I care about fairness. I think that fairness should be a governmental concern. Yet in American commerce, I am reminded every day that fairness is not the goal. In fact, commercial interests detest fairness. They say it is too difficult and too costly to worry about. They say that courts must never label contracts “unfair” or “unconscionable” because that will merely force them to increase costs on everyone else. That may be true. But that does not excuse the theoretical difficulty in defending unfairness as a business practice. Unfairness pays. And businesses know how to get away with it.

Regulations can only go so far in the United States. Until we make “social justice” an actual “ordering task” for government, we can be sure to get raw deals for as long as we live. It is not enough to wage small wars on especially egregious business practices, such as the Enron fraud or Bernie Madoff's ponzi scheme. These are merely symptoms of a much more entrenched ailment: Institutionalized unfairness in commercial exchange.

Or we can strive to be successful, in which case we win the right to force raw deals on everyone else.

WHY WE FIGHT : IS IT REALLY ALL ABOUT THE MONEY?

AN ESSAY

Several weeks ago, I wrote about the distinction between “principle” and “expediency.” I identified commerce with “expediency” because “success in business” requires the ability to adapt fluidly to changing circumstances, even if that means resorting to unsavory tactics. In contrast, I identified “principle” with the adjectives “honorable” and “noble” because a person wins “honor” by adhering to principles, even when circumstances tempt him to abandon them. Principles, in other words, provide vibrancy and meaning beyond mere commercial success. Principles are ideas that transcend everyday economic pressures. They represent notions that we consider good, no matter the climate. We are “noble” and “honorable” when we advance principles. And we are “dishonorable” and “unethical” when we discard them for commercial reasons. In closing, I noted that I preferred honor over expediency because I did not like the American program for “success,” which largely involves “expediency” over “principle.” I said: “Give me something to believe in and I will work hard for it.”

Principles have broad thematic appeal. They represent ideas larger than our lives and our petty financial obligations. In history and literature, “honorable men” live on in our collective memory, not commercially successful men who just “went with the program.” We remember Abraham Lincoln because he believed in a “liberty principle” and died for it. We remember Thomas More because he believed in a “conscience principle” and he died for it. And more generally, we remember America’s Founders because they fought a Revolution to advance principles. Although the Framers also had a commercial interest in separating from Great Britain, they undoubtedly believed in larger principles, such as natural human rights, free speech and representative government. They risked high treason to realize their principles. If they had been caught, they would have faced the most grisly criminal penalties imaginable. And they knew the risk.

When men follow principle, history remembers them. They may not be successful—indeed, many die in the effort or otherwise live wretched, poverty-stricken lives—but they live on after death because principles transcend individual existence. On the other hand, those who follow the “expedient” path may achieve every success during their lives, but few remember them. For example, how many wealthy bankers lived during Gandhi’s time? True, Gandhi achieved some measure of fame and wealth later in his life, but does anyone remember the wealthy, successful people who lived in his town? No. They lived unremarkable lives, even though they had money, power and success. Larger principles did not animate them; they simply wanted to “go with the commercial flow,” make money, raise children, live comfortably then die. They did what was necessary to achieve those unremarkable goals, and they died unremarkably.

Commerce demands expediency. And expediency renders us unremarkable. There is always a contrast between men who live for principle and those who live for commerce. In literature, we read lines such as: “He did it for more than money,” or “He fought for something better.” These are striking statements, because most people only do things for money; it is memorable when they do not. When a person does something for non-commercial reasons, his behavior attracts notice. He has other motivations. He might have principles. He inspires others because he rises above the crass demands of daily earning and paying. He even risks his own bodily comfort and status in order to realize his principles. He refuses to take the expedient path, even if it leads to his ruin. Others notice this and they admire it. In most cases, the man fails. But when he succeeds—even through his death—he lives on in memory as a person who was “not like the rest of us.” After all, “the rest of us” just want to get a job, earn a wage, eat, sleep, go on vacation once in a while and avoid aging. This is commercial existence. It draws strength from bodily comfort and pleasure. But the principled man draws satisfaction from larger ideals. That is why others remember him.

People admire principles, yet few follow them in every case. It is too risky and too costly. If a person believes on principle that the free market economy is evil, he should refuse to get a job within that system. Yet if he refuses, he starves and goes homeless. If he truly adhered to his principle, he would choose the difficult consequences that flow from it. But few—if any—do. Nonetheless, men such as Karl Marx believed in this principle and they took steps to further it. History remembers these men, even if many reject their principles. They had the daring and courage to believe in larger ideals and advance them, risking their own lives and comfort in the process. They did not merely drift from day to day following conventional rules and adapting their behavior to make money. They lived for their ideas. That is what separated them from the rest.

Those who follow principle attract positive attention because only a few people dare to break from commercial expediency. Yet at the same time, they attract negative attention because many abhor their beliefs. We remember Marx because he believed in ideas that upended the free market economy. But we also remember Marx because other people utterly despised his principles and fought to crush them. Every principle reflects strong, individual belief. At the same time, every strong belief engenders strong reactions from those who do not share it. Interestingly, principles invite conflict between those who adhere to them and those who find them threatening to “the order.” On the one hand, there are “believers” who are willing to die for larger ideals. On the other hand, there are “reactionaries” who do not like the principle and believe it will make their comfortable lives more complicated. In many cases, the “reactionaries” are people who follow conventional lives rooted in commerce. They do not want disturbances. Thus, they violently react against others who believe in “disturbing principles.”

Yet who really remembers reactionaries? Throughout history, revolutionaries, visionaries, martyrs and radicals have introduced new principles. They gave their lives for those principles. Who took their lives? The reactionaries. In hindsight, we can call the radicals “honorable” because they refused to abandon their principles even when they stood to lose everything. But can we call the reactionaries “honorable” for squashing ideas that threatened their commercial comfort? We remember men who fought for bold, new principles. We do not remember the men who fought to suppress them. In virtually every case, reactionaries come from social classes that are content with the current order. No one remembers them because they simply fought for “business as usual;” and there is nothing memorable about “business as usual.” In other words, no one remembers people who simply fight for commerce. When people “fight for the money,” they might win. But their memory swiftly fades after their victory.

Why exactly do men fight? Men will always fight, but for what reasons? And what reasons motivate them the most? Reactionaries fight to maintain the existing order against what they consider to be “dangerous new principles.” Yet throughout history, men have fought for much less compelling reasons. They have fought for women, as the Greeks did at Troy. They have fought for land and resources, as did the Crusaders in the Middle Ages and as the American pioneers did in the 19th Century. They have fought for personal loyalty, as the medieval knights did for their feudal lords. They have fought to discover treasure, as did the Spanish conquistadors in Mexico and South America. They have fought for trade rights, as did virtually every European power during colonial times in North America, Africa and Asia. Finally, men have always fought as mercenaries, taking cash payment to shed blood for anyone who can pony up the price.

Yet did men fight with genuine vigor for these reasons? What principles did they advance? To merely win land, money, women, treasure and trade rights? Viewed largely, those are not very compelling prizes. In my view, men fight more vigorously when they fight for more abstract ideals than mere commercial gain. For example, the early Muslims conquered the Middle East, North Africa, Portugal and Spain because they believed in Mohammed’s religious teachings. They were not fighting for gold, land or women. The American colonies fought against England for “human rights” and “liberty from tyranny.” Later, revolutionary France fought for enlightened principles such as liberty, equality and brotherhood. These were ideas in which men could strongly believe, even if they brought no tangible economic benefit. The Russians and Chinese fought to establish communist governments committed to a new economic order. And during the 20th Century, virtually every major power fought for “nationalistic” reasons premised upon the idea that every Nation has its own unique values, territory, language, traditions, culture and power.

Men fight more vigorously for principles than they do for money. Principles transcend. While every man must overcome economic adversity to survive in our commercial world, there is nothing grandiose about fighting for commerce. But there is something grandiose about fighting for equality, religious belief, brotherhood, fairness, justice, national pride or freedom. There is nothing expedient about these motivations; they motivate men precisely because they transcend expediency. They stand for something more than commercial success. Yet when men fight for commercial gain, they appear somehow undignified, cheap and ignoble. That is why almost everyone despises mercenaries; they have no principles. They take motivation solely from the wage they receive. They do not care about the ideas for which either side fights; they are just “doing it for the money.” In conflicts between men, however, principles are real. When a third-party intervenes for commercial reasons, they attract mordant resentment. That is why mercenaries receive no quarter on the battlefield. Just ask the American “contractors” who found themselves burned and hung from a bridge in Iraq. The Iraqis knew that those men were in their country for a price, not to advance principles. They rightly held them in contempt. Any American would have done the same to a foreign mercenary fighting in an American conflict on American soil. In fact, the Iraqi insurgents have a compelling principle: To eject a foreign invader from their country. They have no financial interest in this; it is pure principle.

Conflict inheres in human existence. Not everyone has access to the same resources or the same opportunities. There will always be inequalities in wealth, status and power. There will always be some successful people and many more unsuccessful ones. Commerce regulates this social order. In peacetime, men either win in commerce or they lose. They compete with each other. They want to make money and move ahead. Yet as they compete, they constantly must weigh expediency against principle. Why do they act? Do they act merely to move ahead? Are they just “doing it for the money?” If they are, do they feel good about it? At the end of the day, principles implicate individual, subjective belief. When a man believes in principle, he gives voice to his individuality. Yet when he “adapts” to meet commercial demands, he suppresses his beliefs in order to please superior powers. Success, then, depends in part upon suppression and surrender. On the other hand, principle defines. We remember those who fight for principles because they make a mark beyond mere commerce. They identify themselves through their beliefs. They may never achieve success, but when they do things for reasons other than money, they break from the mass. And we notice them, even if we detest their beliefs.

MR. BLOOMBERG, CONDEMN THIS PROPERTY

New York Landlords United for Better Land Uses

The New York Chapter of LUBLU, an International Brotherhood of Property Owners

March 9, 2009

Dear Mayor Bloomberg,

As you know, LUBLU has a long history in New York. As committed landlords, we care about the city. Like no other location in the United States, New York offers exceptional opportunity for profitable real estate development. We do not like to see good properties go to waste, and neither should you. When land is productive, it pays more property taxes. Additionally, when land is productive, the economy improves, people get jobs, tenants are happy and landlords make money. In short, when we use land properly, everybody wins. LUBLU is committed to maximizing good property uses in New York. We know you share our enthusiasm for prudent land use, because prudent land use makes New York a better place for everyone.

We write today concerning a property located at 135 West 23rd Street in Manhattan. It is a large lot, occupying approximately 20% of the block between 6th and 7th Avenues. The current occupant is “Visions Services for the Blind and Visually Impaired of New York.” This tenant occupies a 15-story brick building on the above-mentioned lot. The building is located in a bustling commercial and residential neighborhood in which property values and rents have risen sharply in recent years. Numerous commercial establishment and rental apartment buildings surround the property. They bring in plentiful rents and taxes: An 850-square-foot two-bedroom apartment in the neighborhood yields up to $4700 per month, while a major retail outlet yields up to $100,000 per month. That translates to large tax bills at year’s end.

Yet the property at 135 West 23rd brings in no rent. Instead, blind, deaf, mute and handicapped welfare recipients live there rent-free. They pay no fees, taxes or rents. In fact, they actually cost the city money. They loiter outside the building all day, disturbing passers-by, residents, tourists and shoppers. They also look very shabby and they smell. The mutes and deaf people also utter bothersome, monosyllabic sounds that anger residents. Within the building, these people receive free medical care for eye, ear, mouth, nose and brain disorders. The building is filthy and poorly maintained. Quite simply, it is a disgrace to the neighborhood. It has no place on a block that can fetch $4700 per month for a small apartment. LUBLU believes that the building should be demolished and replaced with a high-end apartment building, condominiums or a Whole Foods® market. Those would be much better land uses from which both private enterprise and the city could benefit.

We think you will agree that a not-for-profit institute providing free services to blind people is not a good land use. New York is a city on the rise. There is no space in Manhattan for clinics, Good Samaritan Centers, cheap housing or free health care for destitute blind people. This may sound cruel. But investors and landlords have a right to use land in a way most suited to satisfy their needs. Frankly, a free service center for blind people does not satisfy an investor’s needs. An investor wants a healthy annual return, not the inward pleasure of knowing a mentally deranged, blind mother of ten has a place to sleep at night. She can sleep in the park or in Brooklyn; land in Manhattan is too precious to waste on worthless uses. International apartment-hunters, venture capitalists, contractors, retailers, merchants, financiers and real estate developers are all waiting for their chance to improve prime Manhattan properties. Can we in good conscience keep them waiting by withholding such a superior location from the market?

We must free 135 West 23rd Street for profitable development. This city—indeed, this country—grew on the idea that land must be used effectively. Land should not lay fallow or dilapidated; it should be improved, refined and put up for sale. In Manhattan, the private real estate market is booming. If a low-end apartment in this neighborhood can fetch $4700, imagine how much a higher-end building could produce on the 135 West 23rd site. As landlords, we are excited by the idea that we could make a healthy profit on this plot. We refuse to let it lay fallow any longer. Whenever a good landlord walks past the site, he says to himself: “Why are they wasting this perfect land on hobos, retards, deaf mutes and blind amputees? I could get $5,000,000 a month from this baby.” This is prudent economic thinking. Landlords do not give; we take. As landlords, we consider what is best for the economy. And when we improve the economy, the city improves, too.

We urge you and the City Council to invoke your eminent domain powers to condemn 135 West 23rd Street. By State statute, you and the Council have the power to seize private property for public use as long as you provide “just compensation” to the former owners. You even have the power to seize property without paying compensation if you declare it a “public health hazard” under your police authority. We argue that 135 West 23rd is a “public health hazard” because it subjects the public to unsightly filth, smells and deaf-mute mutterings. It also endangers the public interest in a vigorous private real estate market, which in turn reduces tax revenues and city services for all. Although the United States Constitution prohibits you from directly delivering 135 West 23rd Street into our hands, you can avoid that stricture by drawing up a contract by which you compel us to build the property with a view to “public economic development.” Kelo v. City of New London, 545 U.S. 469 (2005). No matter what legislative path you pursue, we are confident that you will do the right thing.

Poor land uses harm everyone. They also insult the great spirit of hard work and prudent development that created this Nation. No one likes barren properties. And no one likes barren properties in the country’s most vibrant and profitable neighborhoods. The fact that 135 West 23rd Street looks bad and shelters stinky homeless blind people only strengthens our case that it should be condemned. While we sympathize with Vision Services’ purpose to help the sick, we cannot agree that they are properly using their land. There are better places in which to perform charitable services, such as the South Bronx or East New York. In those neighborhoods, poor land uses would fit right in with the overall impoverished character of the surrounding area. Yet it insults private enterprise to tolerate a poor land use in a neighborhood bustling with strong commerce. Put simply, the contrast is too striking to bear. People who pay $5500 in rent every month should not be forced to hear deaf-mutes moaning outside their door every day.

We must also point out that land use does become “good” simply because people perform charitable work on the property. Rather, land use becomes “good” when viable commercial activity on the property results in profitability, no matter what sort of business occurs there. In other words, a Best Buy® store is a “better land use” than Moe’s Charity Soup Kitchen because it brings in $100,000 in rent per month, while the soup kitchen may only bring in $500 per month. Although the soup kitchen arguably has a “better purpose” than a Best Buy Store (i.e, serving free meals to the hungry is nobler than hawking plasma screen televisions for fair market value on credit), that does not make it “better.” Instead, land uses are “better” only when they are more profitable. Motivation has nothing to do with it. It is all about the rent receipts.

We are confident that you will apply our reasoning in this case. No one benefits from a Vision Center at 135 West 23rd Street except a motley bunch of welfare-sucking deaf-mutes. This is not prudent land use; this is pure waste. The city receives no taxes from the property. Meanwhile, private developers twiddle their thumbs waiting for the spot to clear. In this economy, we should cultivate every opportunity to provide jobs; new construction projects will certainly further that goal. To that end, let us join together to serve both private enterprise and the public. By converting 135 West 23rd Street into a fair market property dedicated to residential and commercial interests, we will provide work to contractors, business opportunities to banks, homes to renters and taxes to the city. Just as our ancestors could not bear to watch Native Americans let immensely fertile land lay fallow, so too do we recoil when we see 135 West 23rd Street. This land is a gem; and it is going to waste. It is finally time to let the market dictate property uses, not philanthropic impulses.

We look forward to your prompt attention to this matter. If you require a contribution of any kind—or if you would like us to pay the “just compensation” fee to the Vision Center upon condemnation—please do not hesitate to contact our offices.

Yours sincerely,

Mr. Charles G. Stack

Associate Director of New Projects
Silver Cup Portfolio Holder