Back on August 13, 2010, Tim Knight posted "Moral Hazard Comes Home To Roost" http://slopeofhope.com/2010/08/moral-hazard-comes-home-to-roost.html For nearly a month I have had an on-going internal debate on whether to write this post. Be forewarned, this post will take you down a rabbit hole. If you wish to lead what Aristotle called "the examined life" and choose to take red pills, read on. If you are an ardent taker of blue pills, I would recommend that you skip this post.

The subject matter is extremely complex. It is historically convoluted and replete with legal and finacial intricacies. I am not a lawyer and much of this is not even part of any law school curriculum. However, as a nearly life long real estate investor and a real estate broker, as well as being a retired Certified Residential Appraiser, I am very well versed in banking as it relates to real estate loans.

As many here know, I am a staunch hard money advocate. I have come to my conclusions over many decades of research and reading the lessons of history. The purpose of this post is not to deal with the subject of what money is and what money is not. For those so inclined, I would suggest an excellent book, one of the best treatise on the subject I have read, Nathan Lewis' book Gold: The Once And Future Money. The book is well written, historically researched and not a "gold bug" rant. The money issue is not central to this post but does have bearing. As further background, I would suggest, when you have about an hour, to take a look at five videos. Here is the link to the first. You will find the links to the other four here as well. http://www.youtube.com/watch?v=vVkFb26u9g8 Money as debt is central to the body of this post.

Historical Background

Two forms of government exist today in The United States Of America. The orginal form was under The Constitution. Basically, The Constitution was a union of the Sovereign States. Under it, the states retained most of the power and the federal government had limited power. Law was Common/Private Law.

With the Civil War came the aftermath and in 1871 the original United States became an entirely different creature: a corporation! This was done through a number of Reconstruction Acts passed by the Congress. What emerged was the UNITED STATES CORPORATION. The UNITED STATES CORPORATION does not operate under the United States Constitution. It operates under Corporate/Commercial/Public Law which has its roots in Maritime/Admiralty Law which is administrative in nature.

The Constitution is still there but dormant, usurped by what is also known as the Uniform Civil Code (UCC). This fact was made clear by Supreme Court Justice Marshall Harlan (Downes v. Bidwell, 182, U.S. 244 1901) by giving the following dissenting opinion: “Two national governments exist; one to be maintained under the Constitution, with all its restrictions; the other to be maintained by Congress outside and Independently of that Instrument.” Indeed, after 1871, nearly all power was transferred from the hitherto Sovereign States to the UNITED STATES CORPORATION. The states became mere administrative districts of the UNITED STATES CORPORATION.

Fast forward to 1913 and the Federal Reserve Act. The Congress in 1913 created a private central bank. Here is a list of shareholders. http://www.save-a-patriot.org/files/view/whofed.html How is this constitutional under Article I Section 8 http://www.usconstitution.net/xconst_A1Sec8.html ? ONLY Congress can coin money and regulate the value thereof. This is an undelagatable power. It would be the same as Congress granting LOCKHEED MARTIN CORPORATION the right to declare war! Ah!

Refer to the above. We are not operating under the Constitution but rather the UCC. The Congress can do as it pleases. Follow me here as this gets even more complex. In 1917 Congress passed the Trading With the Enemies Act (TWEA). This act was created to deal with countries we were at war with in World War I. It gave the President and the Alien Property Custodian the right to seize all the property of persons included in the act. Those persons could, if they wished to do business in this country, apply for a license.

By 1921 The Federal Reserve Bank (as Trustee for the Alien Property Custodian) held over $700,000,000 in "trust." This is of great importance because in 1933 48 Stat 1 of the TWEA was amended to include United States Persons. Executive Order 6102 was issued to seize the gold held by any United States Person. We were hence reclassified as enemy combatants and it became a federal crime for any United States Person to possess any gold in bullion or bullion coin form.

At the same time, in 1933, the UNITED STATES CORPORATION was bankrupt. Since the private Federal Reserve controlled the money, the UNITED STATES CORPORATION collateralized YOU so as to borrow the money. How could that be done? We are not owned by the UNITED STATES CORPORATION. Yes, indeed we are and through that corporation, we are indirectly owned by the Federal Reserve. I will explain this "mechanism."

The Straw Man

You will notice in all of the above, corporations are identified by all capital letters. That is how all corporations (a legal person but fictitious entity ) are identified under the UCC. Now, if you have it available, look at your social security card. Your name is in all capital letters. Have a checking account? Look at your name. All capital letters. Do an experiment, next time you open a personal checking account, attempt to get your name spelled with capital letter at the beginning only. Also, while you have your checkbook handy, get out a strong magnifying glass and look at the "line" where you sign your name. It is not a line. It is printing. Now you are twins.

One a natural person and the other a quasi-corporation, the straw man. This was done to you at birth. If you have the chance. Take a look at your birth certificate. Again, your name is in all capital letters! Take a look at the border of your birth certificate, bottom left hand side. Says American Banknote Company! You will also note that your birth certificate has a red number on it. All birth certificates in public hands are copies even the one at the county recorder! Where is the actual original? Within two weeks and three days each Certificate of Live Birth is to be filed in Washington D.C.

Evidence reveals that there is even a Federal Children Department established by the Shepherd/Townsend Act of 1922 under the Department of Commerce that appears to be involved in this process in some way. Every citizen is given a number (the red number on the Birth Certificate) and each live birth is valued at from 650,000 to 750,000 Federal Reserve dollars in collateral from the Fed. Since the early 1960's, state governments have issued birth certificates to "persons" with legal fictitious names using all capital letters. This "corporation" then generates taxes and wealth over its (your) lifetime. This is the way that the collateral (you) pay the "money" borrowed from the Federal Reserve by the UNITED STATES CORPORATION. Your birth certificate (or papers of naturalization) is actually a bond as well as a banknote. It is also a form of securities known as warehouse receipts. Your birth certificate meets all the requirements of A/7-202 of the UCC. To wit:

• the location of the warehouse where the goods are stored…(residence)
• the date of issue of the receipt…..("Date issued")
• the consecutive number of the receipt…(found on back or front of the certificate, usually in red numbers)
• a description of the goods or of the packages containing them…(name, sex, date of birth, etc.)
• the signature of the warehouseman, which may be made by his authorized agent…(municipal clerk or state registrar's signature)
• Adding insult to injury, if you wish to take your child as a deduction on your tax return, you have to obtain a social security card for that child.
• You may wish to find out how you can regain your status as a Soverign Individual by taking control of your straw man! That is well beyond the scope of this post.

The Real Estate Loan

When I was a real estate appraiser when time was not pressing, I would often ask this question of the real estate broker who admitted me to property that had been sold. "I see that on this $1,250,000 sale, the buyer is getting a $1,000,000 loan. Do you know where that $1,000,000 comes from?" Never did get the correct answer.

The truth of the matter is simply this: until that loan is funded, the $1,000,000 does NOT exist in the known universe! The borrower creates the very money he borrows. Here is how that is accomplished. When you take out a loan, you signed a Promissory Note (and yes, your name was, again, all in capital letters). A promissory note is a monetary instrument, much like the dollar bills you have in your pocket. So in this case the promissory note for $1,000,000, to the funding bank, is the same as a $1,000,000 bill, same as cash. The bank creates a Demand Account in your straw man name. with a balance of zero.  The bank then takes your promissory note (can't fund the loan without it!) and puts it in your straw man demand account. Balance is now $1,000,000 in that account. The bank then writes a cashier's check (or bank wire) for $1,000,000 to pay the seller of the house your buying their Monies in Full. The balance in your straw man demand account is then reduced to zero.

IF the entire process stopped right here, there would be no crime committed, no fraud committed and everyone would be in an equitable position. The moment you start paying principal and interest payment demanded by the bank after your account has been brought to zero, your payments become your damages. The bank is extorting money from you and giving you nothing of value in return!

It would be like you borrowing $100 from me and I have a counterfeit bill printing business in my basement and then demand you pay me back with interest. The UCC has remedies (administrative) for this type of fraud. The banks can be defeated using administrative proceedures in the UCC. They can be beaten using their own rules under the UCC. It is common perception that the banks hold all the cards. They hold cards alright. Ten high with no flush or straight or even a pair and the game is not lowball. The borrower, once this is understood and acted upon actually holds the winning hand.

It can also be stated that when the bank made the "loan" the collateral was the property. They made a business decision. If the homeowner makes a  business decision to allow the bank to take its collateral that does not constitute moral hazard.

I have attempted to make a very murky and complex subject as simple and understandable as I could. Suffice to say, without honest money there can be no honest debt. Moral hazard in not paying the mortgage? What moral hazard?