Money As Debt II: Promises Unleashed Page #7

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And what are these bailouts

financed with? You guest it.

More tax payer debt.

It is really quite an

achievement to pull this off...

and without most of the

victims even being aware of it.

If you're now thinking

there ought to be a law...

well, there is a whole body of

law that makes all of this legal.

So how did a system like

this ever become the law?

To answer that we go back to

England in the mids 17th century.

When plunder becomes a way of live for a

group of men living together in society,

they create for themsevles in the

course of time a legal system...

that authorizes it and a

moral code that glorifies it.

Frederic Bastiat 1801-1850

political economist

With the development of better ships

and the new explorations they allowed...

...trade was expanding rapidly.

In order to carry out commerce especially

over great distances and lengths of time...

written contracts were becoming more and

more important and more sophisticated.

Under english common law

had been long established

that a contract could only been enforced if

something of real substance has changed hands.

A transfer of goods or rights in property

was the real stuff of the exchange...

and that was what the court

would evaluate for fairness,

not just the words on the document.

A contract under which there had

been no exchange of consideration,

meaning real goods or rights in

property was deemed to be empty...

and was therefore not

enforceable by the court.

So a contract in which a

borrower say pledged a car...

he does not own in exchange for

a bank's promise of payment...

would not even qualify as a contract.

No common law court would enforce it.

As well, in the event of a dispute

over a contract under common law,

only someone who had actually provided

consideration to the transaction,

in other words, only someone who delivered

the goods had the right to sue in court...

for fullfilment of the

contract by the other party.

This right was not

transferable to a third party.

When early traders went off personally

on expenditions with trade goods...

they bought those goods at home

with their local currency...

and would sell them for foreign

currency in the distant destination.

They would then buy foreign

goods with the foreign money,

bring those goods home and sell

them for the local currency.

Pretty simple.

But as trade became more sophisticated,

traders became more inclined to stay home...

and just hire ships to

carry out deliveries.

This gave traders the freedom to import cargos

of foreign goods from different sources...

than in the destination to which

their home goods had been exported.

Thus, a problem was created.

The exported goods had been paid for with foreign coin,

the value of which needed to be spent somewhere else.

Moving money as coins entailed

a high risk of theft...

as well as the near certainty of partial loss

by currency conversion in a different land.

This problem of payments from a distance

was overcome by the use of bills of exchange.

A bill of exchange was a signed

order from a payer to an adressee...

demanding that the adressee pay a certain specified

sum of money to the person identified as the payee.

These were secured by signature...

and they could not be acted upon in court

by anyone other than the original parties.

Thus, they're have no use to a

thief or any other third party.

You probably recognize that these

were the precursors of checks.

I the payer instruct the bank

the adressee to pay the payee,

a person named on the check

a certain sum of money.

This was all well and good for transactions

among parties who were known to each other.

The bill of exchange was used merely as a way

to order payment in coin at a distant location.

But merchants soon wanted more flexibility, they

wanted to be able to use bills of exchange...

to reconcile payments among many

merchants in many locations...

using bills of exchange

like money itself.

For this to work, bills of exchange had to be

assignable to and enforceable by third parties.

As we shall see, this was the moment in legal history

that gave sanction to the banking system we have today.

A third party who might have honoursly

purchased a bill of exchange...

several steps remove from

the original exchange...

could not be expected nor would have the

right to show up in a common law court...

and defend the validity of

the contract and collect on it.

This made third party bills of

exchange an unacceptable risk.

So, in order to be able to use bills of exchange as a

convenient and guaranteed third party payment system,

essentially equivalant to money,

the common law practise had to be

set aside regarding bills of exchange.

In England, by a series of legal

decisions from 1664 to 1699...

this problem for commerce was remedied by making

bills of exchange enforceable by third parties.

If a third party had purchased a bill for

valueable consideration and in good faith...

having no apparent reason to suspect fraud or some

deficiency in the right of the seller to sell it,

then the bill automatically became good and

enforceable by the court against the signer.

What did this change mean?

It meant essentually that any bill of exchange

would be consider legitimate once it was sold.

Bills of exchange and all other subsequent

types of signed promises to pay...

with the notable exceptions of checks

became transferable and enforceable in court.

Just what the merchants wanted.

Now debt contracts could be sold like things and

transacting business would be a whole lot easier.

Not only that, it opened up a whole new market for

profit seekers, trading in bills of exchange themselves.

The marketing of debt was born.

The change in the law had

another affect as well.

It made it possible to trick or even force a person

into signing a legally binding promise to pay...

and then if that promise were purchased by a third

party for real consideration and in good faith...

it would be enforceable

against the signer in court.

Ultimately, this became one of the foundational

principles of the uniform commercial code...

which governs the conduct of business in

the US and by extension in most of the world.

The entire taxing and monetary systems

are hereby placed under the U.C.C.

US Federal Tax Lien Act of 1966

Think about it. If we buy a stolen laptop from a guy on the

street, we're guilty of receiving stolen goods, a criminal offence.

Doesn't matter if we paid on with money

and were unaware the goods were stolen.

The court will restore the

goods to the rightfull owner.

We as purchasers, innocent or not, lose our

money and may even be charged with a crime.

But if we buy a loan contract from a banker

and give him real value for it in good faith...

it doesn't matter that the loan contract may

have come into existence under false pretenses.

Whoever signed it, is required by

commercial contract law to pay up...

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