Obama Channels FDR on Contracts

This is the fourth post in a continuing series on the parallels between Presidents Obama and Roosevelt, two Columbia University educated radicals who both came to the White House intending to abuse their power with abandon.

Today’s topic is the contempt both men have shown for the sacredness of contracts.

One of the building blocks of America’s freedom and prosperity is the idea that a contract is more important than either of the parties who sign it. If our free enterprise system is to work, Americans have to believe that a legal contract signed voluntarily by two parties is absolutely binding.

Franklin Roosevelt showed his contempt for this principle when he signed a bill declaring gold clauses in private contracts null and void.

Before 1933, it was a common practice for bond issuers to agree to redeem their bonds in gold, rather than paper money, at the option of the bond buyer. Standard language for this “gold clause” was “payable in principle and interest in United States gold coin of the present standard of value.” In 1933 the Roosevelt administration announced that it would refuse to honor the gold clause in US Government bonds. Then, not content to renounce the government’s own debts, Congress and President passed and signed a law declaring gold clauses in all bonds, public and private, null and void.

Roosevelt’s reason for interfering in contracts between private citizens was all about enlarging the power of the government. The government increased its own ability to manipulate financial markets by forbidding the use of anything other than government paper for payment of debts.

Fast forward seventy-six years, and we see President Obama showing the same lack of regard for the sanctity of contracts. When the Obama administration dictated bankruptcy terms for General Motors and Chrysler, it unilaterally renounced the rights of secured bond-holders to have the first claim on the assets of the companies. The legalities of secured bonds are too complicated for a blog post, but in effect the President voided contract terms that had been agreed to by both the buyer and the seller of each secured bond.

Obama did this so that he could give large blocks of stock in the re-organized car companies to his cronies in the United Auto Workers union, and take additional shares for the government itself.

This year the President is trying to enlist the Congress in passing a law to force mortgage lenders to change the terms of millions of home mortgages, to make them more favorable to the borrowers at the expense of the lenders. 

For the federal government to come in as a third party and force changes to a contract signed legally and volunteraly by two parties is a dangerous attack on the foundations of a capitalistic society. Most of America’s President’s, Republican and Democrat, have had the good sense and decency to refrain from such attacks. As in so many other things, President Obama’s emulation of President Roosevelt is dangerous and irresponsible.

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