Is this law even legal?

Spoiler - No, it's not.

Usurpation? I’ll show you usurpation.

In our focus on legislation to restore property rights and stop The Great Taking we can lose track of the fundamental issue here – what did (and does) the statute actually do?

Every time you spend your hard-earned dollars to buy a stock or invest in a mutual fund you think you actually own the thing you paid for. You do not. This law, on the books in your state, allows your broker to take your money, direct its custodian to purchase the stock, and give you a ‘security entitlement’ related to that stock – but not the stock itself. Something less.

In any other transaction if you pay for one thing but receive something else, something less – that would be illegal. You have consumer protection laws in your state to protect you from this shady practice. But those consumer protections do not seem to apply to your investments.

Article 8 in your state’s Uniform Commercial Code (UCC) allows your broker give you something less than what you paid for and something different than what you thought you bought. I am not sure what the legal term for this crooked hustle is, but it rhymes with bait & switch.

Our country was built on private property rights, and a fundamental purpose of government is to protect our property rights along with all other God given rights. Do the circumstances summarized above sound like government is protecting your personal property rights? I don’t think so either.

We are waging this battle at the state level to amend UCC 8 – but we can forget what the true issue is – what is at stake - property rights. The right that you and I have to be secure in the property we own. Today, we are not very secure, our God given property rights are not protected – they are openly sacrificed to the spirit of the age – the god of the bank cartel. Maybe the preamble to our Constitution was rewritten from We the People to We the Big Banks, if so, I missed it.

Full property ownership vs security entitlement

So, what are we talking about here? You pay $1,000 for some stock and instead of full property rights to the stock you receive a security entitlement related to the stock. The Committee that drafted this model Bill defined a security entitlement as a bundle of personal rights you hold against your broker.

A security entitlement is not the same as the full personal property rights when you hold a physical certificate – it is something less because there are strings (claims of other entities) attached. The most significant string attached to a security entitlement is that the investor takes on the credit risk of his or her broker, the broker’s custodian(s) up the chain, all the way to DTCC. One heck of a string. It is not just me saying that, it is also lead attorney for the New York Federal Reserve. And those folks know a thing or two about property rights, strings, and thievery - they’re in the know.

The bottom line is the value of a security entitlement must be less than the value of a physical certificate once the risks you take on with the security entitlement are factored in. I do not know what the proper discount is, but its more than zero.

How much less? You’re looking to buy a condo, and you have $400,000 in cash. One condo is listed at $400,000 and comes with no strings attached. An identical condo comes with a catch.

Namely, you can live in the condo like you own it but if the Homeowner’s Association files for bankruptcy the bank that loaned money to the Association can take your condo and any equity you have in the property.

The 2 properties are otherwise identical but what would you pay for the 2nd condo with the catch? Probably not $400,000 I’m guessing.

Does this law pass constitutional muster?

Not only does this statute violate consumer protection standards it seems to violate several rights under your state constitution. Because the UCC is state law we look at the Constitution of the states we are working in. Each state Constitution includes a Bill of Rights or a Declaration of Rights for the citizens of that state.

This law (UCC Article 8) makes it legal for the largest banks to take your property if your broker or custodian breaks the law and pledges your assets for a loan and later becomes insolvent. That is a fundamental and profound weakening of your property rights. It also appears to be unconstitutional on several grounds.

Looking at the Article 1. Declaration of Rights in the Constitution of Tennessee several rights may be violated by this Statute.

Section 7. That the people shall be secure in their persons, houses, papers and possessions, from unreasonable searches and seizures; and that general warrants, whereby an officer may be commanded to search suspected places, without evidence of the fact committed, or to seize any person or persons not named, whose offences are not particularly described and supported by evidence, are dangerous to liberty, and ought not to be granted.

Are your rights to your investments, your IRA, 401(k) secure from unreasonable seizure? Not under UCC Article 8.

Section 20. That no retrospective law, or law impairing the obligations of contracts, shall be made.

This law fundamentally impairs the contract - the bargain - with your broker and its obligations to you.

Section 21. That no man’s particular services shall be demanded, or property taken, or applied to public use, without the consent of his representatives, or without just compensation being made therefore.

The protection of the largest banks with your property, if necessary, is presented as a public use, the need to protect the financial system at all costs. The too-big-to-fail policy is sold to us as a necessary step for the common good, the very definition of public use. You were not compensated for this diminution in your property rights; therefore it violates this right.

Section 30. That no hereditary emoluments, privileges, or honors, shall ever be granted or conferred in this State.

Emoluments are rewards, remunerations, benefits, etc. Rewards and privileges are clearly granted to the big banks by this statute. And, at least since 1913 (and actually much further back) the rights, privileges, and benefits granted and bestowed to the banking sector are innate and transmissible within the sector, one could almost say hereditary.

Section 34. The General Assembly shall make no law recognizing the right of property in man.

Property rights taken, it is there in black and white on the page – enough said.

Is litigation the next step?

Government is established – not to grant rights – but to protect rights. But your state is granting a pretty big right to the too-big-to-fail banks and at the cost of your property rights. All without your knowledge and permission. They can’t really do that.

We continue to be blocked at the state legislature level by the bank lobby and the Uniform Law Commission – the evil twin towers of Mordor - so we need to look at and consider litigation on one or more grounds in one or more states. That may be the path forward to restore property rights. It is a conversation worth having.

Can the state be sued for infringing and usurping the property rights of its citizens?

Hey, I’m just asking questions.