The silence is deafening.  There are two very important assaults on the prerogatives of the federal government underway at the moment, and Obama has basically retreated into cheerleading for Democrats in Congress as they face an unfavorable election cycle.

In the first instance, the military has been instructed by a federal district court judge that it may no longer follow its “don’t ask, don’t tell” policy regarding the sexual orientation of service members and recruits, from Bloomberg:

The U.S. government can’t enforce its “Don’t Ask, Don’t Tell” policy while it appeals a ruling that gays and lesbians can’t be barred from serving openly in the military, a federal judge ruled.

U.S. District Judge Virginia Phillips in Riverside, California, yesterday rejected the government’s request for an emergency stay on her order against enforcement of the policy while it appeals. Phillips ruled on Sept. 9 that the policy violates constitutionally protected due process and free speech rights.

Regardless of what you might think about the policy, it is not for a federal district court judge to set national military policy.  Service members give up a great many of their constitutionally protected due process and free speech rights as a condition of their service.  What’s next, a ruling that hot lead flying out of an enemy combatant’s rifle denies without due process a service member’s constitutionally protected right to life?   Does an extended deployment in a war zone deny without due process the constitutionally protected right to liberty?  Where does it end?

The President is the constitutionally sanctioned commander of American forces.  He simply can’t be ordered around by the federal district courts if he is to retain any of the prerogatives of command.

The US Supreme Court needs to hastily step into this fray and set Judge Phillips straight.  In the meantime, the military, pursuant to Obama’s assertion of his command prerogatives, needs to clearly enunciate the principle that federal district courts do not set military policy, and ignore her order.  Period.

Likewise with fraudclosure and the alliance of state attorneys general trying to set national residential real estate funding policy.  It’s not often that I agree with Kevin Hasset of the American Enterprise Institute and Bloomberg News (and infamously, a co-author of Dow 36,000), but he nails it here:

The probability that some ambitious, populist attorney general — does the name Eliot Spitzer ring a bell? — goes overboard seems high if the detective work is left to the states. A neutral and authoritative statement of the facts by federal regulators would go a long way toward limiting the legal feeding frenzy. If entire swaths of the foreclosure landscape are deemed high jinks-free, then banks can breathe a sigh of relief and start lending again.

Which means that Washington needs to step in and do what it can to preempt the coming legal morass.

As was the case with Katrina — a different kind of disaster, under a different president — there’s a lot of confusion about what role the state and local governments need to play in this mess. To date, Obama has been content to let the states lead. This will allow the same type of extortion game to play out that sucked billions from the tobacco companies.

Obama’s position is particularly puzzling in light of the fact that there’s a sparkling new federal entity that could take charge of the runaway train.

If Obama continues to acquiesce to the priorities of fifty state attorneys general, the idea of a national mortgage funding market will all but collapse.   Residential real estate will become again a highly illiquid asset, and commensurately lose value.  And don’t be confused–there can be no liquidity on the front end (in the origination and funding of mortgages) unless there is also liquidity on the back end, in the foreclosure and sale of the property when the loan is in default.

It may well be that residential real estate needs to become less liquid, and that the process of securitization that now makes it thus needs to be ramped down a good deal.  Even so, allowing each state to decide on its own how best to proceed would Balkanize the market, with each one becoming its own little mortgage market fief.  The states would suffer at their own hands, and with them, ultimately, the idea of economic union embodied in federalism.   Instead of attracting investments from every corner of the globe, residential real estate funding would become a parochial affair, dependent on the whims of the local credit union or bank.

Federal law operates to preempt much of state law in the origination and servicing of mortgage loans.  The principle of preemption is what made residential real estate in the US an internationally attractive investment vehicle.  Until recently, foreclosures were a ho-hum 2-3% of the market, so hadn’t been the focus of much federal legislation.  The time is past where we can ignore the variations in the foreclosure process amongst the fifty states.  The federal government must step in and set a uniform, nationwide standard for foreclosures of residential real estate if there is to be a national real estate funding market.   And nationwide priorities like this call for national, i.e., presidential, leadership.

But where is Obama?  The new New Dealer spent vast sums of political capital on nationalizing the market for health insurance.  He poured more political capital into an attempt to stimulate the national  economy.  He spent months agonizing about what to do in Afghanistan and Iraq.  Yet, now as federal prerogatives face assault on a multiplicity of fronts, he retreats to the campaign trail.

The assault on federalism by state attorneys general and federal district court judges represent a fraying around the edges of the ties that bind us.  To the presidency falls the task of stitching things back together, else ever-present centrifugal forces threaten ripping apart the fabric of the republic. 

These two incidents, perhaps appearing as small beer in the grand scheme of things, demand Obama’s leadership.  In many respects, this is his first leadership test.  If instead of answering the call, he retreats to the sanctuary of the White House echo chamber, the remainder of his one-term presidency will see multiple assaults on presidential and/or federal prerogatives and power until the republic may well be hardly recognizable by the time he leaves.

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