Musings on Residential Segregation

I was interested to see a  discussion on residential racial segregation in Milwaukee on the Political Environment Blog run by former journalist and Mayor Norquist aide Jim Rowen.

I was once absorbed in this debate. As a young associate at Foley & Lardner, I was part of the defense team representing twenty-four suburban school districts who were sued by the Milwaukee Public Schools. MPS sought a metropolitan-wide integration plan. We tried the case for a few months and then it settled on terms largely favorable to the suburbs.

I was in charge of the “housing” case, i.e., our response to the plaintiffs’ claim that residential racial segregation (causing school segregation) was caused by discriminatory government practices over a period of fifty years or so. Very heady stuff for a young lawyer still north of thirty.

I have kept up with the issue casually since then but I think that there were three important things that we learned then that are still relevant today.

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The Church (or Mosque?) of AIG

The Thomas More Law Center has filed a complaint on behalf of a Michigan resident against Treasury Secretary Paulsen and the Board of Governors of the Fed. It alleges that the bailout of AIG violates the Establishment Clause.

Now, I admit that I have had many misgivings about the ongoing orgy of bailouts, but, I must say, that’s one that did not occur to me. I’ve worried that bailouts distort the market, reward incompetence, create moral hazard, and, in the case of AIG, foot the bill for “team building” junkets. But I hadn’t thought that it established a religion. What gives?

It turns out that AIG has a business unit that offers Shariah compliant financial products. In particular, it offers Takaful lines of insurance which, according to the complaint, invest in no businesses that are haram (or unIslamic). The Shariah compliant business units also pay the zakat, a religious tax that supports only Islamic charities.

Let’s get two things out of the way. There are certain cases that you just know are going nowhere. This is one of them. Second, the complaint is chock full of assertions about the nature of Islam and the role of Shariah compliant financial products in funding terrorism that have nothing to do with whatever legal arguments might be made in favor of the plaintiff’s position.

But even if the case is going nowhere, can we at least discern a semi-plausible argument on its behalf? Let me try so you don’t have to.

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Good Result for the Wrong Reason

I am not the right guy to play Scrooge this time of the year, but why is the resolution of the Republic sit down strike something to be applauded. I understand the plight of the employees. State law entitled them to notice and pay that they were not about to receive.

But this is hardly the fault of Bank of America. BOA has been politically pressured to make a loan that will never be repaid.

You may say “who cares?” BOA is a big bank and 1.75 million dollars is barely a crumb in its cookie jar. But, as the old saying goes, a million here and a million there, and pretty soon we are talking about real money. Neither BOA nor any other bank can survive by making, not merely a poor – but an insane “loan” in response to political pressure. In a free economy, businesses fail and various stakeholders – shareholders, employees and creditors – will be hurt by it. We can’t expect banks – even those who have had an influx of federal capital – to insure against it.

The Republic employees acted boldly and certainly benefited from being from the President-elect’s hometown. Maybe (although I would oppose it) the government should guarantee obligations under the plant closing laws. But shifting the costs to a firm’s lender based upon who can and cannot exert the requisite political pressure seems irrational and even dangerous.

I suppose that those who are committed to a greater collectivization of losses and gains, this is a fumbling step in the right direction. My own view is that, if you want to assume community responsibility for private obligations, it ought to be done directly so the community can assess the costs and benefits.

Crossposted at Shark and Shepherd and Prawfsblawg.

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