<blockquote>
'...Banks, investment companies and credit card companies increasingly badger their customers to go “paperless” thus leaving themselves with no tangible record of their assets and liabilities.
...
Ownership rights were not particularly solid in the ancient world; there was always the risk that someone with more clout or simply a bigger band of thugs would dispossess you. Outside Song Dynasty China, the first attempt at a society with solid ownership rights occurred in the reign of England’s Henry VII. He established the rule of law, even applying it to the baronage and setting up a system of Justices of the Peace to enforce prohibitions against random thuggery. His Tudor and early Stuart successors violated property rights frequently, but after the Restoration the protection of property rights increased rapidly – an increase that coincided with Britain’s economic take-off and to some extent caused it.
...
The gradual erosion of property rights after 1830 is however illustrated by the novel’s central struggle to update the terms of the bequest more in line with the money values and moral principles of the Whig 19th Century, depriving Harding of most of his income. Harding and his supporters the Bishop of Barchester and Archdeacon Grantly base their case on the values of their pre-1830 youth; in the Whig world of two decades later they are eventually defeated. However the protection and expansion of the Hiram’s Hospital property rights for 400 years is a notable example of the stability of both money values and society as a whole that emerged in the centuries following John Hiram’s death.
...
Without some such Archive, property rights exercised over long periods will become nugatory. Probably within the next decade, the world will come to realize that this reform is essential if our civilization and living standards are to survive.'</blockquote>
The Fragility of Virtual OwnershipBy Martin Hutchinson
October 25, 2010
SourceThe foreclosure crisis has highlighted again a major flaw of our modern economy: the fragility of ownership and property rights in the Internet age. Quite apart from the possibility of an electromagnetic pulse [EMP] field blanking out everybody’s servers, the sheer complexity of computer-managed structures such as securitization can make them very difficult if not impossible to unravel. At some point, we will all pay a major price for this flaw.
Securitization was always going to involve these kinds of problems. The idea that you can take a simple instrument like a home mortgage and dice up payments from it in hundreds of different directions, with mortgages being securitized and re-securitized, worked all right in the investment banks’ computers, but would never have worked on paper! Naturally, with sloppiness all round and a fair admixture of fraud, together with a lot of expensive lawyers available, the result has been an unholy mess. Even without fraud in the computer systems themselves, the passage of time, as not only the original deals but the original deal management systems become forgotten, will ensure that ownership rights become untraceable. For a substantial percentage – perhaps 5%, perhaps 10% – of the mortgages written between 2002 and 2007, this process will result in the property rights, in both the mortgage and the underlying house, becoming unenforceable because the evidence for them does not exist in unambiguous form.
While securitization has given rise to the most immediate problems, there are other areas in which property rights have been rendered more uncertain by computerization. Dematerialized bonds and stocks, the great back-office fad of the 1980s and 1990s, mean that investors are now completely dependent on the record-keeping capabilities of New Jersey computer servers. Banks, investment companies and credit card companies increasingly badger their customers to go “paperless” thus leaving themselves with no tangible record of their assets and liabilities.
The dangers of this are obvious. The science fiction threat of an “EMP” nuclear attack is far greater now than it was in the early days of the Internet around 1995-96, although electronic equipment was already as vulnerable then as it is now. Back then, banks still sent paper statements and transactions in general generated a blizzard of paper, even though the Internet was rapidly becoming a popular means of communication. Hence an EMP destruction of the 1995-6 Internet would have left us with written records of almost all significant transactions. That is far from being the case today. Far from having improved our defenses against EMP we have made ourselves infinitely more vulnerable. Like holders of California subprime mortgages with inadequate documentation, our property rights have been sharply diminished.
Ownership rights were not particularly solid in the ancient world; there was always the risk that someone with more clout or simply a bigger band of thugs would dispossess you. Outside Song Dynasty China, the first attempt at a society with solid ownership rights occurred in the reign of England’s Henry VII. He established the rule of law, even applying it to the baronage and setting up a system of Justices of the Peace to enforce prohibitions against random thuggery. His Tudor and early Stuart successors violated property rights frequently, but after the Restoration the protection of property rights increased rapidly – an increase that coincided with Britain’s economic take-off and to some extent caused it.
The high point of property rights in Britain came under the great Tory governments of 1783-1830. By that time, the legal system worked well, under the benign guidance for most of the period of Lord Chancellor Eldon. With a sound monetary system, property rights could thereby be preserved over astonishingly long periods. In Anthony Trollope’s first Barchester novel The Warden, published in 1855 the plot revolves around a bequest for Hiram’s Hospital that had been made in 1434. By the time of the novel, roughly the late 1840s, the bequest has increased in value, providing an excellent income for the hospital’s warden, Septimus Harding.
The gradual erosion of property rights after 1830 is however illustrated by the novel’s central struggle to update the terms of the bequest more in line with the money values and moral principles of the Whig 19th Century, depriving Harding of most of his income. Harding and his supporters the Bishop of Barchester and Archdeacon Grantly base their case on the values of their pre-1830 youth; in the Whig world of two decades later they are eventually defeated. However the protection and expansion of the Hiram’s Hospital property rights for 400 years is a notable example of the stability of both money values and society as a whole that emerged in the centuries following John Hiram’s death.
Thus in Trollope’s world, 400-year old documents kept in strong boxes by family solicitors (or, in that case, those of the Diocese of Barchester) were still rock-solid evidence for the disposition of substantial sums of money. Those property rights had already begun breaking down in 1855 and were sadly further eroded by the 20th century tendencies of governments toward expropriation, ruinous taxation and currency debasement. The virtualization of records has now taken that unhappy process a massive stage further.
One has only to think of the chances of making a successful claim in the year 2410 based on today’s computerized records to realize how far property rights have sunk. Computer databases are updated every 2-3 years and after a few “generations” of such updates become unusable. Even ten years ago, the massive panic over the Y2K problem, based on inadequate programs that were at that stage only 20-30 years old, shows how quickly data stored in virtual form can be rendered inaccessible. In addition, there’s the destructibility of the computers themselves, which has become a far worse problem with the new migration of data to cell-phones and tablets. (Desktops were equally likely to be smashed when you dropped them, but they were much less likely to be dropped, since they were not considered “portable.”)
If John Hiram’s will were made today therefore, and kept in virtual form, it would become a major data recovery problem by 2030 and entirely unavailable by 2050 or so. (Bizarrely destructive monetary policies might well also make his legacy valueless in that time!) Within a tenth of the period for which the original Hiram’s will was preserved by the Diocese of Barchester’s solicitors, and the value of his property preserved by good management aided by mostly sound monetary policies, the property of a new John Hiram would have been decimated, and the evidence for its existence destroyed.
This problem will get worse not better. Its ramifications will become exponentially more obvious as the virtualization revolution ages, and only concerted action, nowhere currently in view, can remove it.
One possible technological solution would be a De-Virtualized Archive, open to Members on a subscription basis. This would consist of date-stamped, numbered paper records, appropriately indexed and kept under some suitably nuke-proof mountain. Every transaction engaged in electronically by a Member, every business agreement signed and every statement produced by his creditors and debtors would automatically be printed out, bound in “books” of 500 pages and stored in the archive. This would all be done without human intervention, to keep down costs and above all errors, intentional or unintentional.
For major corporate and banking transactions, particularly complex ones such as securitization, Archive storage would be mandatory. When a Member needed to consult a document, he would access the Archive’s index (also automatically reproduced in paper form and stored) and demand the document by volume and page number. A copy would then be sent to him. For an extra charge (since it would presumably require human intervention) the original Archive document would be available.
Under this solution, a 2010 equivalent of John Hiram’s will could be Archived, and if needed in several centuries could be accessed (the security of archival paper storage and indexing for centuries having being proved by the existence of libraries). Provided the Archive was properly maintained – again, a function that history has shown to be possible – the documents and property relating to each Member, even those long dead, would be properly preserved.
Such an Archive would be immensely destructive of forests, but tant pis. The annual fees would need to be substantial but not crippling, but partial Memberships would be possible in respect of individual documents. In practice, only those with significant investments or property would become Members, though it might be possible to mandate Membership or partial Membership for homebuyers for example (given modern building standards, the Archive would far outlast most houses!). Nevertheless, a John Hiram of 2010, leaving property of a substantial value in a long-term trust, would presumably have become a Member, at least partially.
Without some such Archive, property rights exercised over long periods will become nugatory. Probably within the next decade, the world will come to realize that this reform is essential if our civilization and living standards are to survive.