- Individuals should be held responsible for their decisions, but many homebuyers and homeowners did not have a decision beyond bad mortgage or no home. That is not a decision, but a reflection of the inability of the market to address the needs and concerns of all segments of society. The one who did have a choice, those who invested in real estate in order to profit, should be differentiated from those who did not. Self-help fails when individuals are unable to help themselves.
- Lang gets at a fundamental issue when he discusses the power differential between borrowers and lenders. The Lochner era of the Supreme Court, named for the 1904 decision Lochner v. New York, was characterized by the adherence to the idea of right to contract. Individual workers were assumed to have the same leverage and power as their employers, thus any legislation to regulate the hours, wages, conditions, etc. of labor was seen to interfere with a worker's right to dictate the contents and terms of his (but not her) contract. The result of this mistaken application of the Due Process Clause of the Fourteenth Amendment was damaging not only to individual workers, but to unions and the long-term health of the economy. When this changed in 1937 under West Coast Hotel v. Parrish, the government gained the ability to bridge the gap between workers and employers. This ensured that the 1935 Wagner Act (among other legislation) would remain constitutional and it paved the way for the Fair Labor Standards Act in 1938. What was true of workers and employers is also true of borrowers and lenders. To paraphrase Lang, borrowers lack the knowledge, expertise, and experience to gauge the market with anywhere near the accuracy with which lenders should be able. Even borrowers who may possess such specialized knowledge simply do not have anywhere near the same resources as the average bank, to say nothing of a Citigroup or a Goldman Sachs. As such, government should step in to help bridge that gap. It is not a double standard to hold those capable of a certain behavior accountable while not doing so for those incapable of such otherwise regulated behavior.
- Government non-intervention works both ways. In the 1890's, unions were among the most critical of government intervention in the economy because government would invariably intervene on behalf of management in any labor dispute. Today's situation parallels this grievance. Bear Stearns was bailed out (for all intents and purposes), but individual homeowners are not. This reinforces the structural inequality between massive institutions and individuals as well as the need for government to actively stand for those individuals.
Friday, March 28, 2008
A Few Thoughts
I will hopefully write more about this tomorrow or this weekend, but I want to quickly address a few points: