On Stiglitz: Part Seven

The next chapter in Joseph Stiglitz's The Price of Inequality is titled "Justice For All? How Inequality Is Eroding The Rule Of Law?" Even though it is the shortest chapter of the ten in the text, it takes sharp aim at how our justice system has helped to further inequality in this country. The rule of law is supposed to protect the weak against the powerful yet in today's society, if someone is suing a corporation, we have all been conditioned to view that person as "gold digger" and the corporation as a "victim" (This simple fact is covered extensively in the stunning film Hot Coffee).

As Stiglitz notes,

As the old poem goes, "No man is an island." In any society what one person does may hurt, or benefit, others. Economists refer to these effects as externalities. When those who injure others don't have to bear the full consequences of their actions, they will have inadequate incentives not to injure them, and to take precautions to avoid risks of injury. 

The Right has a real cognitive dissonance problem with the sentiment above. They want to live in a society where everyone is a "rugged individualist" yet still want all the trappings of a modernism. They can't accept the fact that in any sort of society one person's actions has a direct effect on another's life. and that's with or without government interference.

Stiglitz writes that one of the big reasons why American corporations have been so successful in the last 30 years is they have been able to avoid the consequences of their actions by rigging the game in their favor. This has never been more true than in the financial sector, specifically the banks. There were no real consequences for the predatory lending and fraud committed by the banks in the run up the financial crisis of 2008. Stiglitz notes that some states like Georgia tried to enact laws that would have stopped this sort of behavior in the first place.They were repaid by Standard and Poor's threatening them to not rate any of their mortgages. This would be the same Standard and Poor's who downgraded the US credit rating. This would also be the same S & P labelled "A" what turned out to be "F" rated mortgages. So, any attempt to stop predatory lending by government entities was met with (ahem) corporate force.

Stiglitz goes on to discuss how bankruptcy law has also become massively corrupted in a similar way. He touches on the student loan problem and how banks seem intent trapping young people into impossible situations with insurmountable, lifelong debt. This helps to cement the inequality in this country.

Stigliiz then turns to the mortgage crisis that was the driving force behind the 2008 economic crisis. In a nutshell, he asserts that "rule of law" was tested in this country and the results clearly showed that there was no justice for all. In fact, there was justice for very few people in the financial sector.

The banks wanted a speedier and less costly way of transferring, so they created their own system called MERS but like so much of what the banks had done in the gold rush days, it proved to be a deficient system, without safeguards, and amounted to an end run around a legal system designed to protect debtors. 

So, the banks unilaterally decided to rewrite property law. When the crisis hit, they were supposed to be able to prove how much they actually owed. They couldn't and it was largely because there was no oversight to make sure they did. It didn't really matter to them anyway. There was so much money flying all over the place that they knew the government would have no choice but to bail them out. What were they going to do? Let the economy collapse?

Worse, Stiglitz points out that if corporations were indeed people, they should have been prosecuted for fraud as they were unable to prove that there financial records were valid. There still has not been any significant pursuit, by the government, towards foreclosure fraud. This is a complete and total failure by the US government, specifically Eric Holder. It's amusing how much people on the right bitch about him for the phantom things he's done but not the main thing that he has neglected to do. Recall that the DOJ prosecuted over one thousand cases in the S & L scandal in the early 1990s.

Stigliz notes a Wall Street Journal piece which also uncovered discrimination on the basis of income regarding the foreclosure process. On average, it took banks two years and two months to foreclose on mortgages over one million dollars, six months longer than on those under one hundred thousand dollars. Banks were bending over backwards to accommodate bigger debtors and their team of lawyers that were the best money could buy. The little guy had none of this, of course, and worse, considering just how much the law had been eroded.

We've come to a point in our society where the government does more to protect the interests of corporations and less to protect the rights of individuals. People in Congress are being paid large quantities of money to look the other way and allow the private sector, especially the financial sector, massive leeway in their business. We don't need a "bigger" government. What we need are elected officials who can quickly recognize factors such as externalities and market power in the private sector and intervene quickly to prevent another crisis such as the one we had in 2008. A good place to start is the financial sector and we have, at least, taken steps down that path with the Dodd-Frank bill.

The people who are elected to Congress have to understand that they are performing a public service. They aren't the extended legal staff of the various corporations in the United States.