Via Firedoglake, the right has apparently found an academic prepared to give intellectual respectability to its opposition to the proposed Consumer Financial Protection Agency, a George Mason University professor named Todd Zywicki:
Zywicki and his fellow Randians think that the FCPA wouldn’t have made the slightest difference in the conditions that led to the great crash of 2008. He says all of these borrowers understood the exact nature of the loan terms in those option ARMs, and fully grasped the way the credit card companies would interpret the 63 pages of terms and conditions. They took out loans they couldn’t pay on the theory that the value of the house would go up so they could refinance the loans and borrow money to make the payments. Or something. Anyway, they were acting rationally.
Each one of those lenders was acting rationally too, since their incentive, making commissions, was to sell the worst possible loan to anyone, regardless of their ability to pay, because the worse the loan terms, the higher their commissions would be.
Zywicki explains that “Virtually every credit product is valuable to some consumers.” The logical implication is that banksters should be allowed to try to make loans on any foolish terms they can think up, whether or not it makes sense for the borrower. It’s up to us to figure out whether they are cheating us. I really like the idea that Zywicki will have to read the kinds of loan agreements I slave over for hours, and see if he can figure out what the bankster lawyers are doing with the English language.
The Firedoglake writer makes a compelling argument that the actors in all those dramas were in fact acting quite irrationally. But there’s a larger point that sometimes gets lost when we let the right frame the issues. Let’s stipulate that the borrowers and lenders both were acting in their own best interests (they weren’t, but lets pretend). One things for darn sure, they weren’t acting in the long term best interest of the country, not by a long shot. The country is us-all of us. Don’t we have a right to defend ourselves from the destructive effects of the decisions that individual actors make, even if those decisions are in the bests interests of the person involved? Randian Libertarians would say no, except (as the writer points out) when corporate interests are involved. But as a society we have answered that question in the affirmative since this nation’s inception. The air we breathe would be unbreathable, and the water we drink undrinkable had we let “rational” decision makers set environmental policy. I honestly despair of this government’s ability to effectively respond to this current crisis; they should have struck when the iron was hot; either at the time of the bailout, or in the first few weeks after Obama was inaugurated. The lobbyists are moving in for the kill. What we’re likely to get is a regulatory scheme designed to fail. But that fact won’t prove that we shouldn’t effectively regulate the financial system, only that we haven’t.