Inequality and the Mortgage Crisis

Bruce Judson, Entrepreneur-in-Residence at Yale Entrepreneurial Institute, made some great comments the other day on how the mortgage crisis has undermined our legal system. He talks about how it seems there are two sets of laws in our society; one for the rich and one for the poor. This is not new news. But its growth is undermining the economy. He points to the robo-mortage scandal of this type of injustice.

The banks claimed their violation were merely technical and didn’t harm anyone. Rather like saying, “technically I robbed your bank but I didn’t shoot anyone, so no problem”. This seems to ignore laws on fraud, perjury and conspiracy. It was a big deal up to 10,000 false affidavits a month. These are federal crimes folks. Judson found that an audit in San Francisco mortgage practices, the first such audit, found that 82% of the cases animalized were and involved felony violations of California perjury laws.

Gretchen Mortgenson of the New York Times writes about how banks often get to “skate away” from their promises. The just don’t comply with court orders and nothing happens.

Judson writes, “The stakes here are enormous. They extend beyond the housing market to the nature of American society itself. The banks’ blatant malfeasance with regard to the robo-mortgage scandal and other foreclosure-related activities has been a clear example of unequal enforcement of the laws.

Sustainable capitalism requires that all participants in a contract or bargain believe their interests will be enforced equally by the courts: Capitalism requires that Lady Justice wear a blindfold. When powerful players are permitted to alter established rules at will, capitalism ultimately collapses. Contracts and the idea of a fair bargain become meaningless as less powerful parties to an agreement know their rights will not be enforced. Over time, citizens lose faith in government and their own ability to thrive in what becomes a corrupt economy. This uncertainty leads the small businesses, which are so often cited as important to our economy, to shy away from new activities that might put them at the risk of unequal treatment.”

He concludes that President Obama has said economic inequality, “the defining issues of our generation.”

Let’s hope we can get some teeth into bank and corporate malfeasance.