Foreclosure Mills Under Fire; A New Way Forward?

The early days of the financial crisis revealed megabanks indulging in sloppy and self-serving recordkeeping on the macro-scale. Now we see the devastation and disorder that happens when that same profit-at-all-costs mentality is inflicted on individuals. As has recently been reported, foreclosure horror stories include “a man who was foreclosed on when he didn’t have a mortgage and paid cash for the home; a home that had two foreclosure suits against it because both servicers claimed ownership of the title; and a couple foreclosed on over a contested $75 late fee.”

Reform groups like A New Way Forward are gaining strength and members because large financial institutions are increasingly untrustworthy. They no longer appear to be unitary “actors” at all, but rather shadowy and unstable ensembles of desks and divisions whose main goal is slipping by whatever bonus-maximizing scheme won’t set off alarms among risk managers and regulators. As Satyajit Das memorably puts it in his book Traders, Guns, and Money, “no trader making $1 million + a year is going to take questions from an auditor making $50,000 a year” (144).

Given this grim landscape, I wanted to highlight two hopeful items. First, this Monday the Roosevelt Institute will host a conference on the future of financial reform, featuring some of the most credible and compelling voices in the field (including Jennifer Taub, Mike Konczal, Richard Carnell, Sen. Jeff Merkley, and Michael Greenberger). Second, three new books appear poised to reinvigorate stale debates over “markets vs. regulation:”

In his sweeping . . . The Illusion of Free Markets: Punishment & the Myth of Natural Order (forthcoming January 2011), Harcourt brilliantly links our irrational notions about punishment with our fantasies about the supposedly natural system of market organization. It’s a deeply subversive book in the best sense of the word. Ten years ago, Harcourt launched a critique of the “broken windows” philosophy of urban law enforcement (the idea that if you harshly punish small property crimes, it will stop the big crimes) with his book Illusion of Order. That strategy had hypnotized policy-makers, and Harcourt’s thoughtful challenge opened a discussion. I’m hopeful that his new book will inspire a similar rethinking of our faith in the market metaphor.

In Maynard’s Revenge: The Collapse of Free Market Macroeconomics (January 2011) Lance Taylor shows how little relevance mainstream macroeconomic theories have for the everyday real world. . . . This is the sort of big, important book that will hopefully percolate through to the pop economists and the general educated public.

On the libertarian side, Russ Roberts and Arnold Kling have banging the drum about the pseudoscientific foundations of macro-econ for some time, and Taylor’s book should be a welcome contribution to that discussion. The final “hopeful” book I’m thinking of is John Quiggin’s Zombie Economics, now on sale. Quiggin’s book not only deconstructs ideas like privatization and trickle-down economics, but also “looks at alternatives to the ideas of market liberalism.” It is sure to be a welcome addition to a growing post-crisis literature that looks at the foundations, rather than the symptoms, of an increasingly unstable, unequal, and unfair US economy. Old ways of thinking are, as Joshua Clover puts it, busted.

Image Credit: American Casino.

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