DiLorenzo Paper Contrasts US and UK Approaches to Mortgage Crisis

My colleague, Vincent DiLorenzo of St. John's has written Barriers to Market Discipline: A Comparative Study of Mortgage Market Reforms. Here's the abstract:

This paper explores mortgage market reforms in the U.S. and U.K. in response to the recent mortgage market crisis. Two issues are examined. First, the paper explores the extent to which regulatory bodies have recognized behavioral barriers to market discipline on the part of not only consumers but also industry actors. Second the paper examines the varied response in the U.S. and U.K. to both market limitations and behavioral limitations to self-protection and self-discipline that led to unsafe lending practices in the period 2003 through 2007. The greater emphasis on rules-based regulation in the U.S. after 2008 is compared with the continued reliance primarily on principles-based regulation in the U.K. This difference, however, is not what will determine future outcomes. Rather, the main finding is that future compliance with safety and soundness requirements will depend on a regulatory policy and enforcement record that will alter the industry’s past conclusion that evasion, or even noncompliance, with legal requirements is a reasonable business decision based on cost-benefit evaluations. In light of that finding, the U.K.’s new enforcement policy and record is far more likely to lead to compliance than the light-touch enforcement policy and record that has continued in the U.S.

Comments

[Cindy Walsh]

No where does it address the fact that citizens of the United States have always enjoyed having a government that pro-actively policed industry so that consumers could rely on the safety and security of goods and services purchased. Never would one question a licensed dealer's integrity....the government would not let them do business if they weren't honest.

This model change over two decades moved from proactive policing to reactive policing, then from policing to public/private partnership of oversight to corporate benefit. All this was unseen by the public and was a deliberate attempt to leave the public vulnerable to scams that are now the norm across business sectors.

Analysis of these market changes is simple; politicians worked with corporations to establish an economy where money was moved from the pockets of middle/lower class Americans into the pockets of the upper class/corporate pockets by any means possible with total disregard to legality or ethics. These two decades saw politicians passing laws that clearly have no moral or ethical standard...they exist solely for corporate profit.

Citizens used to a Rule of Law culture would of course be totally unsuspecting of this great con. The financial crisis can be stated as simply as this:

A complete breakdown of Rule of Law by government and corporations with the sole design to move great wealth from lower/middle-classes to upper-class with no regard to existing standards and expections.