The 70mph Mortgage

A typical speed limit sign in the United State...

Image via Wikipedia

Lots of folks are getting worked up about the banking – mortgage – foreclosure mess. Words like “criminal” and “illegal” are popping up more frequently. We may be seeing the Internet equivalent of a lynch mob.

I have no doubt that there was extensive illegality, but I also don’t believe that a crime spree in banking just came out of nowhere. I’ve often written about the deeper cause – when government gets too involved in capital allocation, it distorts everything and invites bad behavior, stupid behavior, and criminal behavior. I don’t know if it meets the legal definition of entrapment, but I do know that treating the symptoms won’t cure the disease. Yet the critics are right: we probably won’t, and probably can’t, even treat the symptoms.

I think the symptoms are like traffic on the Interstate: the overwhelming majority of drivers break the speed limit. Some don’t think about it much but assume if they stay with the other traffic, they run little risk. Some think it’s safer to pace the other traffic rather than obey the speed limit. Some think the speed limits are stupid, as in “70 mph might make sense for a 1945 Nash, but for a modern car? C’mon!” And there are some speeders who just have a callous disregard for they safety of others – true sociopaths.

But the highway patrol can’t know your motives for speeding. They can’t hope to stop more than a tiny fraction of speeders. And they have to be careful not to stop too many minorities or some politician’s niece. So they do the best they can – pick off a few now and then, but save their best efforts for accidents, stranded motorists, etc. You could say that these “highway regulators” have fallen down on the job and are complicit in the widespread violation of speeding laws, but that argument is exceedingly weak.

I believe the actors in the banking – mortgage – foreclosure mess were like speeders on the Interstate. A lot of illegal activity was seen as relatively harmless and standard practice. Strict adherence to the rules could cost you a lot of money or even your job. Besides, what’s the worst that could happen? Regulators often looked the other way, just like the highway patrol.

And yes, there may have been a few sociopaths too.

So I’d save my moral outrage for those who are at the root of the problem: politicians with a lust for interfering in markets. Even they don’t deserve our outrage: they might have meant well. Save your outrage for ignorance – the ignorance of politicians and the even greater ignorance of the voters who elected them.


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