I find it interesting that during the Global Financial Crisis, banks, the Federal Reserve, Congress and government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac implicitly blamed borrowers for the mortgage-default debacle by their actions, such as the Fed’s preference for helping lenders rather than homeowners, Freddie Mac betting against the homeowners and banks pressing the Fed to curb borrowers’ rights. Yet, when it came time to consider new regulatory action to prevent future mortgage debacles, the Fed wanted to strip homeowners of their right to fight foreclosures, and the only legislation with teeth came in the form of tougher scrutiny for borrowers, not banks.
What was, and continues to be, missing is a means to disseminate full disclosure of what, exactly, the home buyer is signing. That bright, shiny home is too much of a temptation, and all rational thinking goes out the door. Papers are pushed across the table, everyone is grinning, pens go to work signing, and keys are handed over. A new homeowner is born, and the poor son-of-a-bitch hasn’t a clue as to what he or she just signed.
I always tell family and friends the same thing, over and over, when buying a home: Hire an attorney and a home inspector. The home inspector retained by the bank is working for the bank, not the buyer, a detail over which most home buyers seem to remain completely clueless. It’s as if the bank has suddenly become a close friend, and is concerned the buyer may unwittingly buy a home with unknown defects. In fact, that home inspector has no other interest than in telling the bank that should the home go into foreclosure, the home’s condition is just good enough for the bank to expect its investment recoverable, ceteris paribus. If the buyer’s down payment and any subsequent investments in time and money are lost in the process, well, oh well.
And since when does someone sign a mountain of legal documents without retaining professional legal help in reviewing those documents? If a buyer cannot afford to retain an attorney, then he or she has no business buying a home.
Yet, few ever heed my advice, and I see homes being purchased without an attorney or inspector involved in the process.
It becomes difficult to muster any sympathy for such negligence but I will also side with the need for full disclosure to homeowners, including a strong suggestion from the seller of mortgages to retain an attorney and inspector. Short of that – and somehow we know home buyer behavior will not change despite what has just transpired in the home market in recent years – explicit explanations of just what, precisely, the buyer is signing onto should be mandated by law. Asymmetrical information – wherein the seller understands perfectly what is being sold but fails to provide full disclosure to the buyer – represents not only a potential economic collapse in the aggregate, but a moral failure in the particular. Properly functioning markets do not create morals, but certainly assume such morals are in place. This precipitous growth in the lack of trust in markets and market transactions goes to the very heart of why centralized capitalism is collapsing.
And yet, corporations continue to oppose symmetrical information: for example, the Grocery Manufacturers Association is fighting against full disclosure of food contents on labels. Without this information, consumers can hardly make informed choices that can have a direct impact on their health. In the aggregate, such decisions could help reduce the need to access the healthcare system in the future, and thus help contain healthcare costs.
From the corporate side, however, there’s little incentive anywhere. Hide the true and accurate content of food, and more buying decisions for a product will be made. If the contents of that food create illnesses, then more people will access the healthcare system and drive the demand for pharmaceuticals, hospital beds, physicians and medical devices. As healthcare costs rise, demand for health insurance rises in concert. It’s a win-win-win for the corporatists.
But for individual consumers? They are hung out to dry. In an era of decreasing incomes, yet with rising food and energy costs, consumers are becoming ever more stretched in being able to pay for health insurance. Some simply can’t afford it at all, and the Federal government’s answer is to place a gun at the head of those struggling to make ends meet and force the purchase of health insurance… just to make sure every last drop of blood has been squeezed out of the consumer. The corporatists certainly wouldn’t want to waste a good consumer.
At every turn the consumer is being stretched, and the increases in neuroses are rising as a result of having to live within this ugly reality. Simply track the precipitous rise in the sales of psychoactive prescription drugs… or even the illegal ones.
As long as the corporatists continue to block access to the critical information necessary for intelligent buying decisions, they will labor to bring about their own demise by ensuring the collapse of centralized capitalism. Trust in markets precedes functionality. Forget that, and you can expect a backlash against capitalism in the same manner we witnessed a backlash against communism in the late 20th century.
Only this time, there will be no backup economic system upon which we can rely.
Tags: asymmetrical information, centralized capitalism, Congress, consumer disclosure laws, corporatists, Fannie Mae, Federal Reserve, food label laws, Freddie Mac, Global Financial Crisis, Grocery Manufacturers Association, health insurance, healthcare, Obamacare, trust in markets, Wall Street banks