Payday Lending Restrictions Would Punish Responsible Lenders and Borrowers and Violate Rights

Beverly Brown Ruggia is the Financial Justice Program Director for New Jersey Citizen Action, and her New Jersey Star-Ledger op-ed pans a financial bill in the legislature. In Legislators must stop this bill. It perpetuates a cycle of poverty in New Jersey, Ruggia writes

S3611/A3450 will allow New Jerseyans early access to their earned wages. It’s another form of payday lending in disguise, structured to enrich payroll advance companies while potentially trapping low-income workers in a destructive cycle of debt.

I do not have a particular opinion on S3611/A3450. I have not studied the details. But that’s not important to this post. What is relevant is Ruggia’s opposition and reasoning. 

Note first that she immediately pivots to so-called payday lending, a form of ultra-short term credit that involves borrowing against one’s next paycheck within a few days of receiving it. Here is Ruggia’s take on it:

S3611/A3450 sets no fee limits, allowing companies to skirt New Jersey’s lending laws, or usury caps, designed to protect our residents from outrageous interest rates. For example, a $100 advance taken five days before payday with a $5 fee is equivalent to a 365% annual rate, far greater than the 30% annual rate allowed in New Jersey.

Note the package deal being peddled here. A $5 fee on a 5-day loan becomes an annual rate of 365%, even though the loan is not a yearly loan. It’s apples and oranges and it is deceiving. So how does Ruggia arrive at that erroneous assertion?

[These types of loans] can force low-income workers into taking back-to-back advances, trapping them into an endless and destructive debt trap. The National Consumer Law Center (NCLC) estimates that users average between 12 to 120 advances per year, and many take out even more than that.

Nobody forces anyone to take out these loans, any more than anyone is forced to borrow against his credit card.

Any form of borrowing can be abused, including credit cards. But so-called payday loans, like credit cards—a form of ultra-short term borrowing—can be a valuable financial management tool, as well. That’s why they’re popular among many workers. Yes, an irresponsible person can trap himself into a cycle of ever-expanding debt. But it’s he who traps himself, not the company that loaned him the money in good faith. Responsible people don’t let that happen, and should not be shut out from this financial tool to protect the irresponsible. 

The author portrays this type of lending as a corporate boon at the expense of the poor, evading the fact that lending is a mutually agreed-upon trade. Ruggia exclaims:

Lobbyists have portrayed this bill as an innovative solution for cash-strapped employees. But S3611/A3450 would only benefit the fintech and payroll advance companies seeking to enrich themselves at the expense of workers and their families.

I guess “innovative solutions for cash-strapped employees” is not a value. This is typical Leftist snobbery and self-serving delusions of superiority. Ruggia apparently believes that businesses are predators and low income people are too stuped and short-sighted to make intelligent, self-interested financial decisions. And those evil lenders, who make these financial management tools available, are only out “to enrich themselves at the expense of workers and their families.” No, they “enrich” themselves through their product offerings, just as workers advance their own financial interests by taking advantage of these loan products. Like any Marxist, Ruggia seems never to have discovered the principle of trade, in which each side seeks to advance her own self-interest through mutual agreement.

Ruggia finally gets around to acknowledging the value of these ultra-short term payday loans, albeit with a back-door plug for job-killing minimum wage laws:

Workers without access to ready cash could benefit from a variety of solutions. There is the technology to allow companies to pay workers early, free of charge, and there are rainy day programs and savings plans. The simplest solution would be to pay workers better wages to help ensure they don’t fall into ruinous debt.

Ruggia apparently doesn’t know that high income people also get into self-imposed financial trouble. Irresponsible financial handling is not a monopoly of low income—or “vulnerable” in Ruggia’s distorting terminology—folks. Yes, there are ways to plan for cash emergencies. But that’s no reason to legally take any financial tool away, and the state has no legitimate power to outlaw payday loans. It’s job is to police against fraud in the market, but otherwise leave people free to contract for the purpose of lending and borrowing.

This, from the Financial Justice Program Director for New Jersey Citizen Action, a statewide advocacy and empowerment organization that advances social, racial and economic justice for all. Justice for all--unless you’re the type of person who makes sound financial decisions, I suppose. Where’s the individual justice? What about responsible borrowers? Why should they be denied these loans? Why should a lender be denied the freedom to service responsible people with payday loans, if they have customers who want them? Responsible people and legitimate entrepreneurs are to be denied their freedom to voluntarily contract for the sake of irresponsible people. Of course, that’s “social” justice; that’s economic “justice”. And it is morally perverse. It is the opposite of the only genuine justice -- individual justice.

Beware the champions of “vulnerable” people. It’s your freedom and rights that they are really after.

Related Reading:

A Lesson in the Crucial Distinction Between Economic and Political Power

Limiting Access to Payday Loans May Do More Harm than Good—Paige Marta Skiba

One of the few lending options available to the poor may soon evaporate.

Where Does Valid Law End and Regulation Begin? -- my article for The Objective Standard

The Morality of Moneylending: A Short History by Yaron Brook for The Objective Standard

QUORA: ‘Could someone explain America’s debt system to an idiot? How can we be in debt with ourselves?’

QUORA: ‘Could someone explain America’s debt system to an idiot? How can we be in debt with ourselves?’

I posted this answer:

The term “America’s debt system” is vague. Let’s define the terms. By “America’s debt system” I’ll assume the question refers to government debt. 

Government debt is not being “in debt to ourselves”. The government is a distinct entity in and of itself. There is no “we” and no “ourselves”. When the government takes on debt, it borrows money from lenders who supply the cash in good faith that they will be paid back. The debt (bonds) is held by private pension funds, mutual funds, individuals, and sometimes other governmental entities. These lenders’ financial health depends on the soundness of the debt, known as the “full faith and credit of the United States government.” 

The issue is complicated at the federal level by the fact that the federal government has an institution that can print money, the Federal Reserve. The government can borrow from the Federal Reserve, which then holds the debt in its own account. This creates the illusion that the government owes money to itself. But it’s just that--an illusion--because the Federal Reserve ultimately sells the bonds to investors. So the lender is still a separate agent who expects to be paid back. 

When the government takes on debt, we are not in debt to ourselves. There is a debtor, and there are the creditors. Those who claim otherwise are rationalizing away the moral and legal obligation the government owes to its lenders to honor its promise to pay them back.

Related Reading:

Massive Inflation May Be Coming, Because the US Government Has Cornered Itself into a Fiscal End Game by Antony Davies James R. Harrigan for FEE

 

For years, we have warned that continued deficit spending would paint the Federal Reserve into a corner wherein monetary policy would become a slave to fiscal policy. To avoid government default, confiscatory taxes, government shutdown, or a combination of all three, the Federal Reserve has reached a point wherein it has little choice but to monetize federal deficits. Sooner or later, we will all pay the price in the form of massive inflation.

Bond giant Gundlach blasts ‘failed’ and ‘broken’ Federal Reserve by CHRIS SLOLEY

 

The Federal Reserve is presently acting in blatant non-compliance with the Federal Reserve Act of 1913. An institution violating the rules of its own charter is de facto admitting that said institution has failed and is fundamentally broken.

Who Needs the Fed?: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central by John Tamny

The ‘Wild West’ of Government Regulation Caused the 2008 Financial Meltdown

On the occasion of her “farewell” address,” outgoing Federal Reserve Board Chairwoman Janet Yellen warned against repeal or major roll-back of the Dodd-Frank regulatory bill passed as an alleged “fix” for the cause of the 2008 financial crisis.

The New Jersey Star-Ledger piled on in support of Yellen. In its Central bank to Trump: Keep your tiny hands off Dodd-Frank editorial, the S-L chastised President Trump and Republicans for launching a “deregulation bonfire.” Building on the statists’ lie about the causes of the crisis, the S-L announced, with an apparent straight face, “But the Wild West days of hands-off central banking - which peaked during [the crisis] - should remain dead and buried.”

I left these comments:

When, in recent decades, did we ever see “Wild West days of hands-off central banking?”

When we think of the Wild West, we think of lawlessness, where people with guns, usually outlaws, “governed” at whim.

Well, that’s a good description of the financial regulatory regime of then, and today. After all, who has the guns? The regulators, not the banks. And they used them to create the conditions that led to the financial crisis. Contrary to the Big Lie being peddled by statists and government apologists, financial regulation—every bit of which is backed by the armed power of the state—was at a peak when the crisis hit. Government spending on financial regulation, adjusted for inflation, tripled after 1980, peaking in 2007. Keep in mind that three big new regulatory bills were passed under Bush, the Privacy Act, Patriot Act, and Sarbanes-Oxley. That massive regulatory apparatus was put to use imposing ever-weaker mortgage standards to force banks to comply with the politicians' affordable housing goals under Clinton and Bush. This was aided and abetted by Fannie and Freddie, which were ordered by both Clinton and Bush to massively ramp up purchases of subprime mortgages.

As to central banking, the Federal Reserve under Greenspan and Bernanke inflated the biggest ever asset inflation, the 1997-2007 housing bubble, which distorted incentives and caused a massive malinvestment of capital. Is it any wonder that a Fed Chairwoman would hide her own agency’s leading culpability in order to shift blame to private banks?

Yellon left out most of the “whole truth.” The years leading up to the financial crisis certainly look like “Wild West days”—a Wild West of political, regulatory, and monetary interference in the housing and mortgage markets. Banks that acted badly were a secondary cause. The government was the primary cause—which is why I believe Dodd-Frank should be repealed in its entirety: It’s based on a lie. But, the whole truth is out there. It is grotesquely dishonest to assert that it was a free “Wild West” market that failed, when in fact it was a heavily regulated market that failed. It is therefore grossly unfair to burden the entire industry with another layer of suffocating controls for the wrongdoing of the few banks (like Angelo Mozilo’s Countrywide Financial) that did deliberately exacerbate the problem: This amounts to punishing the innocent many for the wrongdoing of the few.

To protect the guilty, Dodd-Frank was sold on a lie—the deliberate mis-identification of the fundamental causes of the financial crisis. And now the guilty will have even more Wild West power! Congress should start over, and start by not only looking at the secondary causes but also at the government’s—the politicians’ own—primary role.

Related Reading:

FREE MARKETS DIDN’T CREATE THE GREAT RECESSION—Watkins

Myth: The Great Recession was caused by free-market policies that led to irrational risk taking on Wall Street.

Reality: The Great Recession could not have happened without the vast web of government subsidies and controls that distorted financial markets.

The Nature and the Origin of the Subprime Mortgage Crisis—San José State University

Department of Economics

The subprime mortgage crisis had its origin in the program the directors of Fannie Mae initiated in the late 1990's to pursue social welfare goals rather than maintain financial viability.

The Housing Boom and Bust—by Thomas Sowell

The Financial Crisis and the Free Market Cure—by John A. Allison

Where Does Valid Law End and Regulation Begin?

Hidden in Plain Sight: What Really Caused the World's Worst Financial Crisis—and Why It Could Happen Again—by Peter J. Wallison

Central Planning: The True Economic Chaos by Brian Belfour for FEE

QUORA: How do investment bankers justify earning 7 figures?

QUORA: How do investment bankers justify earning 7 figures?

The sub-text to the question included the following:

I guess my point would be, is there any sense of guilt from receiving a disproportionately large monetary compensation from society or do investment bankers truly believe that market forces determine fair compensation. Or do investment bankers not think about why they should get compensated and it is just a money grab. I'm trying to wrap my head around why we reward financial engineers more than actual engineers and if this is a good thing or not.

I left this answer, edited for clarity:

The answer is in the question: They earned it.

To earn money is to net a gain through one’s own productive efforts and in voluntary trade with others. “Society” doesn’t compensate. “Society” is not an entity that thinks and analyzes and then “decides.” Society is an abstraction. Only the individuals that make up society decide, each through his own choices on his trading decisions. How much one earns is a reflection of the cumulative value his work creates for others, as determined by the individual[s] who voluntarily trade with him. This principle applies equally to all productive individuals at all economic levels, from landscapers to investment bankers.

Who “decides” how much to compensate investment bankers? Anyone who trades with them. How should investment bankers justify their compensations? By saying simply, “I earned it.” No one should ever feel guilty for what they earn, in any field, no matter how much that is—so long as he actually earned it, rather than merely appropriated it by fraud or deception or force.

Why do financial engineers make so much more than so-called “actual” engineers? Perhaps it’s because the job of investment bankers—the raising and successful allocation of capital—is so much more valuable, or perhaps because good investment bankers are much rarer than engineers. Whatever the reason, the only way that fair compensation can be arrived at longer term is through the cumulative choices of individual traders operating within a free market (which is why we should strive for a fully free market rather than the mixed economy—part free market and part unfree (government controlled) market—that we have now).

Related Reading:

In Pursuit of Wealth: The Moral Case for Finance—Yaron Brook and Don Watkins

Atlas Shrugged—Ayn Rand

QUORA: 'How is becoming a billionaire even possible, chronologically?'

All Earned Wealth, No Matter How Big the Fortune, is Deserved Whether ‘Needed’ or Not

The Lie Behind the Left’s Drive to Save Dodd-Frank

The Trump Administration’s initiative to reduce economic regulations includes talk of repealing the Dodd-Frank bank regulation bill dumped on the financial sector in response to the 2008 financial crisis. Predictably, the statists are circling the wagons to defend the law, engaging in the usual kinds of hysterical language and distortions Leftist politicians usually use whenever anyone suggests any reduction in taxes or regulations.

One aspect of the law in particular is a darling of the statists. The Consumer Financial Protection Bureau (CFPB) is of particular concern to the statist because of its enormous controlling power over banks. In a New Jersey Star-Ledger guest column, Trump's plan to kill consumer safeguards will be catastrophic to N.J.'s working families, Beverly Brown Ruggia, the Financial Justice Advocate for the “progressive” New Jersey Citizen Action (NJCA), charged . . .

Once again, House Republicans have taken up hatchet and torch with the intention of slashing and burning a crucial governmental institution meant to provide protections and safeguards for the wellbeing of all citizens.

The so-called "Choice Act" which, the House Committee on Financial Services Chair, Jeb Hensarling (R-Texas 5th Dist.) is eager to move through committee and to a vote, is to Dodd Frank and the Consumer Financial Protection Bureau (CFPB) what the AHCA is to the Affordable Care Act.

This legislation, which President Trump supports, would tear out the legal roots of the CFPB. If enacted, the bill would burn through the bureau's authority and independence to stop bad actors from breaking the law, leaving Wall Street banks and predatory lenders free to rip off consumers with impunity.

New Jersey is home to two members of the House Committee on Financial Services, Rep. Tom MacArthur (R-3rd Dist.) and Rep. Josh Gottheimer (D-5th Dist.), who are hearing this bill this week, have an obligation to the citizens of New Jersey to stop this bill in its tracks.

This destructive legislation proposed by House Republicans would gut the one entity that is holding Wall Street and financial institutions accountable for unfair, deceptive and abusive practices.

I left these comments, somewhat expanded and edited for clarity, with particular focus on the last sentence:

This destructive legislation proposed by House Republicans would gut the one entity that is holding Wall Street and financial institutions accountable for unfair, deceptive and abusive practices.

This is an outright lie. Laws against fraud and deception have long existed. Prosecutions following the 1999 accounting scandals involving Enron and other companies and their executives were based on laws that pre-existed even the Sarbanes-Oxley anti-fraud laws. The real deception is that Dodd-Frank was sold based on a deliberate mis-identification of the fundamental causes of the financial crisis and Great Recession.

The only institution capable of infecting the entire banking and financial system with bad lending is the federal government, through it massive regulatory labyrinth. And that’s exactly what happened. It started in the 1990s. The housing boom and bust, financial meltdown, and Great Recession were engineered from the Washington political establishment—a perfect storm of government intervention.

From the Fed to the FDIC, CRA, Fannie & Freddie and their implied federal mortgage guarantees, the legally protected rating agency cartel, FHA,  SEC, FASB accounting regulations, and on and on, the massive federal regulatory apparatus was geared to enforce the politicians’ affordable housing crusade. There is no way the “Wall Street and financial institutions” could have done this. Whatever financial firms acted badly—and many did, such as Angelo Mozilo’s

Countrywide and IndyMac Bank—private sector culpability was a derivative effect, not a primary cause.

The primary causes of the meltdown were government initiated, and have been well documented in books published by experts such as Thomas Sowell, John A. Allison, and Peter J. Wallison. Many articles have been written outlining the true nature and causes of the economic destruction, including “Free Markets Didn’t Create the Great Recession” by Don Watkins. But the statists refused to acknowledge their own primary culpability, and instead opted to shield themselves from blame, protect their own power, and expand their control over the economy—with the help of “progressive” hacks in the media such as the statists over at the NJCA.

We don’t need more protection from Wall Street and financial institutions. We need protection from our protectors—and to hold the real political culprits accountable, starting with Barney Frank, Chris Dodd, Alan Greenspan, Ben Bernanke, Franklin Raines, Bill Clinton, and George W. Bush. We need to ignore articles like this on, and go back to the proverbial drawing boards. Repeal Dodd-Frank. Get honest with Americans. And then enact, revise, or repeal laws that will actually prevent such politically engineered crises from ever happening again, while retaining long-standing fraud protections but otherwise liberating the financial business to do its job of providing capital, savings and investment opportunities, and consumer financing for entrepreneurs and so-called “working families”—i.e., productive people—alike.

Related Reading:

Finally, Some Positive Recognition for the Statists' Favorite Whipping Boy, Wall Street

Why No Wall Street Prosecutions? The Villains Are All In Washington

How Government Regulation is Corrupt by its Very Nature

Where Does Valid Law End and Regulation Begin?

A Lesson in the Crucial Distinction Between Economic and Political Power

Payday lending is a form of ultra-short term, unsecured credit available, for a fee, to people who desire money before their next paycheck, at which time the loan is repaid. Some people don’t like these types of loans, and want them restricted or outlawed. Last year, Google banned advertising by any lender charging an annual percentage rate (APR) of more than 36%. Since payday loans are ultra-short term, their APRs can be astronomical, even ranging into the hundreds of a percent. Of course, since payday loans are intended to be paid back within days, no one actually pays the implied APR on any single loan. So analyzing payday loans based on APR is irrelevant.

But Beverly Brown Ruggia, the Community Reinvestment Organizer at New Jersey Citizen Action, praised Google’s new policy. In a New Jersey Star-Ledger guest column, Google did the right thing to protect N.J. from predatory lenders, Ruggia wrote:

Google delivered a significant victory for consumer financial protections in New Jersey last month, when it announced it will no longer permit lenders to advertise payday loans or any loan with an APR that is more than 36 percent on its website.

Ruggia hates payday loans. She paints with a broad brush, smearing all payday lenders as “predatory,” and all of their customers as helpless incompetents incapable of using the practice responsibly. This is typical of our busy-body “consumer protectors.” But she of course is entitled to her opinion. Unfortunately, she doesn't stop at praising Google. She wants to use the government as her hired gun to impose Google-like restrictions, and then some, on us all. She praised the states that legally ban payday lenders, as well as the new Dodd-Frank Consumer Financial Protection Bureau’s (CFPB) proposed new regulations for payday lending nationwide.

But she doesn’t think CFPB’s regulations go far enough. She claims that rates are too high, and many irresponsible payday borrowers “are caught on a hamster wheel of renewals.” She also claims that payday lenders often engage in deception. But high rates and irresponsible borrowers are entirely different from deception.

New Jersey is one of the states that bans payday loans. But residents can easily get around the ban by securing loans online. Google’s advertising ban makes that end run a little harder. But Ruggia demands new nationwide laws and regulations against the industry, not just against rights-violating practices perpetrated by specific lenders in specific instances. Like all regulatory actions, such government intrusions punish the innocent for the actions of wrong-doers, kind of like throwing out the baby with the bathwater.

I left these comments, slightly edited:

Google may or may not have done the “right thing.” But, as a private enterprise, it has the right to do it. But government, being a rights-protecting institution based on force, has no legitimate right to regulate or ban payday loans. The difference between economic power (Google’s voluntary action) and political power (government coercive regulation) is as different, both morally and in practice, as day versus night—or persuasion versus a gun.

Government’s job is not to restrict commerce and trade. It is to protect us against fraud, including deceptive advertising and the like. If there is any of that going on in the payday lending business, then government should step in. As long as the loans are made by voluntary agreement and mutual consent in the absence of fraud, the government has no right to interfere. The fact that some number of people act irresponsibly is no justification. Let them learn from their mistakes. Individual rights to freely engage in trade, including lending and borrowing, should never be infringed or restricted because some people use their rights irresponsibly. By that standard, no freedom can exist.

Speaking of fraud, one of the biggest frauds is the idea peddled by statists that government regulations are for so-called “consumer protection,” when in reality what they are doing is restricting we consumers’ freedom to make our own choices. Government’s only job is to protect every individuals’ rights equally and at all times. Lenders have the right to offer these short-term loans on their own terms, and obviously have uncovered a market demand for such loans. But consumers have the right to decide for themselves whether to purchase them without interference from government bureaucrats or politicians. Government regulations like these don’t protect consumers. Protection from what? From our right to act on our own judgement. They simply reduce our liberties and our opportunities.

Related Reading:

Limiting Access to Payday Loans May Do More Harm than Good—Paige Marta Skiba

One of the few lending options available to the poor may soon evaporate.

Where Does Valid Law End and Regulation Begin?

Finally, Some Positive Recognition for the Statists' Favorite Whipping Boy, Wall Street

Donald Trump has been telling us for weeks that he will repeal (or revise or whatever) the Dodd-Frank regulatory regime put in place after the financial crisis and Great Recession. Who knows how that will work out.

But related to the current debate over changes to Dodd-Frank regulations is the kind of piece we don’t often see these days—one that praises Wall Street. In a Los Angeles Times op-ed, Your way of life would not be remotely possible without Wall Street, William Cohan starts out:

At $500 million in box office revenue and counting, we sure love Disney’s new movie “Beauty and the Beast.” With more than 1 billion sold, we sure love Apple’s iPhone. The same goes for Netflix, Chevy pickups, wide-screen televisions and grocery store aisles stocked high with fresh fruit and vegetables.

But for some reason, we hate the one entity that brought all these things within reach of most Americans: Wall Street.

Our way of life would not be remotely possible without the interstitial role played by Wall Street. It’s the left ventricle of capitalism. Yet Wall Street has become shorthand for everything that is wrong with the American economic system.

Cohan doesn’t give Wall Street a complete pass. Nor should he. He believes that Wall Street “exacerbated the 2008 financial crisis and was not held accountable.” Hence, politicians from Elizabeth Warren to Donald Trump have villainized Wall Street, “[O]ne politician after another,” Cohan observes, “has lambasted Wall Street for every imaginable evil.”

But he then returns to his main point:

With so much sanctimony on the national stage, it’s easy to hate bankers. But if we want to actually fix what’s wrong with Wall Street, we will need to stop mindlessly villainizing it.

In the most basic terms: Wall Street provides capital at a fair price to people who want it, by borrowing it from people who have it and want to invest it. It’s a simple service, and without it, we might as well go back to the Middle Ages, when people never ventured far from their tiny villages and spent their days worrying about their next meal.

Wall Street put the Internet at our collective fingertips. It’s the reason more than 160 million Americans have credit cards and access to an unsecured line of credit anytime they may want to use it. It democratized jet travel, which now allows average people to get halfway around the world in the time it used to take a fisherman to get his cod to market. Few people who have these things would be willing to give them up.

It’s refreshing to see some honesty and objectivity brought into the debate over financial regulations. But it’s not enough. Cohan is right that some on Wall Street were a contributing cause of the financial crisis. But was Wall Street the primary cause? I think Cohan falls short in not emphasizing the government's primary role in fomenting the housing bubble and bust and its role in spreading the contagion of bad mortgages throughout the investment community and ultimately the “main street” economy. Aside from pointing to the government’s “too-big-to-fail” policy, he ignores the Washington politicians’ “affordable housing crusade” and the related perfect storm of regulatory interference in the mortgage and housing markets to back up their crusade.

Through Fannie Mae and Freddie Mac, to the Federal Reserve, to the FDIC, to the Community Reinvestment Act, to mark-to-market accounting rules, and on and on, the government pushed and prodded and coerced and incentivized borrowers into homeownership-at-any-cost and lenders into destroyed lending standards, all amid inflationary monetary policies. The results were as basic economics has always taught. The 2008 financial crisis was a long time in the making—well over a decade. The truth, though pretty much ignored by the Washington Establishment, has been deeply documented in books by experts like Thomas Sowell, John A. Allison, and Peter J. Wallison. A good encapsulation of the government’s primary role in causing the economic catastrophe is presented by Don Watkins in his essay FREE MARKETS DIDN’T CREATE THE GREAT RECESSION.

Cohan believes that “The problem with Wall Street is its incentive and compensation system, which encourages bankers, traders and executives to take big risks with other people’s money. It rewards greed and recklessness without imposing accountability.”

What he doesn’t emphasize is that government regulation and interference is what skews the incentives (though, as noted earlier, he does name the “too-big-to-fail” policies, which he rightly argues should be thrown “into the dustbin of history, where it belongs.”) But he opposes proposals to “gut the financial regulations implemented after the financial crisis.” Instead, he proposes taking “a scalpel, not a sledgehammer,” to Dodd-Frank—and proposes a few significant changes.

Cohan is on the right track. But I think he misses the big picture.

We need a new incentive system on Wall Street, one that encourages risk-taking, innovation and creativity, while also holding the people who work there accountable where it hurts — in their wallets — when things go wrong, as they inevitably will again.

He’s right. And what he doesn’t acknowledge is that these are exactly the kinds of incentives that are seamlessly built into a free, unregulated financial market. (By “unregulated,” I do not mean government has no role. Laws against fraud, laws that protect the sanctity of contracts, and the like are proper government roles.) It was precisely the government’s regulatory interference that destroyed those natural free market incentives, rigging the system toward a “heads I profit, tails the taxpayer loses” mentality.

These caveats aside, I love that Cohan unabashedly defends the massively vital practical contributions made by profit seeking Wall Street to our well-being and standard of living. I would add that the work of Wall Street is extraordinarily humanitarian and richly moral—no pun intended. Isn’t making the world a better place for humans to flourish the essence of humanitarianism? Isn't that integral to the morality of self-interest that lies at the heart of free market capitalism? Yes and yes. Cohan’s is a good start in making the case for deregulation.

Related Reading:

Notes on the Sub-Prime Credit Crisis

The Nature and the Origin of the Subprime Mortgage Crisis—San José State University

Department of Economics

The subprime mortgage crisis had its origin in the program the directors of Fannie Mae initiated in the late 1990's to pursue social welfare goals rather than maintain financial viability.

Altruism: The Moral Root of the Financial Crisis—Richard M. Salsman for The Objective Standard, Vol. 4. No. 1.

The Morality of Moneylending: A Short History—Yaron Brook for The Objective Standard, Vol. 2, No. 3.