The Case For Elizabeth Warren Instead of Scott Brown

Having read newsletters and other publications from Senator Scott Brown and the literature from and about Elizabeth Warren, I see one vast difference that Elizabeth Warren can use to explain why we should vote for her instead of Scott Brown.

In Senator Scott Browns writings, he has shown a good imagination for the positive consequences of his Republican positions and a good imagination for the negative consequences of the Democratic positions.

On the other hand, Elizabeth Warren has made a career of studying what are the actual consequences of both types of policies.  If what Scott Brown imagined were actually to be what happens, he would be perfectly justified in taking the policy positions that he does.  Elizabeth Warren has discovered by looking at the evidence that Scott Brown’s imaginings are not what really happens.

With the evidence of her research behind her, Elizabeth Warren can explain to Brown and the voters how certain policies actually work out in practice.

I read an article today in a newspaper that is behind a paywall, so I won’t bother to give you the citation or the link.  The article was describing the academic proponents of what is called “law and economics.”

Proponents of law and economics argue that laws should be evaluated in terms of the incentives they create. A law making it too easy for debtors to get bailed out and be given a second chance, as they see it, will encourage reckless behavior; by the same token, an orderly bankruptcy process in which creditors can expect as much of their money back as possible will lead to lower interest rates and more ready lending.

I think that Scott Brown would find himself in favor of what the “law and economics” proponents imagine.

According to this brief summary of the “law and economics” view of the world, the proponents only imagine the possible negative incentives for making bankruptcy filing easy and only the positive incentives for making bankruptcy filing difficult.

Elizabeth Warren’s research, and now obvious public exposure of the actual incentives, paints a quite different picture of what has happened since the laws of bankruptcy have been made more strict in recent years.  This rewrite of the law was paid for by lender’s intense lobbying efforts and the bribes (oh, sorry, campaign contributions) paid to legislators.

The fact that lenders know that it will be very difficult for borrowers to get out of the legal obligation to repay a loan have resorted to reckless lending practices.  They thought that being able to take all the assets of a defaulting borrower including their homes would protect the lender in case of default.  They also thought that they could fob off any risk onto investors by packaging up mortgages into collateralized debt obligations (CDOs), that were falsely rated as safe.  The packagers of the loans  bought the safe ratings from ratings agencies that pretended to be objective.

Based on historical rates of mortgage defaults, these safety assumptions were true.  However, by breaking all the rules that have historically applied to mortgage lending, the lenders created a situation in which that past history became a poor predictor of actual results.  The lenders also concealed the fact that they were breaking all the rules by adding fraudulent information to mortgage applications filled out by the unsuspecting borrowers.  They added lies about the borrowers’ income.  They bought phony appraisals that justified larger loans with zero or negative equity as collateral.  No conservative banker of prior years would ever have engaged in such practices.

The proponents of “law and economics”  supposedly never dreamed of these negative incentives.  Was it just a lack of imagination brought on by a severe case of knowing the answers before looking at the data?  Or was it peer pressure to ignore the facts?

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