Federal Reserve Governor Sarah Bloom Raskin gave a speech last week at the Association of American Law Schools annual meeting last week in Washington, DC. The gist of her speech was that law schools should also include a discussion on enforcing law when teaching their students about the rule of law.
“If the law is worth having, the law is worth enforcing”, said Governor Raskin. Specifically, Governor Raskin was addressing the enforcement of law against mortgage service and processing companies and how proper enforcement could help rein in bad behavior by processors. If not, we run the risk of these companies framing the intensity at which regulatory agencies go after them.
Governor Raskin also quipped that, “[A] failure by regulators to enforce the laws and regulations as strong antidotes to financial misconduct and unsafe and unsound practices by the institutions they regulate establishes de facto acquiescence to the dominant norms of the financial marketplace. At that point, our laws become the resting place for unfair practices and broad disrespect for the law generally.”
What concerned me were her observations at the end of her speech. “What’s more, financial institutions need to understand that they are responsible for assessing the effects their actions will have on consumers and the country as a whole, and factor those considerations into their business decisions.”
Talk about a dampening effect on business decision making. You may as well ask financial institutions to factor in the weight of the world when determining their pricing. Consideration equals delay. Delays equal higher costs of doing business, costs that may not be captured fully in interest rates and fees assessed on consumers.
The premise of this thinking obviously stems from the argument that at the heart of the recession and its slow recovery is bad behavior on the part of mortgage processors, servicers, and big banks, as well as the foreclosures resulting from their bad behavior. I can buy-off on the argument that decreased home values left little in the kitty for consumers to use to fund small business ideas, but I don’t give shrinking equity that much credit for the slow-down in private sector investment that lies at the heart of any economic downturn.