Monday, August 22, 2011

“Wall Street is our Main Street”

Frank Pasquale

Who could imagine that a board member of the New York Federal Reserve Bank would adopt radical political economy? Both Slavoj Zizek and Robert Brenner have questioned the Wall Street/Main Street dichotomy, claiming that the US economy is so deeply financialized that it's hard to discern a real core beneath the monetary fluff. We've gone from "what is good for GM is good for American" to "what is good for GS is good for America." And it appears that the "public's representative" on the NYFRB agrees:

Mr. Schneiderman has . . . come under criticism for objecting to a settlement proposed by Bank of New York Mellon and Bank of America that would cover 530 mortgage-backed securities containing Countrywide Financial loans that investors say were mischaracterized when they were sold. . . . This month, Mr. Schneiderman sued to block that deal, which had been negotiated by Bank of New York Mellon as trustee for the holders of the securities. . . .

Kathryn S. Wylde, a member of the board of the Federal Reserve Bank of New York who represents the public . . . has criticized Mr. Schneiderman for bringing the lawsuit. . . . Ms. Wylde said in an interview on Thursday that she had told the attorney general “it is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street — love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.”

One has to admire Ms. Wylde's honesty. Other high officials have similar views, but act on them sub rosa.

As for the substance: I have little to add beyond what Mike Konczal and Yves Smith say. As Konczal puts it, "The trust and property law violations that are at the heart of this couldn’t be clearer. It’s a dot-your-I’s and cross-your-T’s kind of law. This abandonment reflects less a different way of setting up the financial markets than an outright corruption of the whole idea of rule-of-law." To complement my last post: the dragnet ends at Wall Street, but the safety net of "too big to sue" status is stronger than ever. The contrast illustrates one of Bernard Harcourt's theses: the energy that should be going into regulation of markets is instead channeled into tighter regulation of those harmed by them.

As property scholar Joseph William Singer shows, we risk violating an "anti-feudal principle at the core of American property law" if we fail to fully investigate and set right the frauds perpetrated during the subprime crisis.

X-Posted: Concurring Opinions.

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