Libertarian Morality
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Todd Zywicki Supported Subprime Lending

"[T]he growth in subprime lending is not creating overwhelming debt burdens for low-income households." -- Todd Zywicki.

Over the years, Todd Zywicki has made highly suspicious arguments regarding consumer lending and consumer behavior.  The usual theme: Banks should be able to do whatever they like, because this benefits the poor.  

Thus, he supported the "Bankruptcy Abuse Prevention and Consumer Protection Act," which made it harder for poor people to file for bankruptcy.  He opposed a proposal that would have allowed bankruptcy court judges modify mortgage contracts in a way that would keep poor people from being foreclosed upon.  Lately Zywicki has been claiming that the recent credit-card reform legislation is bad - again, because refusing to allow banks to raise interest rates for no reason helps the poor.  

History, as they say, is unforgiving.  And, boy, does Zywicki have history.

Recently, a commenter at the Volokh Conspiracy unearthed some of Zywicki's old, "I love the poor" posts.  The context: Subprime lending.  Subprime lending (as is the case with every other banking practice Zywicki supports) enriched banks and bankers.  It also, according to Zywicki, helped the poor.  Let's examine some of Todd's statements on subprime lending.

Here is one of Zywicki's posts on subprime lending:

There has been much criticism lately about so-called "exotic mortgages" that are creating a "housing bubble".... Although often lumped together, the two are distinct. And I'm not sure I see what the problem is here. I want to focus on the supposed harm of exotic mortgages, especially interest-only mortgages (which are said to create the housing bubble by allowing people to borrow "too much" and forcing up home prices).

So subprime lending is just a "supposed" harm.  OK.  We know what history had to say about Zywicki's analsysis.  We might disagree about how to apportion blame between the government (Fannie-Freddie) and Wall Street.  Is it 50-50?  60-40?  There is a lot of room for debate.  That subprime lending was chiefly responsible for the economic crisis is not up for debate.  The only interesting issue is whether subprime lending was driving more by the public or private sector.

Rather than admitting his error, though, Zywicki keeps posting away. In another post, he had this to say about subprime mortgages:

This also suggests that the growth in subprime lending is not creating overwhelming debt burdens for low-income households

How many millions of foreclosures have there been?  How many tens-of-millions may still lose their homes?  But, according to Prophet Zywicki, these subprime loans did not create an overwhelming debt burden.  Again, his own words: "[T]he growth in subprime lending is not creating overwhelming debt burdens for low-income households."

Zywicki also opposed regulating subprime lending.  He raised a faimilar renouncement:

So social engineers may want to be careful about "saving" the poor from the scourge of subprime lending, because by restricting those choices they are likely just pushing them into even less-favorable credit options.

Sounds familiar, doesn't it? 

Despite those embarassing statements, today Zywicki has told social engineers" to stop regulating credit card companies, because we need to protect the interests of the poor!  Does the man have no shame?

Does anyone (Zywicki, even?) want to argue that the poor would be better off today had they not been able to take out subprime loans to purchase a home?  Do any of the libertartarians want to use their throw-away, "How dare you claim to know better than the poor?" arguments.  Of course you don't.

Perhaps Zwyicki will show some intellectual integrity.  He should post a mea culpa.  He was wrong.  Really, plainly, undoubtedly wrong.  He won't, though, because his concern with shilling for banks.  

When the Wall Street Journal needs a pro-bank editoral, they have their man.  "Phone Todd.  We need someone with academic creditals to explain why allowing credit card companies to charge 350% interest rates helps poor people." 

Zwyicki's disingenous arguments aside, consider whether Zwyicki has subject-matter competence in light of his writing on subprime lending.  And consider whether libertarians should so fliply decry the "social engineers" who want to end banking practices like subprime lending.  The world would be a different and better place had subprime lending been regulated.  The world is today a better place because credit card companies are being regulated.

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