There is an escalating unfairness in our system. It is the unfairness of asymmetrical morality. We seem to have come to the point where every action taken by a corporation, regardless how risky, brazen, dangerous or deplorable, is given a pass on the grounds that they will magically be corrected by market forces. And yet, we have shackled the individual with all the obligations of a higher morality, thus stifling the very corrective market forces that were meant to keep the voracious corporation in line. (Privatize the gains and socialize the losses, indeed.)
The debate over strategic default (on the part of underwater homeowners) goes to the heart of this asymmetrical morality. I understand why it is so seductive to want mortgage holders to absolutely fulfill their obligations. For one, when seen on an individual level, we all recognize that these are determinable individuals who could be our neighbors, our co-workers, our friends. If all of these intimates were suddenly to base every action and decision on pure economic efficiency, it would change the dynamic of every interaction, and the world would become, let’s face it, pretty damn miserable. Second, as the cousin emotion to schadenfreude, it is painful to know that those who lived well but beyond their means may never face repercussions while the responsible and frugal not only missed out on the good life, but might be saddled with some share of the subsequent fallout.
But why, do we feel such an urge to correct this iniquity between individuals, yet have no compulsion to address the same iniquity in a man versus corporation tête-à-tête?
In law, there is a very powerful concept of the fiduciary. It is, in fact, a concept that allows us to have the corporate form at all. At its un-nuanced simplest, it requires the officers and directors of a corporation, as the “fiduciaries” of the owner-shareholders of the corporation, to act to the benefit (generally economic) of the owner-shareholders while suppressing their own (potentially conflicting) interests. It is the fiduciary duty that allows – requires, according to some - corporations, and most egregiously, the TBTF banks, to do things like: lobbying political powers to pass legislation or pursue courses of action that are favorable to the corporation; follow laws only to their literal meaning, ignoring even the most obvious of intentions; pursue any corporate strategy (like earmarking the lions-share of corporate profits for compensation) that offers the potential for maximizing profit. Free market at its finest.
But think how much more level the playing field would be if every individual, when pitted against a corporation acting under these fiduciary directives, was himself/herself represented by a fiduciary. This already happens, among the very rich, who never sign a line without consulting one or more very expensive lawyers who have fiduciary duties to their clients.
It’s really very simple. If every time Joe Six Pack entered into a loan agreement, a mortgage, a credit card agreement, etc… with a bank, he did it through a trust, managed by a trustee, that trustee, as a fiduciary of Joe Six Pack, would have an obligation to manage that agreement in a way that is economically most beneficial to Joe Six Pack, morality be damned. If, for example, Joe Six Pack was underwater on his non-recourse mortgage (technically owed by the trust), the trustee would actually have to default on the mortgage if the costs to JSP (such as increased borrowing costs) are lower than the amount that JSP is underwater. Most economically beneficial.
The free-marketeers (hmm… the adult version of the Mousketeers?) will never allow the corporation to be burdened by morality (even while they can apparently achieve personhood in the realm of free speech – irony, anyone?) After a decade in corporate America, even the most enlightened of corporations, with their built out corporate responsibility groups, engage in such “moral” behavior because of some (real or imagined) economic benefit (reduced litigation, public relations, marketing strategy). The field is not even.
It’s time we evened it.
