We are all Melmottes now

Hot/cold on the heels of Iceland’s quasi-default, the Roger Lowenstein in the NY Times urges underwater/negative equity homeowners to “Walk Away From Your Mortgage!”. . Lowenstein’s key point is that businesses (including those owned or controlled by the banks themselves) treat default as a straightforward business decision, to be adopted whenever it is profitable to do so. Lowenstein gives a number of examples where leading banks like (inevitably) Goldman Sachs have engaged in strategic default and urges his readers to do likewise. The piece is in a section headed “The Way We Live Now” and it’s striking that it’s taken more than 100 years for the business ethics of Augustus Melmotte to percolate through to the American middle class

To be fair, it’s only in the last thirty years or so that such ethics have become dominant in the corporate sector, to the point where a board that rejected profitable opportunities to stiff their creditors would now be regarded as having violated its fiduciary obligations to shareholders (particularly if the creditors are workers). And despite all the talk about shareholder value, a CEO who passed up opportunities for personal enrichment at the expense of shareholders would be regarded by his or her fellows as a mug.

Millions have defaulted already – (one in eight mortgages is currently in arrears). Bankruptcy is once again as common as divorce. When defaulting on debt is this common, it is hard to sustain any sort of social stigma or internalised notion that this is anything other than a financial option, like refinancing an existing loan. And, as with divorce, we must soon be reaching the point where most people who take out loans will do so in the knowledge that default is an option.

The question is – can the consumer credit system survive this? Probably it can, but the system will need some radical changes. It’s worked for several decades on the basis of creditworthiness criteria that work on the assumption that (nearly) everyone will repay their debts if they can. Until recently, the checks could also rely on the assumption that people would be more-or-less honest in the information they provided in their applications. The financial system, by promoting ‘liar loans’ colluded in the destruction of the second assumption, and by leading the way in strategic default, helped to destroy the first.

The problem for lenders now is that they will increasingly have to act on the assumption that their borrowers (including those who appear creditworthy on the old standards) are planning, at a minimum, to use default as an insurance option. The only good way to protect against this is to demand lots of secure collateral. That means less liberal credit (and, given higher default rates, higher interest rates) for everyone and no credit at all for lots of us.

119 thoughts on “We are all Melmottes now

  1. Alice – I will try again.

    Several states in the USA have statutes that ensure that housing loans in those states are non recourse. This means that if you can not pay your debts the bank can take the house but is prohibited by law from pursuing you for the remainder of the debt. This is quite unique to the USA and Australia does not have anything comparable. In Australia if you can’t pay your debts then the bank can take your house and sue you for any outstanding amount.

    I suggested that this situation (ie US state laws that mandate that mortgages are non recourse) might be a part of the problem with US credit markets. In short I was being critical of these regulations and suggested that Australias more laissez-faire approach to lending practices might have some advantage. In short I was suggesting that perhaps US states should repeal these regulations. There are other regulations relating to credit that the US states should repeal but I was being quite specific on this occasion and limited my criticism to non recourse statutes.

    From what I have said you somehow infer that I am being pro-regulation on this occasion. However it is quite clear to me that on this occasion I am being anti-regulation. Specifically I am suggesting that these state laws in the US are problematic and perhaps they should be repealed. I’m confused as to why you think black is white and white is black.

  2. @Nicholas Gruen
    Wilde’s pseudonym Sebastian Melmoth (ftfy) was a reference to St Sebastian (the one pierced with arrows) and the novel Melmoth the Wanderer. From Wikipedia:

    “Melmoth the Wanderer is a Gothic novel published in 1820, written by Charles Robert Maturin (uncle of Jane Wilde who was mother of Oscar Wilde). The central character, John Melmoth (a Wandering Jew type), is a scholar who sells his soul to the devil in exchange for 150 extra years of life and spends that time searching for someone who will take over the pact for him.”

    Not the dastardly Augustus Melmotte but Melmoth’s attempt to pass on his contractual obligations to some other unsuspecting character may be very relevant.

    The Sebastian part refers to St Sebastian who was martyred twice. A secretly christian member of the Praetorian Guard, he was shot through with arrows on Diocletian’s order as punishment for his betrayal. He survived, however, only to be put to death again later. There may be something relevant to zombie debt in that as well.

    Just goes to show you can read meaning into anything in any situation really.

  3. My take on libertarians is they are hostage to an absolutist position. A bit like hardcore free speech advocates who are admirible in their willingness to be consistent but very few can really stomach the full implications of the concept taken to it’s extreme.

    So just as most who invoke “free speech” do so only in defence of views they agree with, maybe libertarians are mostly thinking of removing regulations that effect themselves and people like them.

  4. @TerjeP (say tay-a)
    Terje…I would suggest to you it is not just that loans are full recourse in Australia but also the existence of the Uniform credict code (UCCC) regulation that has assisted in the greater resiliance of our crredit markets. “Credit providers are required to be careful not to make contracts with consumers who would find it difficult to meet their repayments”.

    A lot less liar loans were issued here Terje.

    http://www.creditcode.gov.au/display.asp?file=/content/consumer.htm

  5. Alice – you may disagree with my point but my real concern was that you seemed to fail to even understand it. To explain things in terms of your cited credit code you would have to demonstrate that this code represents a substatially different situation to that that applies in the US market. I suspect it doesn’t but I’m open to argument.

    Michael – I’m willing to take the free speech test. What examples do you have?

  6. Re: Terje @1, p2,

    It seems to me Terje is a bit too ‘laissez-faire’ in your usage of this term. For example, the first reference, listed below, contains a contemporary usage of this term in Australia. The second reference gives a brief history of the term, I suppose viewed from the perspective of contemporary authors:

    1. http://www.laissez.com.au/

    2. http://en.wikipedia.org/wiki/Laissez-faire

    I don’t know the lending (credit) policy of contemporary ‘laissez-faire’ in (1) but I know food regulations apply.

  7. Housing is a lot less affordable in many parts of Australia than the US. But I don’t think either country is a good model for producing optimal housing outcomes.

    In Australia, we have a generation that has to choose between a life of total indentured servitude or a life time of renting. I’m ashamed to live in country that prides itself on how well house prices have “stood up” recently.

    In the US, they have tent cities springing up unabated and 2% child homeless rates. While at the same time having 10% vacancy rates.

    Scandanavian approaches to house and land policies strike me as best of the bunch, but I’m sure many would disagree.

  8. @TerjeP (say Tay-a)
    Thanks for the response, I’m glad you read it.

    I’m not a no-holes barred free speech advocate and I’m happy for “free speech” to be restricted when it involves the exploitation of children, sexually explicit billboards where people can’t avoid being exposed to it, holocaust denial and speech that perpetuates hatred on the basis of race or religion. There are a lot of other strange topics that many in the community probably shouldn’t be exposed to. A caveat on that is that there should be transparency about what is being censored and how – I’m not a fan of the internet filtering the government is planning because it’s not transparent. That is I’m not an absolutist even though I agree with speech being generally free. I also believe in markets being generally free. Surely an absolutist libertarian wouldn’t want to proscribe any of the ways in which consenting adults lend and borrow money.

    I’m for making reasonable regulatory trade-offs in order to live in a community and benefit from a functioning market.

  9. “no-holes barred free speech advocate”

    Freudian slip? 😉

    “I’m happy for “free speech” to be restricted when it involves the exploitation of children, sexually explicit billboards where people can’t avoid being exposed to it, holocaust denial and speech that perpetuates hatred on the basis of race or religion.”

    I don’t what I could say that would constitute exploitation of children. Billboards (and advertising in general) are more conservative than the general populace – they have to be, to avoid giving offense to potential customers. I think you’ll find that advertisers self-regulate well in this particular regard. Holocaust denial should be allowed – that way we can laugh at them. Hate speech should definitely be allowed – it makes it easier to avoid the haters.

    Speech doesn’t harm anyone (or at least it can only hurt your feelings), and proscribing certain forms can have large negative effects. How we react to words is more important than the words themselves, and nasty words can be responded to positively (from a societal perspective), which I think is a better path than pre-emptive banning because of possible negative reactions.

    I’m willing to be convinced that free speech should be curtailed on a case-by-case basis, but in the meantime I’m going to keep my default preference for untrammeled free speech.

  10. I didn’t mean to derail the thread with my cheap free-speech/deregulation analogy, but……

    Jarrah :
    “no-holes barred free speech advocate”
    Freudian slip?

    That’s funny, although I think it’s more a function of my poor cliche-riddled writing skills.

    I’m familiar with all the good arguments for allowing free speech but my views have changed a bit after having children and living in countries where race relations could potentially turn to bloodshed in short order. I find it interesting that most free speech advocates live in countries with well developed economies, strong legal systems and mild censorship. Where are all the shining examples of successful economies practising unmediated free speech and free markets. Australia and the US certainly don’t qualify. Although apparently they would be if only x, y, z….

    Jarrah :
    I don’t what I could say that would constitute exploitation of children.

    I was including all media under “speech” so child pornography fits that definition.

    Jarrah :
    Billboards (and advertising in general) are more conservative than the general populace – they have to be, to avoid giving offense to potential customers. I think you’ll find that advertisers self-regulate well in this particular regard.

    isn’t that an example of un-free speech? The self regulation is underpinned by legal regulation.

  11. My own view is that free speech should be a presumptive right and a case for restricting it must be made by each legal authority. In cases where the attempt to restrain free speech is broad and toalaising — child p*rn*graphy might be an example — then the case should meet compelling tests of public interest.

    No society really allows unconstrained free speech of course. Quite apart from child p*rn*graphy, fiduciary duty, national security, trade secrets and even defamation law impinge.

    It seems to me that in the case of child p*rn*graphy one should restrict on the basis that those concerned in the production, distribution and purchase of such material are accomplices after the fact to what would be criminal activity at least within our jurisdiction. Free speech really isn’t germane here.

    A more difficult case in the digital age would be the production of material other than by recourse to actual live subjects. Personally, I’d oppose restricting such material and place the onus on the restricting authority to show that some sort of indecent dealing or other criminal activity were involved in the creation of the material. Mere ideas and fantasy should not be criminalised, IMO.

    In the case of racial vilification, again, I’d be against restricting speech, though clearly if one could show that particular speech acts were a prodisposing factor in a specific criminal act then that speech should be no more protected than someone inciting another person to murder or rape someone. One recalls that the Rwandan genocide was marked by radio broadcasts inciting Hutus to massacre their Tutsi neighbours. Such persons are plainly accessories before the fact to the tangible acts they incite and thus share responsibility for all the criminal conduct and suffering that ensues.

  12. “isn’t that an example of un-free speech? The self regulation is underpinned by legal regulation.”

    If the self-regulation is more stringent than legal regulation, then that speech is free(ly chosen).

    Insofar as speech is material to physical crimes, I can see an argument for curtailment. However, I disagree with the notion of thought crimes, and so agree with Fran that “Mere ideas and fantasy should not be criminalised, IMO.”

  13. @Jarrah
    I think you have more or less conceded that you aren’t advocating an absolutist position on free speech. Am I wrong?

    Where are the “all regulation is bad regulation” crowd gone? I’m surprised no one has advocated allowing consenting adults to make any kind of loan contract they want to without the dead hand of gar’ment stepping in to stifle their creativity.

  14. Fran, can you do a hypothetical for us regarding freedom of speech and financial system stability?

    Suppose the newpaper article “Walk Away from your Mortgage”, referenced in the thread is read my a very large number of people and those who can follow the advice with the consequence that some banks will face a liquidity problem and this turns into a bank run and spreads via the still existing links throughout the global economy. There are then reports of death from starvation or from the cold in the northern hemisphere and mass unemployment due to a financial crisis that may be called a total collapse. Is ‘free speech’ a good thing in this case?

  15. “I think you have more or less conceded that you aren’t advocating an absolutist position on free speech.”

    I can’t ‘concede’ what I’ve set out from the start: “I’m willing to be convinced that free speech should be curtailed on a case-by-case basis, but in the meantime I’m going to keep my default preference for untrammeled free speech.”

    “Where are the “all regulation is bad regulation” crowd gone?”

    Who are these people? I’ve never seen an anarchist on this forum. There are various stripes of libertarian visitors, but we simply want a CBA on any regulation before implementing it.

  16. @Jarrah
    Well, maybe I overshot slightly with my last comment by directing it at you, but my original statement above started by referring to an absolutist position on free speech and de-regulation. So if the shoe doesn’t fit then don’t wear it. Happy? In the end it’s either free speech or you have to accept some regulation.

    As far as the “all regulation is bad regulation” crowd I didn’t refer to you or TerjeP in particular. I’m genuinely interested to know if anyone would take a strict hands off approach to lending money, and what that might look like. There is after all a lot of regulation of the financial system that has evolved over centuries, and the current crisis arrived after some de-regulation, so I don’t think it’s irrelevant to ask how far people of a libertarian persuasion would be willing to go in liberalising lending.

  17. “my original statement above started by referring to an absolutist position on free speech and de-regulation. So if the shoe doesn’t fit then don’t wear it. ”

    That’s fair, I’m happy to go along with that. However you should note that it implies your belief about libertarians having an absolutist position isn’t actually true.

    Regarding money lending regulation, and what a hands-off situation would look like, try starting here.

    “and the current crisis arrived after some de-regulation”

    That’s a canard that doesn’t belong in a serious discussion.

  18. Michael – in terms of free speech my position is pretty much in line with that articulated by Jarrah. Perhaps it isn’t absolutist but I do think it is a rigourous and principled position. A judge recently ruled that a cartoon depiction of Bart and Lisa Simpson engaged in sex constituted child pornography and in this instance I’m very inclined to disagree. However sort out the definition issue and I’ve no problem with a ban on child porn so long as we don’t need to suffer drag net style attempts to block it (eg the proposed Internet filter).

    In terms of money and lending I think general contract law covers nearly everything that needs to be covered with few exceptions. Certainly I don’t think governments should be issueing currency or running banks, whether they be commercial banks or central banks. I don’t agree with the current fashion of regulating interest rates as part of monetary policy, and I certainly don’t agree with US style price controls on credit or mandatory reserve requirements or government guarantees. I do however believe that governments have an unavoidable role in the determination of the dominant unit of account within an economy unless taxation is outlawed (seems unlikely). As such I do think they should have a well defined monetary standard along the lines of the gold standard or some thing. A commodity basket might better satify some but the point is much the same.

    I’m not against regulation on principle. However I am against an awful lot of it in practice.

  19. p.s. Filtering the Internet to stop child porn is in my book akin to a phone tap on every phone in the country so we can find pedophiles. It is a massive abuse of power that is well beyond a reasonable responce to the problem.

  20. Jarrah :
    That’s fair, I’m happy to go along with that. However you should note that it implies your belief about libertarians having an absolutist position isn’t actually true.

    Okay, I’ll concede that I made a sweeping generalisation about libertarians and thanks for the link.

    Jarrah :
    That’s a canard that doesn’t belong in a serious discussion.

    Well you can argue about the causes of the crisis but not the sequence. The repeal of the Glass–Steagall Act is worthy of serious discussion.

  21. @TerjeP (say Tay-a)
    Interesting reply. You have covered the big picture stuff on the money system, but what about the small scale mortgage level borrowing. Do you see a need for regulation in regards to things like 100% loans, bankrupcy protection etc? The crisis was played out in part at this level in the US.

    Just for the record I’m not advocating Conroy’s internet filter.

  22. Jack Strocchi :
    Pr Q said:
    This is the moral paradox of capitalism identified by Weber and Durkheim. The altruist ethic that is needed to ensure contracts are undertaken in good faith and honoured is obviously at odds with the “greed is good” ethic predominant on both Wall Street and Main Street. But unlimited greed winds up consuming the social capital that actually underlies the capitalist system.

    But this trade-off is apparent in all systems of social and economic organisation, and if anything is even more of a problem in non-market systems. One of the biggest problems with government regulation and control of resources is that such systems depend on a sufficient number of people being adequately well-informed, organised and altruistic enough to ensure the public interest is protected. Yet at the same time government systems tend to encourage an accumulation of special interest groups selfishly defending their own interests without much thought for competing interests or the greater good. If anything, the tension between individual selfishness and the greater good of society is actually worse with government than the market.

    The main virtue of the market is that it treats human greed and selfishness as one of the inevitable variables of human nature and tries to deal with it by providing incentives towards productive activity, instead of simply wishing it away or hoping to perfect human nature through social engineering. The market doesn’t preclude the existence of altruism. It just sensibly does not rely solely on altruism.

    Greed is not an inherent feature of a market economy any more than altruism is inherent in government intervention. Greed is an emotive term to describe a subjective value judgment. A more neutral term is self-interest, which is common to both market and government systems.

  23. Correction and apologies:

    The above quote is from Jack Strocchi, not Professor Quiggin. In cutting the quote, I accidentally failed to delete that bit from the start.

  24. government systems tend to encourage an accumulation of special interest groups selfishly defending their own interests without much thought for competing interests or the greater good.

    What is a corporation?

  25. @Ernestine Gross

    Suppose the newpaper article Walk Away from your Mortgage, referenced in the thread is read by a very large number of people and those who can follow the advice with the consequence that some banks will face a liquidity problem […]
    {some apparent negative consequences then asserted } Is ‘free speech’ a good thing in this case?

    Yes, because

    a) the causal chain between the advice and the ostensible consequence is too attenuated to rely upon as real. Doubtless a great many necessary conditions would stand between the advice and the result, some of them the consequence of information to which the utterer may not be privy or be capable of comprehending.

    b) The system is dynamic not linear so one can’t fully anticipate how each decision affects the whole. One person’s decision may be the tipping point for catastrophe whereas all the persons before were moot. It’s a kind of sorites paradox.

    In our system, one must be able to reasonably foresee the consequences of one’s acts to be in tort. This is just as well because if this reasonable man standard were not a defence to tort (or worse to criminal charges), all decisions could be open to intrusive restraint and create tortious liability or criminal risk, yet the freedom to act to give effect to one’s passions is an intrinsic good, to be curtailed only when it impinges on the rights of others to do likewise.

  26. Michael – I’m not that sure what you mean however I don’t on the face of it see any need for regulation in the areas you indicate. However it does depend a lot on what your question is. As such I’m hesitant to comit either way. Perhaps you could be more specific.

  27. Gerard, where did I suggest that corporations and private businesses are largely altruistic and not primarily self-interested? I was merely contrasting the differences of how self-interest plays out in market and government systems.

    The problem is that while greed and selfishness exists in all systems, it is actually more damaging in government systems than market systems as there is greater capacity to use state force to benefit at the expense of others. Or as some have put it, if the market is an invisible hand, the state is a veiled fist.

  28. @Alice
    A university student that I know, who has very little income (certainly nothing left over after paying rent, food and other necessities) was recently offered a credit card by one of the big 4 banks with a $7k limit. If she maxed it out she would no more pay back the debt than fly to the moon. I suggest that the lending departments would not recognise the UCCC if it bit them in the backside. And this is at a time when credit is supposed to be quite hard to get.

    Terje is basically right. The recourse nature of home loans makes one think thrice before throwing back the keys, unlike the US, and also Britain. But there is also a cultural factor at play (difficult to model in a Radner sequence economy – sorry Ernestine); as a people we just won’t default on our home loans until all avenues of raising the money have been exhausted.

  29. Unaccountable public institutions create opportunities for rent seeking; ergo society should be controlled by unaccountable private institutions for whom rent seeking is the raison d’etre.

  30. Uncle Milton @ 30,

    1. I think Alice’s point is that allowing recourse home loans is one type of regulation and so is non-recourse. One is better than the other, as agreed by Terje, and Terje’s tendency to be against regulation is hence contradicted. (She won the argument by a reverse application of a set inclusion error that is so often exploited in blog discussions).

    2. Without wishing to argue against your point about cultural factors (and their reflection in the legal system – chicken and egg type of problem) I may have to disappoint you regarding the Radner sequence economy. There is nothing in the model which prevents representing the (possibly culturally influenced) preferences of an individual who decides to sell the proverbial household silver in order to retain ownership rights of a house now furnished with milk crates for chairs and discarded cartons for wardrobes.

  31. EG – Alice did not “win”. Firstly there is no contradiction in being against one regulation and for another regulation. Nowhere have I stated that I oppose all regulation.

    Secondly it is true that the absence of a particular regulation (eg absence of prohibition against recourse loans) may offer a better regulatory environment than the presence of that particular regulation (eg actual prohibition of recourse loans). However it is ludicrious to suggest that somebody opposed to the particular regulation is contradicting a position of being opposed to regulation. In fact were I opposed to all regulation this would merely further confirm my position.

    Just to spell this out again. Several US states prohibit recourse loans. Australia does not prohibit recourse loans. I think the Australian position of non-regulation in this regard is superior. I think the US states should repeal their prohibition of recourse loans.

    That you and Alice are so confused on this point does not reflect well on either of you.

  32. @TerjeP (say Tay-a)

    You are using a similar method to the one used by Alice – you ignore my qualification.

    Hopefully these discussions result in a shift from ‘pro’ vs ‘anti’ regulation to the question of how should the regulatory framework be changed – a question our host has repeatedly promoted. There is a paper by James Galbraith, referenced in the latest thread on the EMH, which IMHO is very helpful in this regard.

  33. gerard :
    Unaccountable public institutions create opportunities for rent seeking; ergo society should be controlled by unaccountable private institutions for whom rent seeking is the raison d’etre.

    Your position makes sense only if you apply a definition of rent-seeking that is so broad that practically everyone would have to feel neurotic and guilt-ridden for wanting to make a buck.

    As for “unaccountable public institutions” versus “unaccountable private institutions”, private corporations are actually more accountable because consumers make decisions every day about where to direct their business. Whereas governments are only held accountable by periodic elections, not to mention problems of rational ignorance and the fact that governments are by defintion a monopoly. In any case, public institutions should be more accountable simply because they are public institutions. Duh!

    Or as the old saying goes: A socialist is someone so disgusted by the power held by a few large corporations that they want to hand over all the power to one giant monopoly corporation.

  34. EG – sorry but I can’t see any qualification. Perhaps I’m looking in the wrong place.

    In terms of shifting the debate I understand your sentiment. However the role of existing regulation in the cause of problems is so under rated that I think the case against these regulations often needs regular mention. Legislators are too quick to legislate and too slow to repeal. Further more I think there is this myth that the USA is unregated and so any US problem is due to a lack of regulation.

  35. @Monkey’s Uncle

    Or as the old saying goes: A socialist is someone so disgusted by the power held by a few large corporations that they want to hand over all the power to one giant monopoly corporation which, unlike the few large corporations, is accountable to all the producers and returns the fill value of their product to them.

    [emendment to the ‘old saying’ (rightwing folk wisdom) in highlights by me …]

  36. Fran – accountable for so many things that they are effectively accountable for nothing. Politics suffers from an excess of product bundling which in a monopoly provider means almost no choice at all. For instance if I vote for the Greens does it mean I want there social policy, economic policy and environment policy or just that I like their drug policy. Politics is a poor means of deciding on most things. Especially things that can be readily decided in a market.

  37. @TerjeP (say Tay-a)

    That objection Terje, is one based on technical rather than organisational feasibility. Accountability, tranparency, equity and so forth fit every near optimal model of human organisation.

    I’m ready to agree that the processes we currently adopt to (at least notionally) approach these ends are fundamentally flawed.

  38. When a public institution is acting to selfishly maximize its gains at the expense of society, with a pathological disregard for all other considerations, it is failing in its institutional purpose.
    When a corporation doesn’t act to selfishly maximize its gains at the expense of society, with a pathological disregard for all other considerations, it is failing in its institutional purpose.

  39. Gerard – what if it is maximizing it’s gain whilst also producing a net benefit to society which for most corporations is the reality. Is it still failing it’s institutional purpose?

  40. @TerjeP (say Tay-a)
    You make a good point about bundling. I would add that the opposition in a two party state has a vested interest in bad government and poor performance so it can hurry up and get it’s nose back in the trough. The coalitions craven flip flopping on climate change is a prime example.

    I’d prefer to be able to make choices in a system that has proportional representation, a free press that wasn’t dominated by powerful players like Murdoch as well as a market system. Quite a lot of life aren’t tradeble yet and markets are riddled with externalities.

  41. Gerard – what if it is maximizing it’s gain whilst also producing a net benefit to society which for most corporations is the reality. Is it still failing it’s institutional purpose?

    No. It is only when it limits its own gain for the good of society – or the environment, or the future of humanity – that it fails. The social benefit that it allows the resources under its command to create must be limited to the point of its own maximum private profit. In a like manner, the social cost that it allows the resources under its command to create is likewise limited only by considerations of profit. There is no responsibility to anything else.

    Unsold H&M clothes found in rubbish bags as homeless face winter chill

    The clothing megastore H&M has found itself at the centre of an angry protest after one of its leading outlets in Manhattan was accused of cutting up unsold garments and dumping them in rubbish bags on the street…

    Rubbish bags full of pristine clothes were found by a graduate student of the City University of New York, who came across them one night as she walked to the subway.

    The student, Cynthia Magnus, tracked them to the 34th Street H&M store, a popular venue for tourists and New Yorkers in the centre of Manhattan.
    Inside the bags were gloves with the fingers cut off, socks, patent leather shoes with the instep cut up, and warm men’s jackets slashed across the body and arms. “It was a very frigid night, and there were bags upon bags of warm winter clothing not 50 feet away from where a homeless man slept on cardboard boxes,” she said.

    According to the Coalition for the Homeless, the number of people sleeping rough in New York city has reached its highest level since the Great Depression of the 1930s. There are thought to be about 39,000 people who do not have a home, including more than 10,000 families and 16,500 children.

    Homelessness has been exacerbated by the economic downturn, which has pushed the number of families in receipt of food stamps in the city to record highs. A cold snap has also meant outdoor night temperatures in New York of -10C (14F).

    Paradoxically, five blocks away from the H&M store is a group called New York Cares, which mobilises support for the community by co-ordinating volunteers wanting to help homeless and poor families in the city. It holds an annual drive that distributes 70,000 secondhand winter coats to needy individuals.

  42. gerard :
    When a public institution is acting to selfishly maximize its gains at the expense of society, with a pathological disregard for all other considerations, it is failing in its institutional purpose.
    When a corporation doesn’t act to selfishly maximize its gains at the expense of society, with a pathological disregard for all other considerations, it is failing in its institutional purpose.

    So the mere fact that governments are supposed to look out for the public interest, or that is their stated objective, is good enough to justify their moral superiority, regardless of whether or not they actually achieve that in practice? So organisations should be judged by their stated goals, not how they actually operate in practice?

    Also, the fact that some profits may be earned through anti-social or destructive activities doesn’t make profit inherently anti-social, any more than the fact that some workers earn their wages through activities that are harmful makes all wages inherently anti-social.

    You keep labouring the point that corporations are self-interested and out to maximise their profits rather than look after the public good. How does that make them any different from most other economic actors? Do most workers go to work simply for the good of society and not because they want to get paid? Do most people who benefit from public spending simply want what is best for society rather than to simply get what they can for themselves? Are governments only interested in looking after people and not increasing their own power and control?

    Please tell me who is looking out for the greater good and not just doing what is in their own interests?

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