A Stitch in Haste

Another blame-the-victim mortgage malcontent:

The presumption in any system of contract must surely be that agreements will be honored. That part is easy. What we often seem to forget is that no system of contract law — and certainly not ours — ends at the beginning. The mortgage crisis, in fact, offers a particularly rich set of lessons in how and why some contracts should appropriately be re-written after the fact.
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As a macroeconomist by training, the natural place for me to start is to look at the aggregate picture. When the economy at large is threatened by a problem, averting greater damage is much more important than any particular contract. Just as it is appropriate to take action to prevent the catastrophic failures of large financial institutions (“too large to fail”), it can be necessary to take action to prevent the downward spiral that can come from widespread mortgage defaults (“too many to fail”).
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[O]ften non-defaulting parties should share in the losses, both because of what they knew when they entered into their contracts and what they did during the contracting process.
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The idea that “you knew what you were getting into,” in other words, can just as easily apply to the lenders as the borrowers. … This perspective does not reverse the presumption that loans will be repaid but rather makes that presumption rebuttable.

Rebuttable — by whom? And by what standard?

Could you imagine the fallout, the legal and economic paralysis, if suddenly our civil courts were opened up to plaintiffs who were not the victims of breach of contract, but the perpetrators (or potential perpetrators) of such breaches — seeking some sympathetic judge who would be perfectly willing to start “rebutting presumptions”?

Or, worse, those deadbeats will cut out the judicial middleman altogether and go straight to the nearest activist legislator to guarantee his newly imagined “right to alter a contract unilaterally.”

Meanwhile, as I commented at that blog: What, exactly, is so bad about the status quo?

Creditors certainly know that debtors may default. Every party to every contract knows that the other party might breach. This statement is utterly devoid of any substance — yet it is the cornerstone of your entire argument. Go figure.

What you’re really hinting at, which is outrageous, is the idea that “knowing in advance that you might lose the game denies you the right to protest when the other side seeks to change the rules after the game has begun.” You are essentially proposing reducing all contract law to mere suggestions dressed up as “rebuttable presumptions.”

What a circular piece of reasoning this whole post is. Your argument, which boils down to little more than, “We should do this because some people (‘macroeconomists’) think it would be good if we did this…” is not an especially robust basis for abridging, post facto, voluntary contracts entered into by competent consenting adults.

Another part of the post that really annoyed me:

It is a delicate matter to try to figure out how and when contract terms must be voided, altered, or enforced — so delicate, in fact, that every law school in the world forces its first-year students to study just those issues for at least a full semester.

Um, no.

And your tidbit about first-year contracts is particularly insolent. What 1Ls learn is that some contracts might be void or voidable ab initio, that remedies for breach might be forward-looking or backward-looking depending on the circumstances, and that arrangements that aren’t really contracts might, for the sake of equity, be treated sorta kinda like contracts on some occasions.

But I am not aware of any law school curriculum that teaches that otherwise valid contracts are or ought be the legal equivalent of Silly Putty — to be pulled, stretched and knotted (against one or both of the party’s wishes) in whatever way some third-party malcontent (“macroeconomist,” politician or otherwise) thinks would be neat-o.

Previously:
–What About Predatory Borrowers?
–You Can Lead a Lender to Water…
–The Creature from the Blaisdell Lagoon

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A special Kip Clip that will be quite familiar to canonical libertarians: What’s a Contract?

One thing stays the same: An excess of people ready to “go to work” on other people’s contracts.