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Law School and the Great Recession

-- By ElizabethOsei - 22 Feb 2021

Second Draft of First Essay

The Impetus

The Cost of Oatmeal

Before law school, I worked for the Federal Reserve, but not as an economist. Economists said the Great Recession ended in 2010. However, economists probably did not work at Walgreens. One afternoon, as my shift was ending, a woman approached my register with a small girl in her arms. She pointed to a store coupon for oatmeal. “Are these still on sale?” she asked, adjusting the girl—her daughter—on her hip. The coupon had expired one day earlier. The woman’s hair was disheveled. From the way she shifted again, that small girl was heavy. I suggested a store brand, which cost the same. She smiled, thanked me, and said, “Nowadays, every little bit counts.” I smiled back, but then the register flashed that her card was declined. “Sorry, wrong card! I’ll go grab my other one from the car,” she said and bolted past the sliding doors, across the parking lot, and down the main street. I never saw her again, but I recognized in her hurried exit familiar anxiety. My family struggled too. In the fall of 2009, my father lost his job.

Adversity Sparks Curiosity

In college, I began to understand better what had happened to my family—or, rather, why. Economics courses taught that in a global economy marked by increasing interconnectedness, we are moved by more than our individual efforts. For me, these courses became personal reflections, not just material to be studied and tested. Economics helped me understand the market forces that extinguish jobs or cause credit cards to be declined. But you have to be at a register at Walgreens or around the table when your parents come home exhausted from temporary and second jobs to appreciate the personal cost of those forces. Based on what I saw and what I studied, I appreciated economics but developed an appetite for accountability and advocacy.

Curiosity Starts a Career

After college, I found myself in the accountability business. I worked in Audit of the Federal Reserve Bank of New York. It was my job as an auditor to look independently at an institution at the center of the economy with open eyes. I revisited decisions made on behalf of the Bank to determine if the institution lived up to the trust that the public has placed in it. However, what was missing from economics and audit was the chance to advocate for another person. I could not and still cannot shake the human costs of the financial crisis and Recession. They continue to infuriate me. Families lost their jobs, their homes, their savings, and even hope. Banks created useless, worthless financial products, packaged them, and sold them as new. This was a scam. This was fraud.

The Start of the Journey

Fairness

If my parents had even less to fall back on—a second nursing income, temporary work, retirement savings—the woman carrying the girl in Walgreens could have been my mother carrying me. Even with their determination and few resources, my parents lost almost all they had earned during the Recession. This was all unfair. Fairness is not a concept that fits comfortably in economics, and its scope is limited in audit. But fairness can be the aim of lawyers and judges; at least, I think it can be.

A Possible Solution?

Fairness is not neat and is not the same for everyone. And, looking back on my life, I am not confident what fairness would have demanded. But I do have some ideas. The concept of fairness should include the notion that laws should be applied equally and should not contradict accepted standards. In the world of finance, bank regulation can be a possible solution to achieving fairness. We should use the law (statutes and administrative agencies) to create and enforce standards for ALL financial institutions. Yes, the specific standards might vary from institutions (i.e., depository institution vs. insurance company) depending on the risk carried. However, applying the lessons learned from 2008-2009, systemic risk can carry from institution to institution and adversely affect a global economy.

I have a few ideas of what these standards could entail. The biggest failure of the Great Recession was not about not having enough liquidity but rather not being prepared for insolvency. The current bank capital requirements need to be increased and countercyclical in order to counter this. My proposed regulation of capital requirement adjustment would require banks to hold capital when there is a surplus of credit, so when there is an economic downturn, the bank would have a buffer and reduce adverse effects.

We also need to reform our consumer-bank relations-- we need to improve consumer literacy. Prior to the Recession, it was not uncommon for a mortgage applicant (with a sub-par credit score and little to no down payment) to be approved for a house two or three times the appropriate mortgage. On the one hand, one could wonder why a bank would approve and therefore convince said applicant that they could afford the mortgage. However, on the other hand, one could also wonder why the applicant wasn’t responsible enough to know on their own they clearly could n0t afford said mortgage. We should impose required training in financial literary in mortgages and similar financial products. The idea might be grand, but it is not novel –undergraduate students applying for government loans must complete training that describes how much they will owe after interest. Although principal and interest may be common sense to some, financial literacy is not common to everyone; and predatory lending demonstrates how unfair this can be to specific groups. This needs to change.

Conclusion

I came to CLS not because I know what fairness is but because I am trying to find how I can use the law to make the world fairer and more equitable. I am eager and encouraged that Columbia can help me do so.

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