Required reading for the Fed

In the wake of Donald Morgan’s staff report for the Fed, I have been thinking a lot about predatory lending, and more particularly about the myth of the rational borrower in a rational marketplace that Morgan seems to rely on in “Defining and Detecting Predatory Lending.” Lo and behold, along comes Credit Slips with a two-part essay on “The Myth of the Rational Borrower” in which new contributors Ted Janger & Susan Block-Lieb comment on a world of “rational lenders and irrational borrowers,” and test their theories against the backdrop of bankruptcy reform.

They also linked to their excellent law review article of a similar name, “The Myth of the Rational Borrower: Rationality, Behaviorism, and the Misguided ‘Reform’ of Bankruptcy Law.” We skimmed the abstract, but since bankrupcty law makes us sleepy, that’s about all we could get through.

So we don’t know if it supports our response to Mr. Morgan or not, but it appears to, and we look forward to Part Two of the professors’ blog posting, which we hope will be easier for a relative layperson to digest.