Law & Econ Prof Blog

More on the Treasury Plan

James Surowiecki's "Financial Page" column in The New Yorker, available here, discusses the Treasury scheme for dealing with the current problem of defaulting subprime mortgage loans and the near future problem of further defaults as the rates for many of those loans reset to higher levels next year.  Surowiecki's take on the plan is very much like that I noted earlier in The Economist's comments on the plan.  The interesting point made by both Surowiecki and The Economist is that the plan could have been devised by the lending industry but for the costs of putting together and enforcing such a plan and the external costs that widespread financial distress might impose on the economy.  I must say that the plan to divide those whose rates are to be reset next year into three groups, only the middle of which will receive aid, raises all sorts of problems.  Inevitably, some will be inappropriately classified.
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Subprime Solutions

Last week's Economist magazine, in its "Economics Focus" column, gave a marvelous analysis of why the Treasury, led by my Dartmouth classmate, Hank Paulson, is involved in proposing solutions to the subprime mortgage problem.  See here. 

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NYT Magazine -- 70 Great Ideas

This Sunday's New York Times Magazine has its annual survey of great new ideas, available here.  This is astonishingly good fun and fascinating.  Here's just one little taste: scientists have figured out what the appendix is for.  (For those of you, like me, who don't have one anymore, don't worry.  You don't need it.)  Don't miss this delightful issue. 
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Compensation for Wrongful Conviction

The New York Times had, on December 2, this story about some states' attempts to deal with compensation for wrongful conviction.  Since 1989, there have been more than 200 prisoners exonerated for crimes they did not commit but for which they had been convicted, sentenced to prison, and served time.  Of those exonerated, almost 40 percent have received no compensation for their wrongful imprisonment.  Since 200, 22 states and the District of Columbia have instituted schedules for compensation.  To quote the article from The Times, "Wisconsin provides $5,000 a year up to a maximum of $25,000 total.  California offers $100 a day.  Tennessee provides up to $1 million total.  28 states offer nothing -- including states with multiple cases of discredited convictions -- forcing former inmates to sue in state or federal court.  There they have the difficult task of providing bad faith or intentional misconduct by authorities." 

If those lawsuits are successful, they can result in large compensatory amounts.  William Gregory, for instance, was wrongfully imprisoned for seven years in Kentucky, sued the Commonwealth of Kentucky when he was released, and won a judgment for $4.6 million. 

This would be a fascinating issue to take on in a research article.  Which mechanism is better suited to provide appropriate compensation -- private litigation by the exonerated prisoner or compensation scheduled by the legislature?  Might there best be a hybrid of private litigation and a minimum amount of scheduled compensation?  Ought there to be, instead, a governmental commission to evaluate each case individually?  And how ought damages to be determined? 

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