Tag Archives: reckless

The Future of the Sharing Economy

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photo by Dennis Yang

I was interviewed on PBS’ Nightly Business Report (produced by CNBC) about the near-term future of the sharing economy in the wake of the horrible shootings in Kalamazoo, allegedly by an Uber driver while he was working for the service. You can find the interview here (my segment appears right after the 22nd minute). A transcript of the interview follows:

SUE HERERA: So, will the tragic Uber shooting spree over the weekend change the way that people feel about the sharing economy?

Let’s turn to David Reiss for his thoughts. He’s professor of law at Brooklyn’s Law School Center for Urban Business Entrepreneurs.

Nice to have you here, David. Welcome back.

DAVID REISS, BROOKLYN LAW SCHOOL PROF. OF LAW: Thank you.

HERERA: I guess that is the question. Do you think it will change the way people feel about the sharing economy, this case in particular?

REISS: I think we have to look at the short term and long term. In the short term, we’ll see people will think twice about it. But in the long term, and as I think people think about their experience with sharing economy services and seeing how frequently terrible and tragic incidents like this occur, I think we’re going to see a return to probably some growth in that area as people put this into perspective.

BILL GRIFFETH: Are you surprised as our reporter Kate Rogers pointing out here that in their conference call just now, they seem to be digging in their heels on not changing their background check policies here. Why not, as I said, do that if only for PR reasons just to reassure the public? I mean, this is a PR problem for them right now, isn’t it?

REISS: It is. And I think they’re probably in crisis response mode. They’re probably not wanting to make big promises about big changes to acknowledge that their business model is intrinsically flawed and they will probably want to make changes on their own time.

HERERA: There have been more calls for more regulation of the sharing economy, specifically by those who are impacted in a negative way by the sharing economy. We have to put that out there. But do you think it opens the door a little bit wider for regulation?

REISS: I certainly do. I think there’s been this attitude of it’s better to ask forgiveness than to ask permission and an incident like this and all of its tragic consequences raise the argument that maybe that’s not the right way to go, that getting it right the first time is better than kind of seeing how it unfolds.

GRIFFETH: Growing pains in the sharing economy or is this a real dent? What do you think?

REISS: I think it’s growing pains. I think the sharing economy has been growing so rapidly with so many innovations. But I think it’s here to stay. I think people are voting with their feet in terms of using the services and government is trying to figure out how to adapt and how to regulate and what’s the appropriate level of regulation.

HERERA: Does it change, though, their liability? Do they have to change some of their policies, all of their policies because there’s a liability issue? And the weekend’s horrible events really point that out.

REISS: I think businesses react to lawsuits and to large judgments, and if courts and juries find that this behavior was negligent or reckless, they will get a clear message and they will change to adapt. I think that regulators are going to look carefully at them. So, I think a lot of this is in flux and I’m sure there’s going to be changes. I don’t know what they will be.

GRIFFETH: Have you used Uber and will you think twice, if not?

REISS: I’ve used Lyft, and I would continue to do.

HERERA: All right. On that note, David, good to see you again. Thanks for joining us.

David Reiss with Brooklyn Law School’s Center for Urban Business Entrepreneurs.

Doing Justice with the $13B JPMorgan Settlement

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I have posted a couple of items on this massive settlement (here and here).  This should be my last one. Perhaps I am ungrateful, but the Statement of Facts agreed upon by the Department of Justice and JPMorgan Chase left me with an empty feeling. Recovering $13 billion for homeowners, investors and the government is certainly a key aspect of the justice done in this case. But the law can and should have an expressive function — it should make a statement about the difference between right and wrong behavior. Unfortunately, the Statement of Facts almost completely fails as an expressive document.

It only makes it clear at one point that JPMorgan, Bear Stearns and Washington Mutual did something very wrong:

employees of JPMorgan, Bear Stearns, and WaMu received information that, in certain instances, loans that did not comply with underwriting guidelines were included in the RMBS sold and marketed to investors; however, JPMorgan, Bear Stearns, and WaMu did not disclose this to securitization investors. (1)

The Statement of Facts provided a couple of facts that made clear what JPMorgan did wrong (see page 2), but I could not even parse the sections of Bear Stearns and WaMu to tell you what they did wrong. This is about as strong as it gets:

in 2008, internal WaMu reviews indicated specific instances of weaknesses in WaMu’s loan origination and underwriting practices, including, at times, non-compliance with underwriting standards; the reviews also revealed instances of borrower fraud and misrepresentations by others involved in the loan origination process with respect to the information provided for loan qualification purposes. (10)

You can’t tell from such language whether WaMu was acting intentionally, recklessly or negligently.  You can’t really tell whether this behavior was endemic, frequent, occasional or rare. You can’t tell whether it was the fault of some low-level employees or of upper management. Just about the only thing you can tell from the WaMu section (and the Bear Stearns section, for that matter) is that it was not JPMorgan’s fault:

The actions and omissions described above with respect to WaMu occurred prior to OTS’s closure of WaMu and JPMorgan’s acquisition of the identified WaMu assets and liabilities. (11)

No doubt, JPMorgan tried to control the PR and legal liability to third parties that this Statement of Facts could engender. But Justice could have held the line on the expressive aspect of the settlement just as it did with the monetary aspect. In the long run, that could turn out to be just as important.