In chapter 7 Stiglitz examines the role our laws and regulations have played in increasing wealth inequality in the United States. Stiglitz starts the chapter by explaining why we need a rule of law. He states that we have laws “to provide incentives for each of us to avoid injuries to others” (236), because without laws the incentives to not injure someone else are inadequate. Rules and regulation affect the efficiency and distribution of wealth in our economic system, and that is why those with wealth use their political power to shape the rule of law in their favor. Stiglitz asserts that the rule of law is thought of as being designed to protect the weak, but the wealthy use their power to make sure it does the exact opposite. Stiglitz goes on to examine three contexts (examples) supporting his claims. …show more content…
Stiglitz writes about how the banks took advantage of the “least educated and financially unsophisticated” members of our society by selling them costly mortgages they couldn’t afford. Stiglitz details how the financial services industry used their political power and the influence of their rating agencies to obstruct any efforts to stop their fraudulent practices. We learn that even after the crisis, the banks used their political power to fight consumer protection laws, and ensure they were bailed out. The second context Stiglitz examines is bankruptcy law. Stiglitz writes about how those top of our society (bankers) use their influence to make sure that bankruptcy laws, like a 2005 law passed by congress made it “more difficult for distressed borrowers to discharge their debts” (242). Bankruptcy laws enabled banks to engage in predatory lending practices that were profitable in the short term, and thanks to incentive pay compensation structures, these profits were passed on to the