The other side doesn't care very much. It is happy to sit and watch the world pass by, in whatever struggling situation I find myself in. That is the underlying principle, to which I agree with Hakuin. I'm really just filling in time until my life comes to an end.
I do think that Haukin really cared, and was wise (filled with love - and therefore this decision of him).
When they accused him for being the father, he saw the painful truth, he wasn't the father, and he knew this - on the other hand if he hadn't accepted the fatherhood, the pregnant girl would be put in an even more pressed situation. It was bad as it was. So Haukin simply says: Is that so.
Then he work accordingly, as a warrior to do the best of the situation. It is meaningless work in our Eyes, because he is not the father, but it is meaningful work for Haukin, in his struggles to get out of Sansara.
The great point of the story is the adjustment back to reality, Haukin is not the father and when the family tell him that, he replies identical to the first reply: Is that so.
So the folly of the world is accepted and dealt with by the enlightened Haukin, when the folly becomes insight, the insight is accepted by Haukin, and the farce is over, and Haukin has got several steps forward in his Quest, just by being on his toes and aware.