Walk-Away Nation
Aside from the fact that walking away might make economic sense in many cases, how are policies that lead to this breakdown in individual responsibility "conservative"?
Imagine you're transported from 2000 to 2008. You don't know who, or which party, has been running the country for the past seven years. After reading dozens of articles like that one, would you think the system was still functional? Or would you wonder if an obscure cult of socio-economic mad scientists had taken over and tried some sort of bizarre mass experiment that had gone horribly wrong?
Imagine you're transported from 2000 to 2008. You don't know who, or which party, has been running the country for the past seven years. After reading dozens of articles like that one, would you think the system was still functional? Or would you wonder if an obscure cult of socio-economic mad scientists had taken over and tried some sort of bizarre mass experiment that had gone horribly wrong?
posted by The Cunning Realist at Thursday, February 07, 2008
24 Comments:
Sounds like this is going to be the defining experience of my generation. Gee, I wish I had a mortgage to walk away from.
PS: $340,000 is still too much for a condo in Sonoma County. Try $200,000.
I have to ask, Mr. Realist, "responsibility" -- to whom? People "walk away", not lightly, considering all of the consequences, but clearly having made choices which are better for them than for the person (corporation, bank), on the other side of the transaction. Until you've actually been in that situation, you had better come down off your moral high-horse, especially as all of the middle class has had to watch the CEO's and their ilk walking away from lying, cheating, stealing, fraud, and incompetence with golden-platinum-diamond rewards.
They say the fish rots from the head down. Likewise the examples given by the business "leaders" over the last twenty years of blatant corruption and malfeasance have a lot to do with how inured the middle class have become to such "walking away" from "responsibility". What is happening reflects upon society from top to bottom, and the over-promulgated ideology of a "genius market" run by the selfishness and greed of glorified individual self-interest.
This epidemic of "walking away" is merely the natural consequence of that ideology.
Sorry, I have to side with CR on this one; many of these individuals bought more than they could reasonably afford because they thought they could make some money on the house.
Seriously, who takes out an 'interest only' loan? If you can't afford to buy a house, then rent an apartment.
For many of these homeowners, it was fun to play the game as long as they were doing well. Once things headed south, they didn't want to play any more. These people wouldn't be crying about fluctuating real estate markets if it were in their favor. It's like someone who doesn't complain in the checkout lane when a $50 product rings up for $1 but will scream holy hell if they're overcharged a dollar.
Also, it's a lame excuse to say that because CEOs are stealing, it's OK for me to do it as well. That type of moral relativism should have died with the Clinton administration.
It's called 'personal responsibility'; if you take out a loan and can't make the payments, then you should suffer the consequences.
The market should take care of this by making considerably harder (and more expensive) to buy a home if you default on a mortgage.
I think walking away from a depreciating asset when you've made a commitment to pay for the asset regarding of its fluctuating value is the epitome of 'glorified individual self-interest'.
These people aren't children, but the continued rationalization of their selfish behavior will only serve to accelerate an already infantilized society.
"The market should take care of this by making considerably harder (and more expensive) to buy a home if you default on a mortgage."
No doubt this is true, but the damage to the mortgage markets will be lasting and remembered for a generation at least.
When Bush said "home ownership has never been higher" he might also have been describing the euphoria of the markets as well: a product of relaxed lending guidelines and zero enforcement. The markets take care of that as well: bad actors fill newly created gaps with freshly printed money offering any number of wonderful instruments to individuals who are looking around at their comps that are making huge bank on double digit leaps in equity. It's the American Dream coming in the mailbox. Who wouldn't bite?
My view of the housing bubble is this: it was a product of policy designed to 'soft land' the dot-com bubble with the added benefit of providing productivity gains for an economy that's increasingly outsourced. All those deals, all those new mortgages, were supposed to be supported by an ever rising demand for new goods and services. Problem is, those goods and services were largely distorted toward the new home and real estate mortgage industry itself. The music stopped playing, and a lot of people are stuck without chairs.
Is this the fault of home buyers who bit off more than they could handle? Probably. Does this illustrate the vapidity and bankruptcy of the Bush administration's economic wisdom? Absolutely.
In our parents and their parents time, banks worked with homeowners in distress. But these times are distinctly different: the grifters who were peddling these new exotic mortgages rolled them up and unloaded them onto another 'deregulated' market: CDOs, and once venerable banking insitutions were as easy marks as Jill and Joe, who are planning to 'trash out' of their ARM.
Those grifters in the middle: jumped town. I suspect many of them could be found in Houston, which seems to have a peculiar attraction for of every caste.
Freemarkets? Caveat emptor? You bet. But now the song of deregulation sounds less sweet. When there are sharks in the water, and there always are, this kind of deregulation is the Song of the Sirens.
Well, for many of the mortgage brokers (and hedge fund managers, and . . . ), it was fun to play the game as long as they were doing well -- and at least a good part of othe game involved lying to convince people to take on debt they couldn't pay off. And now that the chips are down, the corporate/financial players are being bailed out. We can attribute motives (via mindreading) to the individual mortgage holders all we want, but the fact remains that nowadays our entire economy is based on taking unacceptable risks and then being bailed out (by the Fed, as CR has repeatedly pointed out). No regulation (that would be unAmerican, after all!), no accountability, no leadership.
As for CR questioning whether the sort of policymaking that has gotten us into this mess is "conservative," I've heard that a thousand times before. Sorry to sound cynical, but conservatives *always* say things like this when the chickens come home to roost. Suffice it to say that I have no idea what the platonic ideal of conservatism is, since I've never seen it in action.
Seriously, who takes out an 'interest only' loan?
A lot of career military types do this. It's been sold to them as an inexpensive way to "own" a home (and get tax breaks) knowing they'll be moving in a few years anyway.
I left an open .html tag in my comment. I'm so sorry! Trying to find an edit path...
Walking away from a home that is no longer affordable or has lost tremendous value is simply a business decision. If the individual is willing to bear the consequences of that decision then it is their right to do so. There's no reason an individual should hold themselves to a higher standard than some business does.
No gold standard, sympathetic federal reserve bank with a printing press, bailouts for lenders, bailouts for borrowers, etc. Where is the "free market" in all of this? We have a politically run economy...there is nothing free about it. If our financial institutions didn't have such a cozy relationship with our politicians they would be far more concerned about who they are lending money to. Who the hell are you going to have regulate it? The same people who orchastrated this bubble. How many people do you know (besides me of course, LOL) who were raising the red flag about this? The Democrats? I don't remember hearing any concern from them about the bubble in the housing market before it started collapsing. In fact...people like me were called prehistoric naysayers who didn't understand the complexities of the "new economy". OMG...come on people. Be reasonable. Any moron can start pointing out the crack in the foundation after the house has started falling over. A lack of regualtion...HAHAHAHAHA...if somebody had tried to step in and slow the no interest loans, ARMs, interest only, loaning to people with no credit history, etc. They would have been shouted down and lynched for hating poor people and standing in the way of "progress". Hindsight is 20/20. You are not offering anything of substance. And its not that I don't think you should be mad at our political leaders. You should be. But maybe you should pay a bit more attention to the David Walkers, Ron Pauls, Peter Petersons (and other members of the concord coalition) of the world. These people have actually been warning about our lack of fiscal sanity for a long time.
"There's no reason an individual should hold themselves to a higher standard than some business does."
Not to keep harping on this, and I do not bear any animus to anyone who has a different take on this, but isn't owning up to your obligations a moral imperative. Isn't this how our parents raised us? I've been fortunate enough not to have suffered serious illness or job loss, but that's not what's causing many of these bankruptcies. It's just that the bottom has fallen out of the real estate market.
I've always been taught to live well beneath your means.
If the government decides to deficit spend and Cheney says 'deficits don't matter', what makes you think that you can toss out your own moral compass to follow his lead?
With many apologies to goldhorder, much of this is the Golden Rule: Whoever's got the gold makes the rules. However, they don't decide our morality. That's an individual decision. If your morality is contingent on what business leaders, pop-stars, or politicians or doing, you've lost all moral bearing.
Our system, despite all it's flaws, is based on laws and ownership; if we walk away from that, we start on the path to anarchy. They'll be some who'll say, 'bring it on!' but when you have no electricity, running water, no steady food supply, no educational system, you'll wish you were living in Kenya.
but isn't owning up to your obligations a moral imperative.
It is, but there are two sides to these transactions. The banks and other lenders have their way out, with layoffs and bankruptcies and bailouts. It's obnoxious, but people just sort of accept that's how the business world works. Why have a higher level of moral revulsion when an individual does the same? What's good for the goose is good for the gander, or something to that affect.
Jackofalltirades said: "Isn't owning up to your obligations a moral imperative?"
Not in business, it's not. And make no mistake, purchasing and owning a home is business, just like every other part of life in the USA.
The "owner" of a home is no different than a stockholder in a corporation and the mortgage lender is no different than the lender to a corporation. Let's say that a corporation in which you own stock has just gone bankrupt and it clearly does not have sufficient assets to pay back the lender in full.
In such an event Jack, would you put in additional money to the corporation to pay the lender back? Don't you have a moral obligation to do so?
I say you do not.
Certainly the homeowner is personally liable for the difference between the loan amount and the value of the home when it is sold by the lender following a foreclosure (the lender is also entitled to recover all of the costs of the foreclosure and sale, by the way). However, my understanding is that lenders in the mortgage business generally don't sue to enforce this liability. So who is responsible for that? THE LENDER! If they chose NOT to pursue the borrower for the remaining owed amount, then that is their decision.
A business decision.
"That type of moral relativism should have died with the Clinton administration." ??
The decline in public morality went into warp speed with the Bush Administration.
Is it responsible to walk away from an obligation? Absolutely. Do American businessmen have an obligation to their employees and shareholders? Is it responsible to participate in a rigged system where your cronies sit on your board of directors and you sit on theirs and you all make sure each of you gets astronomical compensation no matter how poorly you perform? Is it responsible to swear to uphold the Constitution and then crap all over it? Is responsibility and morality demanded of the sociopaths at the "top" of society or just the suckers in the middle and bottom?
Oops. Meant walking away is irresponsible.
". . . would you think the system was still functional?"
If placed in cryonic storage for the last eight years only to wake up and read articles like the one noted, I would think something had gone terribly awry. I would find equally alarming the lack of leadership determined to address the problems/situations/circumstances/trends that led to this mess. Once upon a time, we could at least depend on our elected representatives to hold a congressional hearing or two - drag before the cameras a few regulatory officers, a few CEOs, a few economists - and give them a good tongue lashing (waving index fingers and all). We could count on them to foment the rather convincing illusion that something was being done (albeit with no substantive changes in policy, regulations, or legislation). But the mantra of free-marketry has taken deep roots over the last 15 years. An honest assessment of the situation would require a close and unvarnished look at the “system.” It would call upon us to question some very preciously held assumptions about a free market: its purpose, its predilections, its pros and cons.
As for me, I don’t expect this any time soon.
Any doubt that an "obscure cult" HAS taken over?
Hairhead:
You missed his point. He is commenting on the business that didn't practice due diligence on their end and are getting stuck holding the bag. And that now they'll whine about getting a government bailout(like Jim Cramer has been whining about on TV). He's making fun of the Republicans and their thing for personal responsibility(which they want everyone else to practice but which some of them won't practice themselves).
I left an open .html tag in my comment.
Isn't a mortgage a secured asset? Wasn't the agreement that the banks lend the money on an asset they supposedly ascertained a value for, and if you can't pay it back, the bank gets to toss you out of the house and then re-sell it to recoup their money? As I see it, the jinglemailer is simply exercising one outcome option of the contract - "I can't pay you back, so here's the house."
Would it be any more "moral" if the homeowner got cancer, was unable to work, lost his health insurance, couldn't pay his mortgage, and got foreclosed on and tossed out on his ass? Of course not. No one would think any less of the mortgage holder for doing it. That's just sound business practice, right?
In this case, the homeowner has initiated the business decision, and for once, it's not necessarily in favor of the corporation. And suddenly we're talking about "morality".
I don't want to keep posting on CR's blog, so I continued this discussion on my own blog.
I think this is a watershed event and am interested in hearing contrary points of view.
thanks!
Jackofalltirades, if I buy a junk bond, and the company goes belly up, do I get my money back? Hell no! Why do you think they call it junk? These were junk mortgages. The irresponsible party here is the lender. The chickens come home to roost, and suddenly we're talking "morality". Indeed.
Who should I get in contact with about a states own laws about mortgage broker bonds and as such, how would I get a mortgage bonds form? I life in England and am considering moving to America, don’t know where yet however I was doing some general reading about housing and came across the term mortgage broker bonds and am a little confused, is it a mortgage or a loan to acquire a mortgage?
Also if I want to set up life insurance do I need insurance bonds? Or can I simply open a policy with a company? Im a little confuse by some of the jargon. I am not moving anytime soon but thought I should be aware of things I will need to understand.
Can you tell me what Surety Bonds are? I have heard of Corporate Surety Bonds but I don’t understand what they are, can you help?
I absolutely agree with anything you have presented us.
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