A good Washington DC contact told me that a public relations/media push to demonize those who decide to walk away from mortgages they can still afford to pay (aka “strategic defaulters”) is underway. Expect to see a good bit of moral fervor as those who choose to cut their losses are attacked as immoral, irresponsible, and abusive.
There is a wee problem with the “blame the ruthless borrower” narrative. Banks who acted in a ruthless manner have trained their customers to behave the same way. This shift in prevailing attitudes is the logical and inevitable result of financial firms taking an increasingly predatory posture toward their customers. Borrowers are responding in kind, by taking a cold-blooded and legalistic look at their agreements with lenders.
So now they are going to try to stuff the genie back in the bottle by castigating borrowers who treat their obligations as “just business”, the way banks do. But the problem with this little narrative is that the bank haven’t simply been pig-headed about adherence to their often pig-headed contracts (and before you argue otherwise, go read your full credit card agreement, which at Bank of America runs to 30 pages, or a home equity line of credit agreement, and then we can talk). It’s that even with doing everything possible to skew the playing field in their favor, they still had to be rescue en masse. Having been deadbeats and strategic defaulters of the first order, they continue to manifest their characteristic unmitigated gall via (through proxies and ads) hectoring the public about honorable behavior.
Now it is true that this is in fact a very destructive trend. A calculating, contract-driven mindset eats away at the foundations of commerce. When I was young, it was possible to deal with most clients on a handshake (I’d still write the arrangements up, but it was mainly a device for confirming that we had heard each other correctly). Now pretty much every one I know has very carefully crafted agreements precisely because if things stray outside the bounds initially contemplated, it is much less likely that the party on the other side of the table will try to reach a middle of the ground resolution. It is now the norm that parties to a contract will try to exploit ambiguous or unforeseen situations to their advantage.
Now this is a destructive trend. An erosion of trust leads to much greater contracting and dispute-resolution costs, a de facto tax on all commerce. As I discuss in ECONNED at greater length, it’s prohibitively costly and time consuming to negotiate agreements that contemplate every scenario. It would be far better if the banksters were to lead by example; most consumers would be delighted to deal with an institution that hadn’t forgotten the notion of reciprocity (which is why many consumers are switching to community banks and credit unions). But they no doubt want the average Joe to toe the line while they carry on with their use of complexity and opacity to shift hidden risks and fees on to overmatched customers.
One example comes, in of all places, a Republican motion to recommit (an amendment to a bill when it is on the floor made by the minority party). Now narrowly, one might well agree with the idea behind this amendment (to prevent people who strategically default, which will be difficult to define in any tidy way, from using FHA programs). But look at this section, which is roughly 2/3 of the entire amendment:
A strategic default occurs when a borrower decides to stop paying their mortgage even though they can still afford their payments. It is usually undertaken by those who owe more on their mortgage than their home is currently worth.
The Wall Street Journal has reported on families that have chosen to stop paying their mortgage and instead use the extra money they are saving each month to “buy season tickets to Disneyland…take a Carnival cruise to Mexico…” and go out to dinner more often.
Companies have even sprung up to capitalize on the new trend with websites advising people (for a fee) on how to go about a strategic default. These companies actually advertise that after a few years an individual who chooses to default on their mortgage should be able to buy a home again, including through government loan agencies.
60 Minutes reported on individuals who defend their decision to strategically default saying, “…with the money savings that I will have in four to six years, I’m confident I’ll have money to buy my way into a house if I want to.”
Strategic defaults raise costs for responsible borrowers, many of whom may currently be struggling to make their mortgage payment themselves, but who take their obligations to pay their debts seriously. The MTR would ensure that no one who chooses to simply stop paying their mortgage, even though they can afford to do so, is able to benefit in the future from the government’s FHA program.
But it might be more straightforward to restore debtors’ prison. David Walker of the Peterson Institute seems fond of them:
Now this is a destructive trend. An erosion of trust leads to much greater contracting and dispute-resolution costs, a de facto tax on all commerce.
It’s very destructive that the banks, government, and media unilaterally imposed this trend, which (some among) the people are belatedly reciprocating.
As I discuss in ECONNED at greater length, it’s prohibitively costly and time consuming to negotiate agreements that contemplate every scenario.
It’s another EROEI/diminishing returns scenario, just like Peak Oil. The system renders itself ever more unstable and unsustainable as it becomes too big and complex for the resources available. In this case it’s the complexity of hyper-greed and crime. As Salozzo says in The Godfather, “Blood is a big expense”, meaning always having to escalate against ever increasing resistance for ever decreasing returns.
I’d like to add regarding the imbalance of social norms that although the banks claimed in theory that they expected underwater debtors to be “ruthless” in the parlance, i.e. to strategically default, and built that alleged assumption into their rates, they actually calculated that this was false, and that underwater debtors are not prone to act rationally, as the models and theories would have it.
That was historically true. The main indicator for strategic default is seeing others nearby doing it. Otherwise even at high levels of negative equity people are likely to act “irrationally” and keep paying if they can.
That’s why the lenders never seriously offered mods to anyone who couldn’t plausibly demonstrate that he was on the verge of walking away. The banks’ data showed that brinksmanship and obstruction on their part would work – until it failed.
That’s because defaulting is contagious, and once the idea is out there and people are seeing others do it with their own eyes, they become more likely to do it themselves.
So now that the propaganda campaign is failing and the practice is spreading, the banks are panicking. But they can’t put the propaganda genie back in the bottle. If they want to stanch the flow, they’ll need more severe measures like a recrudescence of debtors’ prisons.
I regard this as a slow version of bottom-up debtor jubilee, and I welcome it. As for those who keep trying to pay and who resent their more intrepid brethren, they’re just letting themselves be astroturfed for the banks and the Bailout and mortally wounded consumerism. They’re really a kind of strikebreaker, scabs. All debtors should jubilate.
I recommend Brent White’s excellent paper on strategic defaults:
I also wrote a series of my own reviewing White’s paper, which I think went pretty well. I’ll just link part 1.
Seems a little harsh to throw every corporate officer of every insolvent Wall St bank in jail, but if that’s what David Walker recommends, I suppose we should listen.
David Walker, lackey of Pete Peterson. He doesn’t seem to have even convinced himself.
Let’s refuse the public airways to anyone who hasn’t paid at least 35% income taxes in full for the past year.
Irrational. Yes, I know. But why should that count?
When I think of the banks invoking moral arguments (as if they had any moral authority whatsoever), I’m reminded of the German protestants’ struggle to wiggle out from under the boot of the Catholic Church:
While our forefathers thought it unworthy of them to submit to the Romans when Rome was the most martial nation in the world, we not only submit to these effiminate slaves of lust and luxury, but suffer ourselves to be plundered to minister to their sensuality.
The pope is a bandit chief, and his gang bears the name of the Church…. Rome is a sea of impurity, a mire of filth, a bottomless sink of iniquity. Should we not flock from all quarters to compass the destruction of this common curse of humanity?
–Ulrich von Hutten, Gespräche
Should we really resurrect the Wars of the Reformation? I heard that 30 years thing was a real mess. You can call an institution hypocritical without this particular reference.
FWIW I’m no defender of the Reformation era RC church, and am myself a Protestant. However, the all too popular depiction of the Reformation as the virtuous Protestants vs. the corrupt Catholics is ridiculous. While complaints about the corruption of the RC church were well founded and there were (amongst a few) sincere theological differences, the Reformation was mostly politics. At least the English didn’t really pretend otherwise. Why should the Church have all those wealthy monasteries when the king can grab them!
…the Reformation was mostly politics…
Well classical and neoclassical economic theory would certainly have it that way.
But I believe Reinhold Niebuhr would disagree:
The false abstraction of “economic man” remains a permanent defect in all bourgeois-liberal ideology. It seems to know nothing of what Thomas Hobbes termed “the continual competition for honor and dignity” in human affairs. It understands neither the traditional ethnic and cultural loyalties which qualify a consistent economic rationalism; nor the deep and complex motives in the human psyche which express themselves in the desire for “power and glory.” All the conflicts in human society involving passions and ambitions, hatreds and loves, envies and ideals not recorded in the market place, are beyond the comprehension of the typical bourgeois ethos.
–Reinhold Niebuhr, The Irony of American History
And speaking specifically of the Wars of Religion, there is ample evidence that belies your simplistic assessment:
It would be a mistake to believe that the question of religious orthodoxy was the sole factor in the Wars of Religion. Charles Tilly has argued, for example, that these wars were in fact more the consequence of efforts to consolidate the new national states than wars of religion. While there is much to be said for this argument and while it is certainly true that the consolidation of state power was part and parcel of the process, there is also little doubt that most of the leading participants in these wars and many of the most violent among them thought that they were doing God’s work and not that of their sovereign. Thus, while we cannot attribute the wars simply to religious differences, there can be no doubt that religion in many different forms and ways contributed to the fanaticism and slaughter that distinguish those wars from so many others.
–Michael Allen Gillespie, The Theological Origins of Modernity
Of course the wars fought in the name of religious ideologies in the 16th and 17th centuries paled in comparison to the wars fought in the name of secular ideologies in the 20th.
I agree with everything you are saying about the banksters and modern ideological war being destructive.
So why then do you use ridicule to attach those with different ideologies than yours? Is your ideology exempt from your own analysis?
”So why then do you use ridicule to attach those with different ideologies than yours?”
Didn’t you know that the human intellect is imperialist?
I’ve about come to the conclusion (getting to know oneself poses one of life’s greatest challenges) that my formation—-or “ideology” as you would put it—-is Cartesian.
As Gillespie explains, Descartes “was convinced that anyone who is freed from the prejudices of the world and uses his good sense will arrive at exactly the same conclusions he did.”
So when I encounter persons like yourself, who can look at the same phenomena that I do and yet come to entirely different conclusions, it is quite frustrating, to say the least.
Science, as Descartes developed it in his early thought, depended crucially on the certainty of intuition. If intuition is not certain, then the science that Descartes seeks to establish can be no better than the probabilistic science he wants to replace. If there is no certain ground, no fundamentum absolutum inconcussum veritatis, then we cannot truly know anything.
The goal of Descartes’ scientific project was to make man master and possessor of nature and in this way to prolong human life (perhaps infinitely), to eliminate want, and to provide security. He thus had a decidedly this-worldly goal. His science seeks to employ theory in the service of practice and to ground all thinking and action in certainty. The aim of this thinking is thus not contemplation but action and production, turning the world to human use.
The key to such a science for Descartes is certainty. By certainty, however, Descartes does not mean the certainty of perception but the certainty of judgment… Descartes thus concludes that “the aim of our studies should be to direct the mind with a view to forming true and sound judgments about whatever comes before it.” Such judgments are the antidote to presumption and the foundation of science.
The larger problem is that if Descartes is wrong in his conviction that there is apodictic truth, then the entire modernist project is doomed to failure. And persons like yourself stand as Exhibit “A” that Descartes is wrong.
In order to ground his science, Descartes had to confront skepticism, and confront it not merely in its ancient Pyrrhonist form derived from Sextus Empiricsus but in the form derived from nominalism that calls into question our capacity to know even the most certain of things.
This thread provided a great example of what I am talking about:
One can see with their own eyes what happened, and yet there are those who argued that that visual evidence is not to be believed. If we can’t believe what we see with our own eyes, then surely we cannot believe anything.
Should have read:
If we can’t be certain of what we see with our own eyes, then surely we cannot be certain of anything.
I’m not sure that the term “secular ideology” isn’t a psychological impossibility.
EVERY ideology has a religious structure. Our twentieth century fathers just didn’t want to believe this, or see it..
Separating out God and sovereign in the period of the religious wars may have been difficult.
The Ancien Regime STILL was operating, to a certain extent, under the assumption that the sovereign was God’s representant on earth.
I don’t know how far this goes, but, considering the fact that there are still relics of divine right monarchy alive in our democratic system, well… it opens up new perspectives to think about the issues this way.
This is rather logical…. Look how the American people chose a… sovereign in the last election.
That was a little… religious, don’t you think ??
Along with believing he was going to solve the country’s structural problems ?
The point you make is the theme of Gillespie’s book, and thus the title The Theological Origins of Modernity.
Gillespie explains that
modernity is broader, deeper, and older than the Enlightenment. That said, at the core of the project initiated by Descartes and Hobbes is a faith or self-confidence that an enlightened humanity can discover a ground for an apodictic or at least an effectual truth, and that this truth will provide the foundation for an unprecedented human flourishing.
Their efforts…were not driven by an antipathy to or disbelief in religion per se but by the attempt to develop a new science that granted priority to nature. They believed that giving priority to such a science and to nature generally would not merely help to defuse the internecine conflict about the relation of God and man but would also give human beings the capacity to master nature, improve security, expand freedom, and promote prosperity.
What actually occurs in the course of modernity is…not simply the erasure or disappearance of God but the transference of his attributes, essential powers, and capacities to other entities or realms of being. The so-called process of disenchantment is thus also a process of reenchantment in and through which both man and nature are infused with a number of attributes or powers previously ascribed to God. To put the matter more starkly, in the face of the long drawn out death of God, science can provide a coherent account of the whole only by making man or nature or both in some sense divine.
Divine or at least quasi-divine powers reemerge although always in disguise. Nature is an embodied rational will; the social world is governed by an “invisible hand” that almost miraculously produces a rational distribution of goods and services; and history is the progressive development of humanity toward perfection.
The Terror was…the first modern example of the danger in ascribing divine attributes to human beings. A transcendent God could perhaps always will in a truly general or universal manner, as Arnauld and later Malebranche maintained, but finite human beings could not, and the demand that they do so inevitably ended in tragedy.
DownSouth: “Well classical and neoclassical economic theory would certainly have it that way.”
I said politics, not economics. Your rebuttal, including your addition of the Niebuhr quote you chose, only makes sense if you assume that economics is the only important part of politics (I don’t) as opposed to simply _one_ important aspect of it.
It would be a mistake to believe that the question of religious orthodoxy was the sole factor in the Wars of Religion. Charles Tilly has argued, for example, that these wars were in fact more the consequence of efforts to consolidate the new national states than wars of religion. While there is much to be said for this argument and while it is certainly true that the consolidation of state power was part and parcel of the process,
Michael Allen Gillespie: “there is also little doubt that most of the leading participants in these wars and many of the most violent among them thought that they were doing God’s work and not that of their sovereign.”
Killing for Christ. I’ll buy that, although I’m not familiar with the details of the either the Catholic or the Protestant theology that encourages that. I suspect that it requires a very creative interpretation of the New Testament.
Note though that Gillespie distinguishes between the participants and their sovereigns. It’s one thing for a soldier, even of high rank, to believe he’s serving some higher purpose, and quite another for the king or prince who initiates and funds the war to do so.
“Of course the wars fought in the name of religious ideologies in the 16th and 17th centuries paled in comparison to the wars fought in the name of secular ideologies in the 20th.”
Give credit where credit is due – they did pretty good back then, especially considering the lack of technology to wage truly industrial scale war. Just as projects from the pyramids to the Erie Canal were built without modern technology, so in the 30 Years War they managed to kill from 1/3 to 2/3 or the population of various areas, despite their lack of tanks, aircraft or even nitrocellulose or high explosives. That’s actually a much better better track record than most 20th century wars.
► I said politics, not economics.
Ah, but the very idea that the economic can be separated from the political is classical and neoclassical economic theory.
Jonathan Schell explains:
The early champions of the free market, most of them British, had in fact looked to industry mainly to create the wealth of nations, as the title of Adam Smith’s classic book had it, not the power of nations, which had been the preoccupation of their mercantilist predecessors. The advocates of laissez-faire declared the independence of economics from state power. (The eventual coining of the word “economics,” identifying a distinct realm of human activity subject to its own laws, was one sign of their faith in that independence.) The market worked best, the worldly philosophers of the late eighteenth century believed, when the government kept its hands off it. Classical economics, in fact, “had no place for the nation, or any collectivity larger than the firm.”
Smith’s successors proceeded even further in this line of thinking. In the early nineteenth century, the most prominent champions of the market, including the British champions of laissez-fare Richard Cobden and John Bright, contended that free trade, by breaking down or ignoring national boundaries, naturally tended to foster world peace. The market, they ardently believed, was a solvent of national units and a pacifier of national conflicts. “I see in the Free Trade principle,” Richard Cobden said in a speech in 1846, “that which shall act on the moral world as the principle of gravitation in the universe, drawing men together, thrusting aside the antagonism of race, and creed, and language, and uniting us in the bonds of eternal peace.”… An unbroken thread of faith in free trade as an abettor of peace runs through the entire tradition of liberal internationalism, surviving many disappointments and continuing, in attenuated form, to this day.
–Jonathan Schell, The Unconquerable World
But, as Schell goes on to point out, “soon a different relationship of markets to war emerged.” And in the late nineteenth century, “economic motives for empire steadily yielded to geopolitical ones”:
However, events did not proceed as the liberal imperialists expected—-neither in Asia nor in the Ottoman Empire. The economic arrangements forced upon those lands did not strengthen and liberalize their governments but undermined them and drove them, one after another, toward collapse. The Egyptian government, for example, accepted loans from Europe, spent the funds on large but unproductive public projects, and, when these failed, sought to keep up payments on the loans by raising taxes on the poor, who grew discontented and rebellious. The imperial powers then were faced with what seemed a drastic choice: between withdrawing entirely and imposing direct rule. They chose direct rule.
► Your rebuttal, including your addition of the Niebuhr quote you chose, only makes sense if you assume that economics is the only important part of politics…
No, you’ve got it exactly backwards. Niebuhr’s argument is that economics is not the only important part of politics, that there are many other things that motivate human behavior besides rational self-interest (economics).
Which brings us full circle back to the subject of this post, which is that the banksters are trying to tap into some of these other things, that is things besides rational self-interest, that motivate people. The hope or expectation is that people will continue making their mortgage payments even when it is not in their rational self-interest to do so.
“Ah, but the very idea that the economic can be separated from the political is classical and neoclassical economic theory.”
I didn’t say anything about politics and economics being separate.
“Niebuhr’s argument is that economics is not the only important part of politics”
Exactly, but since I never said that economics was the only part of politics, I don’t see what it was intended to rebut.
“Which brings us full circle back to the subject of this post, which is that the banksters are trying to tap into some of these other things, that is things besides rational self-interest, that motivate people.”
And where did I even disagree with that? My point was simply that the Reformation is not a good example of one side being clearly hypocritical and the other not.
► ”I didn’t say anything about politics and economics being separate.”
So when you say “I said politics, not economics,” what is one to take the meaning of that to be?
► ”…I never said that economics was the only part of politics…”
No, what you said was that the “Reformation was mostly politics,” and then you immediately followed that up with an example where economic goals were the only driving force behind a political action. As a reminder, here’s what you said in your original comment:
…the Reformation was mostly politics. At least the English didn’t really pretend otherwise. Why should the Church have all those wealthy monasteries when the king can grab them!
DownSouth: ‘So when you say “I said politics, not economics,” what is one to take the meaning of that to be?’
That politics and economics are not exactly the same thing. I didn’t say they were completely disjoint. In fact you accused me of saying they were synonymous – which fallacy am I guilty of?
DownSouth: ‘No, what you said was that the “Reformation was mostly politics,” and then you immediately followed that up with an example where economic goals were the only driving force behind a political action.’
Examples are examples – it’s generally understood that no one example covers all cases.
Along the lines of your comment here, one could translate the ‘blackstone’/’blackrock’ names (a translated combination of the two founders names) as: ‘foundation of the church of darkness’…
The New Deal is dead. The New Peonage is here.
Exactly, you have hit the nail on the head. Ordinary citizens are catching on to corporate america’s ruthless behaviors, and in some cases using the same kind of tactics against them. It’s not about right and wrong anymore. It’s about what one can get away with in business.
Another point is home values need to adjust one way or another and somebody has to take a loss on the housing. It would be much less painful if the banksters used principle reductions and low interest rate re-fi’s earlier on to allow this necessary adjustment in home values. Lowering payments early on could have even been a huge boost to the economy to boot!
We need a public relations/media push to demonize those who got us into this mess. It would include exposing their Orwellian propaganda …
The TBTF acronym is just another perfect example of gangster favoring Orwellian doublespeak bullshit!
TBTF should be called by its real name; TBPK — Terrorism By Ponzi and Kidnapping!
Yes! The big banks are running a Ponzi scam and there are hostages, threats, and ransom involved!
By running a corrupt Ponzi scam that intentionally creates massive credit bubbles by irresponsible and criminal lending, and, issuing bogus over leveraged financial derivative products, the big terrorist banks in reality have taken the whole country, both complicit customer and non complicit citizens, hostage.
The ransom paid is the money given to sustain the gambling terrorist scammer banks — the big corrupt banks — and their machinations.
The threat is the death of the system and a disruption of everyone’s daily life. If the big bank terrorist kidnapper’s demands are not met, the death of the hostages financial system and civil unrest are threatened as the penalty.
Its a basic Ponzi scam with added hostage insurance! It is in reality kidnapping. And the terrorist threat is DIRECTED AT the United States Government.
This is pure and simple terrorism! J. P. Morgan, Goldman Sachs, Bank of America, etc., they are all terrorist organizations that need to be prosecuted under The Patriot Act.
Under the Patriot Act it is illegal to take hostages to effect government policy!
“Section 802 of the USA PATRIOT Act (Pub. L. No. 107-52) expanded the definition of terrorism to cover “”domestic,”” as opposed to international, terrorism. A person engages in domestic terrorism if they do an act “”dangerous to human life”” that is a violation of the criminal laws of a state or the United States, if the act appears to be intended to: (i) intimidate or coerce a civilian population; (ii) influence the policy of a government by intimidation or coercion; or (iii) to affect the conduct of a government by mass destruction, assassination or kidnapping. Additionally, the acts have to occur primarily within the territorial jurisdiction of the United States and if they do not, may be regarded as international terrorism.”
Terrorists belong in prison.
They are not too big to fail
They are terrorists that belong in jail!
Speak out now!
No balls! No Brains!No Freedom!
Deception is the strongest political force on the planet.
Since I don’t watch TV, except NFL football, I haven’t seen the PR/media push to demonize walkaways.
It will be amusing to see what the creative types who concoct these campaigns will come up with. I’ll be interested, if only from an anthropological perspective which will likely confirm my bias that our culture is generally insane and that corporations with money, high-paid lawyers and pathologically narcissistic executives are the epicenters of our insanity.
No doubt it will like watching one rhinoceros criticizing another rhinoceros for not being human. Just watching the mouth move with the big horn bobbing up and down while it stands in its own dung drenched mud — that alone will be hilarious. It will be impossible not to think “doesn’t this animal realize how ridiculous it is?” And then you’ll think “Of course not, it takes itself completely seriously. And that’s what makes it even more hilarious than just the bobbing horn and the dung alone.”
It’s a big spiral of ridiculousness. If I were a mathematician I might become fascinated with the strange energy of the spiral itself, after I stopped laughing. There is something in the spiral that is a bit scary, frankly.
I saw the spiral yesterday, when I tried to make lunch reservations over the internet at a country inn in Virginia. They had a link to an on-line reservation service and so I clicked the link and was presented with a simple form to make my reservation AND a little link that said something like “If you make a reservation, you are bound by our terms of agreement, which you can find here.” And they had a link at “here”. So I clicked on the link to see what I was agreeing to. And it were paragraph after paragraph of dense legalistic brutal collocations of words, impenetrable and unintelligible within the context of a human being making a lunch reservation. I became increasingly angry and began to suffer a form of nausea and disgust at the metaphoric suggestiveness of it all. Who wrote this nonsense? What brain believes this verbal diarhea is socially useful? What chain of causation resulted in these paragraphs? What if it said I was agreeing to have my card charged twice, once for lunch once for a 10% reservation fee? It would have taken me 15 minutes just to find that in the fine print.
So I said “Fuck this shit! This is total and complete bullshit!” And I picked up the phone and made the reservation the normal way.
It’s all like walking through a field of briars and brambles with thorns. If you’re a rhinoceros it doesn’t matter, but if you’re a human it really sucks.
craazyman says: “It will be amusing to see what the creative types who concoct these campaigns will come up with.”
It will be amusing to see the public response to “balance the insanity” …
Full of evil skanks,
Hold you hostage,
With their scheming pranks,
They’ve engaged in criminal lending,
Their goal is to own your bones,
And now they hold EVERYONE hostage,
They’ve got us all by the stones,
They want you to believe your neighbor,
Who no longer wants to pay,
Is the cause of all your problems,
Because he’s decided to walk away,
But the terrorist bankers are the real root cause,
They seek to control and exploit us all,
Don’t get mad at your swindled neighbor,
See the ruse and then stand tall,
Demand the terrorist banks be tried,
Let the Patriot Act prevail,
Let justice roll across the land,
Put the terrorist bankers in jail!
Election boycotts as a ‘vote of no confidence’ in this government are in order!
No balls! No brains! No freedom!
Deception is the strongest political force on the planet.
That scumbag Walker didn’t seem to realize that when he said that those who engage in irresponsible behavior ought to be punished he, no doubt inadvertently, had included certain banks in his condemnation. This shows the sort of fantasyland he and his ilk inhabit. Craazyman isn’t crazy, despite the name; it is people like Walker who are.
Excellent post, Yves, and thanks for the heads-up. We disagree on the fundamental posture of this administration in that I see absolutely no difference between their mercenary willingness to place corporate interests before those of the taxpayer. My guess is we’ll see another bizarre lecture from I’m Furious about the need for all parties to behave responsibly, when pretty clearly all the actors are motivated by self-interest. The consumer is simply catching-up.
When I worked in sales, our motto was: ‘bury them in debt’. If consumers are complying with the law, they should simply act to defend their own interests and allow predatory lenders to the same.
Many should not have borrowed, but the banks should not have lent. Both are reaping the fruits of their labors.
Spot on anon
One side controlled the purse strings. Blaming someone who is asking for money is stupid. Blame the person who GAVE the money. Asking for money, when you cant afford to pay it back is no crime, giving money to someone whose income cant support the loan (there are ways to check this) and then quickly selling it to someone else SHOULD be a crime.
Careful, don’t take that too far. With a simple substitution, your statement could be transformed into:
“Blaming someone who is asking for DRUGS is stupid. Blame the person who GAVE the DRUGS. Asking for DRUGS, when you cant…”
It took two parties to tango in every one of these fraudulent mortgages. There’s plenty of guilt for those who asked/used and for those who lent/dealt.
I can’t find the link to it right now but there was a survey done by a government agency that questioned borrowers on various topics related to mortgages. The participants were those that were current, in default, already foreclosed on, underwater, etc. One of the questions in the survey was concerned with strategic defaults – whether someone should walk away or not. One of the three answers to the question was (paraphrase) “it is illegal to not pay your mortgage” of which some 24 percent chose that answer.
So some level of demonization of borrowers has a solid root.
Regardless, one can expect the demonization to grow because the government has made it abundantly clear that any losses that would accrue to the lenders will be picked up by the taxpayers – those without mortgages and those that are currently paying.
That said, borrowers should act in their own best interests because their lenders most certainly are acting in their own best interests.
Some of the actions taken by the government have already sabotaged some options. For instance California is a non-recourse state. If someone defaults they aren’t on the hook for the difference. But if they took a refinance to have a try at keep the home that loan is now full recourse. Who knows how many borrowers have fallen into that trap. I am sure this is true in some of the other states as well.
“Regardless, one can expect the demonization to grow because the government has made it abundantly clear that any losses that would accrue to the lenders will be picked up by the taxpayers – those without mortgages and those that are currently paying.”
But that’s only true because the government has _chosen_ to bail out the banks. This is certainly not a free market or capitalist solution. It’s Socialism for the Rich.
This is a really complicated issue if one wants to do something besides… take sides on it.
What is the justification for walking away from a mortgage that you can still afford to pay ?
That the banks are all dishonest ?
That it is “rational” to be “ruthless” ? Since when ?
The argument that I can go ahead and do something because everybody else is doing it… is a specious one. When people trot that one out for me, I remind them that it was … the LAW to denounce Jews in occupied France during World War 2.. Some law abiding citizens actually did denounce Jews during WW2, because they put the law on a pedestal.
Well, their descendants are having a rather hard time of it these days, now that opinion and fashion on the matter have shifted…
You hit the nail on the head with the remark about the infatuation with legalism.
I have mentioned in other places that our ancestors knew that whatever you did you just couldn’t attain perfection in the eyes of the law. You’re never good enough for the law.
The law is DESIGNED to exact an impossible perfection that is not human. To keep you down, and quavering in your boots.. (I’m not an anarchist for nothing, but don’t worry, I haven’t killed anybody, and have no plans to do so. I can’t even say the last time I got a parking ticket…)
Structuring any society TOTALLY around the law will lead to the kind of predatory conditions you describe above.
That’s why… our ancestors stuck the law BELOW grace, and the economy of grace. (Think… saying grace over your dinner at night for one example.)
Because they knew that we would be get our collective and individual heads kicked in under a purely legalistic (and “rational”) ideology.
Once again, the mushrooming of abstract contracts is designed to ELIMINATE ALL RISK, our of sheer hubris and the erosion of trust.
For those of you who enjoy your economy with poetry, I strongly suggest that you haul out your William (Shakespeare) and look at “The Merchant of Venice”, the scene where Portia destroys Shylock’s LEGAL contract in a court of law..
Very edifying. STILL. After all, some 400 years on, words are still words, aren’t they ? And contracts are STILL WORDS, last time I checked…
Too many people think that poetry is worthless in this domain.
These questions have been treated since Antiquity.
Our ancestors found “answers” to them that we know nothing about, because of our hubris and ignorance.
I also STILL say that a great part of the problem comes from too many middlemen in business, too many machines, and not enough personal, eye to eye contact.
Everybody says the banksters…
But to a certain extent “the system”, by turning individuals into numbers has eroded empathy.
And… it’s the capacity for empathy that limits predatory behavior.
But, in order for empathy to kick in, you have to set up the system so people can feel empathy.
For fun… try this little experiment.
Walk down your crowded main city street during rush hour, in the pedestrian zone, and look EVERY BODY in the eye, and try to imagine that that person has a life, feelings, people he/she knows, a dog, kids, friends like you…
How are you doing ?
Dizzy yet ??
the moment real estate interests took advantage of whatever loophole in investment law to sell their China poisoned dry wall illegal non-union ill trained Mexican immigrant built, employment law avoiding builders to sell, promote, finance and advertise a residential home as an INVESTMENT deserves to be hung out to dry any way possible –within the law of course.
Not dizzy at all …
Loss of empathy is a product of the current neocon inspired societal conditioning (propaganda — just like that which will demonize the walk away borrower that Yves calls attention to in this post) that hardens the spirit to the suffering of others.
When you make eye contact in that crowded city street fun experiment, try interjecting a “Hello” once in a while. Rather than imagining about the; “life, feelings, people he/she knows, a dog, kids, friends like you”, you will learn first hand about their lives. It will allow you to experience empathy more directly.
Deception is the strongest political force on the planet.
How about… making eye contact, imagining, AND saying hello ??
I don’t like.. either/or solutions to these kinds of problems.
I agree, America is a pretty desensitized nation. A lot is based on fear here. This is how the elites keep the chumps in control.
The day when you walk into a Starbucks, and instead of seeing lonely people with a computer on the table, you see groups of people chatting and laughing at every table, is the day when these ass*ole bankers lost control, and the revolution is around the corner.
Empathy… I was grocery shopping the other day and came up behind a gentlemen with FUBAR [Fucked Up Beyond All Recognition] printed boldly on the back of his T-shirt. I couldn’t resist and made a comment that when our eyes met – we understood each other and burst out laughing! “God love you brother” was his response.
Most of US only see with our eyes. We need to learn how to “feel with our eyes” to become dizzy with intuitive understanding! Verstehen?
What we need is an association of borrowers who collectively announce a take-it-or-leave it haircut for target banks, one at a time – weakest first – under threat of collective default.
yes, why hasn’t that happened yet?
Damned if I know, all you need is some guys with a spreadsheet. Ideally you’d be able to tap into some affiliation that crosscuts socio-economic status, or a high-profile focus. It’s functionally identical to Buyer’s Up, that young Kennedy’s original thing. Ralph Nader could do it with his eyes closed.
Dean Baker’s take on this is slightly different from Yves’, and well worth reading. He emphasizes that not only are strategic defaulters not doing anything illegal, they’re not even violating their contracts. They’re simply exercising a contractual clause. The banks are just saying “wah, not every clause in the contract works in our favor!”.
I should also note that strategic default is common practice in commercial real estate. Notable recent examples include several multi-billion dollar apartment complexes.
Just to be clear, your implication is not exactly accurate.
When a borrower fails to make a payment on a loan, that is most definitely a “default” under almost any loan documents.
After any default in a nonrecourse secured loan, the lender’s only remedy is foreclosure.
While I agree that, in reality, a nonrecourse loan is set up contractually to operate *in a manner* such that the borrower has a “choice” whether to continue to pay or let the lender foreclose, that is not the same thing as saying the borrower did not “default” when it stopped making payments.
The borrower definitely defaulted, but the penalty is limited to the foreclosure of the secured asset. The “default” and the limited remedy are the legal mechanisms that effect the underlying business deal that the borrower has a choice to either pay back the loan or hand over the asset.
This doesn’t invalidate your larger point, but I do think it’s better if we are precise in describing this.
IANAL (I am not a lawyer) as they say on Slashdot.
I was just deferring to what Dean baker wrote, and he’s generally pretty accurate. Perhaps it even varies by state or mortgage. If you have some particular expertise in this area, I’ll defer to you.
I have no sympathy for the banks. As Oliver Wendell Holmes Jr. taught us about contracts, “What does it mean to make a contract? You agree to do something. And if you don’t do it, you pay agreed upon damages”. If the banks made contracts which are not enforceable, why should I care? Through their lackey, Zimbabwe Ben, the banks are “floating” on interest rate suppression to the detriment of their creditors. When did Joe Schmoe agree to be “taxed” to bail out: Citigroup, Vampire Squid and the rest? Storm the Bastille! Default to your heart’s content debtors.
If you have a stock and take out a margin loan, if it goes down you get your margin called. If you want to “call” a bank, you’re told you’re bad. Whaaat? Calling a bank is known as a “bank run”. That’s what we need to humble our plutocrat banksters. Bank runs. If that doesn’t work, there’s always the guillotine.
“If the banks made contracts which are not enforceable, why should I care?”
As Dean Baker pointed out, it isn’t even a question of enforcing the contracts because strategic defaulters aren’t violating their contracts. They’re simply exercising a clause that the banks don’t like. Now is a good time to remind the banksters and their fellow travelers of the “sanctity of contracts”.
You are correct. Donald Trump has defaulted on debts. The Stuyvesant Town deal collpased. One “profit source” of leveraged buyouts is: the ability to wash away debt through bankruptcy of failed deals. Imagine these fools telling: KKR, Apollo, Texas Pacific or any other big LBO shop not to default if it serves its economic interest. I can just see Leon Black or Henry Kravis laughing out loud.
This will be entertaining to see public service announcements polluting the airwaves. Being that it’s from the biggest credit rats themselves, the banksters, who created the endless supply of easy credit during the boom, I think this will be a short-lived campaign.
My hope is that it’s like the PSA from the 80’s, “This is your brain. This is your brain on drugs. Any questions?” Good memories from the Reagan “Just Say No” era.
I had dinner with a friend last night who bought his house for $525,000 in December 2006, putting 20% down. The house was originally listed at $575,000. About a week after closing, he took out a HELOC from BofA, whose Automated Value Model (AVM) valued his house at $675,000! B of A issued a $255,000 HELOC. Fortunately, he never tapped into the line. (BofA cut it off 6 mos ago). Homes in the area are now selling for $375-400K.
Before BofA sponsors these guilt-inducing PSA’s, they need to go back and question their own faulty AVM’s that perpetuated the last legs of the housing boom. They put the crack out on the street, supplying homeowners and MBS investors with an irresistable drug they couldn’t shake. Who’s responsible for this?
Can’t wait to see the first commercial.
There is a wee problem with the “blame the ruthless borrower” narrative. Banks who acted in a similarly ruthless manner have trained their customers to behave the same way. …
There is nothing ‘ruthless’ about individuals using the existing rules in a way that would give them the opportunity to make themselves better off.
Banks lent money to poor credit risks because they expected to sell the loans to the GSE’s and to institutions that wanted structured products that offered greater yields than treasuries. In exchange for the sales everyone got large bonuses and shareholders saw the price of their holdings go up as long as the strategy worked.
People borrowed more than they could afford because they were allowed to get away with lying about income and because they were hoping to make a killing when they could sell their real estate holdings for much more than they paid. While the absolute gains on each purchase may not be great, the leverage allowed speculators to make huge amounts of money that they could not earn by working.
Both sides of the transaction hoped to win and would have had prices continued to go up. Now it is possible to argue that it was obvious that prices had to go down. The problem is that guessing wrong would be very costly.
Prudent lenders that guessed wrong would make lower profits and would lose employees to their reckless competitors. If their lower profits persisted the boards would get replaced and management would get fired. The replacements, who could see the risks to their own careers, would take a more reckless strategy. In short nothing would change.
On the other side, prudent borrowers would have to purchase much smaller homes and would make much less than others who borrowed more. Some may have had to stay out of the market entirely and keep renting. While this seems like a sensible strategy, it assumes rational spouses, coworkers, parents and friends. It is not easy to stand alone from the crowd and keep being questioned and insulted by everyone else. In the end, if a bubble persists long enough, the prudent individual may get worn down and abandon his/her convictions just before the bubble bursts. That would cause much more damage to one’s wealth than jumping in early with the rest of the crowd.
In our analysis we cannot make strict value judgments after the fact and by ignoring human nature. As my grandfather used to tell me, doing well in life is very simple but it is not easy because we have to fight human nature all along the way. The path is even more difficult when we have spouses and/or children because the emotional stresses when we go against the heard become even more amplified.
Unless you’re posting through a time warp, you’re either hopelessly nostalgic or have a wonderful talent for oxymorons.
There’s a bigger issue here… Corporations have walked away from their contractual and pension obligations for the past 30 years without any CEOs castigated by the MSM media for their behavior. And they certainly haven’t gone to Debtor’s prison or been hounded by banks for such behavior.
For consumers/debtors it’s called “strategic default” for corporations it’s called anything but what it is – strategic default. Not because we can’t pay but because we choose not to… What’s the difference?
To the extent that corporations now have the legal status of person/individual will this same logic apply when they opt out via strategic default on contractual/pension obligations? Somehow I suspect IT WILL BE DIFFERENT.
Now it is true that this is in fact a very destructive trend. A calculating, contract-driven mindset eats away at the foundations of commerce.
Exactly. The “sharp” (unprofessional, and often unethical if not illegal) practices at the top are undermining finance and commerce by destroying trust. This is headed toward a bad ending.
It’s not just banks either. I am finding myself buying more used stuff that is a decade or more old, as well as buying “prosumer” and even professional stuff (like tools) at many times the price of the consumer versions, since the consumer stuff is so shoddy. And this is from the major brands.
I know something about import/export, having friends in the field. If US consumer knew the real price of the junk that they are buying, they would faint. The stuff costs the companies pennies and is worth pennies and they are marking it up a hundred fold and even a thousand fold. And it falls apart after a few uses. It’s disgusting.
I agree, Tom.
That’s exactly what I’m doing, too… WHEN I’m buying.
The shoddy workmanship and the cheap look to everything that is mass produced in mind boggling quantities have dulled my desire… to buy ANYTHING these days that was made in the last..10 years or so.
I don’t object to spending money… but… just WHAT is there to spend money on these days that is worthwhile ??
And I’m practicing up on repairing stuff too. Good for the neurons…
I agree, Tom.
That’s exactly what I’m doing, too… WHEN I’m buying.
The shoddy workmanship and the cheap look to everything that is mass produced in mind boggling quantities have dulled my desire… to buy ANYTHING these days that was made in the last..10 years or so.
I don’t object to spending money… but… just WHAT is there to spend money on these days that is worthwhile ??
And I’m practicing up on repairing stuff too. Good for the neurons
I frequently read your comments at Sudden Death and Street Rat, and I can only thank you deeply for your contributions. Your writing, with a grounding in the classics, that I do not possess, so often captures and articulates my own thoughts and feelings, and you have done it with this small entry again.
Excellent post Yves!
One question: Did your contact pushed the kindness to the point of revealing who is behind all this? Easy to come up with probable suspects, but individual names fit much better unto a story line that could counterpunch this BS.
They sure have the money and, by extension, the MSM on their side. It goes without saying they own “this place” (read:Congress) too.
The People have the internet, blogs and community organizations on their side.
IT’s not surprising they would try such a PR campaign. The big advantage of the corporations is that they deal with individuals, who are easy to isolate and bully and milk, if no protection (legal, regulatory etc.)is available.
However, if strategic defaults become truly contagious because people discover there is strength in numbers, that’s it! We, The People, shall pawn the financial sector. The victors of this struggle will own the political discourse (ergo, the power) for he next 20 years and beyond.
No wonder the banksters are terrified. Washington ought to be terrified too.
Let them quake in their boots; couldn’t happen to a nicer bunch.
Tishman Speyer Joins Ranks Of TBTF As Fed Gives Real Estate Firm Taxpayer Subsidized Tip
Crains New York reports that the FRBNY has finally relented and at what likely is a loss to taxpayers, has given Tishman $100 million to restructure its loans at preferential terms.
It’s a loan and a mortgage joined at the hip. It’s a contract. If there is any morality in the contract, that morality exists in the fact of the contract’s existence. Should the loan have been made on the terms and conditions stipulated in the contract.
Now, implicit in the contract is the concept of the potential for default. The word Mortgage itself anticipates death; but, default can occur by reason of inability to perform while still living or by reason of wilfull refusal to perform.
In obtaining a home loan, who has negotiating power, the lender or the borrower? You can shop for a rate and terms, ultimately you will accept the terms offerred. The lender is the position of controlling the transaction.
Now if the lender makes a loan under which there is sufficient equity the loan rarely goes underwater and the potential for a strategic default goes to near zero.
This business of continuing to pay on an uneconomic loan because it is the moral thing to do is just crap think. When the loan balance is more than the value of the asset the moral thing to do is to first attempt to renogiate the loan. But then, the loan has been sold to a third party and there a servicer and a special servicer.
Strategic default is, in fact, the ‘moral’ choice. When you elect to default you need to worry, does your contract have a recourse clause; and, what amount of taxable income will you receive as a result of you breach of contract.
SURE HOPE NOT!!!!!
It’s starting: Repudiate your debts before they pass a law making it a crime to “walk away” from these burdens of slavery.
Remember, if you’re in debt, you’re ALREADY IN Debtors Prison Right Now.
http://www.freetoprosper.com is a site which can help people get rid of debt by legally repudiating their debts, protecting their assets and educating on strategic survival planning for the future.
The solution to getting the media to go along, is simple: Put the names of strategic defaulters in with the bonus-pool-strategic-defaulters.
Determine who signed to approve the merit-bonus pools, during an economic crisis. For example, Henry Paulson, Fed officials top five or seven “approval barrons” (i believe there was one approval barroness at the fed during the crisis acting to approve and bolster dark bonus pools and of course merit-pay bonus pools in firms that were insolvent or “critically undercaptialized” or badly managed) …Lets see who else: Henry Paulson understudies: Tim Giethner and Sheila Bair and their “approving” undercharges. Peter George Peterson, Robert Rubin, both strongly opposed giving the Commodity Futures Trading Commission oversight of over-the-counter credit derivatives (black-operational) market.
Once all the recipients of bonus and merit pools (during an economic crisis) is compiled and released to the public, just add the names of the approving authorities and then affix that above the list of known, strategic defaulters.
And then send them all to debtor prison.
As long as David Walker can get behind this blue print, it might a plausible idea. But he needs to make sure he points out the original offenders and those who provided the model of bad behavior.
Otherwise he merely looks like another fop on strings, trying to help his buds evade accountability and responsibility.
Notice no party in this meeting, asks where David Walker was in 2008-2009 when all the big bank liability dumps were rolled out (by the departing executive branch) and walk-away “taint” was not yet being initiated so American bank executives could “be more competitive” in international markets.
Where was his “we need to-hold-people-accountable-when-they-do-imprudent-things.-It’s-pretty-fundamental” speech in 2008? When American and Capitalism really needed him David Walker was silent. For him to be slinking, now out of the corporate closet now, looks rather indentured if you ask me.
It is quite plain to see: The lunatic fringe in the lobby around Washington have little to no morals worth preserving.
Say nothing of Peter George Peterson and Robert Rubin, both perversely opposed giving the Commodity Futures Trading Commission oversight of over-the-counter credit derivatives market.
Perversely opposed, see also, feverish and deviantly opposed… Walker is one to talk about moral (debtor) integrity here in the 13th inning.
Speaking of a degenerate bank lobby in D.C. …I mean … while we are on the subject:]
What coffin in Transylvania did they wake this guy up from?
Come my little pretty … We have a few non-corporate debt-offloaders for you to chastise.
Can anyone suggest a list of good banks or a way to live without banks at all? I ask because my local bank got bought out by a TARP bailed out insolvent one over a year ago and since then I’ve been at a loss about what to do.
The Peterson Institute is associated with a campaign against the acceptability of strategic default is an argument in favor of it. I am sorry but the mentality of the guy is disgusting. Frankly, I think community colleges should be mandated by the states and even the federal government to offer courses in strategic default. Alternatively, maybe every citizen should have an account and the FED and have access to the discount window. That’s even better.
The best defense is to not be where you’re listed on your driver’s license, debt notes-nothing. Live anon in an apartment or room for cash, use a P.O.box registered to your last address… obviously you move and don’t update.
The beast lured our fathers and grandfathers into indebtedness, calling it “credit”, making it very hard to get so they erroneously saw being in their debt bondage as having a false value. Then with that false value set in the enemy(what else are they?)gradually eased the availability and terms… not the interest rates of course… until the whole nation was in debt.
And as we went on decades of consumer spending, the enemy used our money to buy up industry, hollowed out our economy and got everyone into tens of thousands of dollars of debt. Now that they’ve stolen our means of living(from them)they’re foreclosing on the country. Jefferson’s warning about bankers eventually dispossessing future Americans of their own country has come to pass.
Repudiate the debt. All of it. The enemy has waged war against us, strike back.
The “Western business model”, “Capitalism” is not sustainable, it bears the seeds of it’s own destruction. I’ve been right for the last fifty years when I turned to my fellow classmate at our First Communion and told him, “This is Bull Shit”. I got a thorough beating from one of Monseigneur’s lackeys after my classmate snitched on me and was further shamed and chastised to near submission by my pious, indignant and ignorant parents, however, I’m so glad I stuck to my guns.
This is not going to end well for either the lenders or the borrowers, it’s too late.
“Faith is for skeptics.”
But you’re still looking back with nostalgia, aren’t you ??
No matter what you think of the Peterson Institute, no fair-minded person can seriously interpret Walker’s remark that way. But I see you’ve attracted a lot of ditto-heads.
Hafta’ say, Yves, I’m with Namazu on this one. That seemed like a rather poor swipe, obviously taken out of context, and not in a funny way, alas.
I fully agree with the rest of the post, of course.
He seems to me like an earnest, well-intentioned preacher, saying we have to get back to God. No liquor, no dancing, no short skirts, no holding hands in public . . , ha ha ha . . . and the Glory of the Lord will favor us in our humbled and fervent piety. I wonder just what an Entitlement is to a man of God. Maybe it’s the divine right of society’s fortunate sons not to have their wealth stripped to pay for painkillers for the crucified masses wailing on their crosses of debt, born into debt and minimum wage, cleaning a toilet somewhere or drowning in their own thanatos and liquor and blunts and rage, as they bleed from their palms and their feet. Maybe the more they bleed the more they wail, and then wailing becomes a habit and when they fall down off the cross and somehow remain alive, they continue to wail and wail and wail and don’t even know how to help themselves or even what it is not to wail. I wonder what sort of entitlement will shut them up for good. Maybe they need a night school course in Macroeconomics, just so they Know how lucky they are. boowaahahahahahaha ahahahahaah aha ahahaha ahahahahahah
Wait! A tool of the government backed counterfeiting cartel (Mr. Walker) is lecturing on morality?! Best not go down that road, ye banksters.
The worst knd of debtor’s prison is to keep paying for a house that’s under water.
PS – besides, think of the bigger plasma tv, bigger SUV, all that plastic surgery for your wife, all that gambling in Vegas for you, not to mention the 2+ years free rent in your current home that you could get, just by not paying those sleazy banksters. :)
Anyway, debtor’s prison is already here, Where ya been?
I am saddened to conclude from the deletion of my circa 8:30 am post that this thread is being censored for nothing more than point of view, notwithstanding the apparent failure to note the irony in Vinny’s 7:13pm post – expect it will be deleted soon? I was initially surprised, but looking back now, how else to explain the near-unanimous agreement with the central themes? Surely the quality of Yves’ blog attracts a more diverse audience? I wonder who is responsible for this censorship? Is it Yves, or someone else?
I am sorry you are having trouble making comments, but I do not appreciate false charges being made against me. There was no comment made at the time you indicated, and I did not delete your comment. The only ones I delete are spam, racist/ethnic rants, or extreme trolldom (after repeat warnings).
You appear to have made your comment on the wrong post. You left one on today’s Links commenting on strategic defaults, when there are no Links on that topic today. But you lob accusations instead.
Yes, I did post a response regarding strategic defaults at 8:30 central time after reading this very article, “PR Push Against Strategic Defaulters Underway (Is There a Debtors’ Prison in Your Future?),” and indeed it now sits under links next to a post on WikiLeaks and not in this thread – no doubt my error, not sure how it happened, very sorry, sincere apologies offered.
Frankly I am relieved, even though embarrassed – I read your blog daily, believe it to be the best one out there apropos my interests.
That said, I am genuinely mystified that a blog of such high caliber does not attract at least a modicum of somewhat more sober opinion regarding bankster terrorism, etc. Not that my post was a good model – frankly it reflects my frustration in these regards, and I certainly might have said it better than this:
Given gov actions to prop up banks, I don’t see how strategic defaults punish banks – it’s just insult heaped onto injury to the good people who weren’t so stupid or greedy as to have bought ridiculously priced property and then added to their debt per cashouts along the path to default. All the talk about bank terrorism justifying borrower actions is self-serving blather, just “intellectual” diarrhea.
I must differ with you here. You are assuming the bank own the mortagages, which is not the case. Most first mortgages are sold into residential mortgage bonds, as are about 50% of the seconds.
First, the banks for the most part refusing to do deep principal mods. They use the securitization as an excuse, but the reality is they are fighting mods to preserve income to their servicers and to keep their seconds at fictive levels. If more homeowners walk away, it will put pressure on them to mark their seconds down, which will remove one of the big impediments to mods.
Second, the failure to do mods and clear the losses in mortgages is preventing the housing market from clearing. We would have a sharper downturn in home values initially, but we’d also have recovery faster. If underwater homeowners saw housing values rising, some of them might hold on. The prospect of continued flat to falling prices makes keeping an underwater home irrational.
Third, if the banks have to be recapitalized again, trust me, there will be a huge backlash. All the reforms that were derailed or watered down, particularly pay reform, will be on the table.
Nice response. Take it a bit further. All of the write offs have not been taken. Had the write offs been taken we would be seing more new lending. Banks are not lending because they can’t.
Households are not borrowing because the current level of debt is unsupportable and a MEW is very difficult to do.
The dollar should be much lower in FOREX; but then there is this sovereign solvency problem. The current rise in the dollar is a more a flight to political stability than it is a flight to intrinsic value.
Ultimately this morality propaganda will be overwhelmed by economic reality. If the loan balance is greater than the asset value, continued performance on the loan is self destructive and in that it will come to an end of its own accord. There is no morality beyond the contract itself. Should the loan have been made in first place.
In the making of the loan, the responsibility for the transaction rests primarily with the lender. It is true that the borrower may commit fraud as to his ability to perform. When fraud is present one needs to wonder why it is so prevalent. Was it initiated by the borrower, was it induced by the mortgage broker, did the lender ignore self evident incongruity? These are not small or minor considerations. I look to the lender. It is the lender that makes, or doesn’t make the loan.
Strategic default is an implicit option in most contracts, attempting to attach moral obligation to contract is crap think of the highest order. The moral thing to do is to not enter into contracts that you cannot honor. Entering into contracts that one cannot honor is at the least a tort and more often than not a fraud.
“Strategic defaults raise costs for responsible borrowers, many of whom may currently be struggling to make their mortgage payment themselves, but who take their obligations to pay their debts seriously. The MTR would ensure that no one who chooses to simply stop paying their mortgage, even though they can afford to do so, is able to benefit in the future from the government’s FHA program”
Strategic defaults do not raise the costs for anyone except for govt and banksters. That is why this whole PR exercise is in the works. Strategic is the most prudent way of handling imprudent or foolish decisions in the past. Just like banks walk away from bad decisions so should individual. If it affects individuals due to their foolishness in NOT WALKING AWY, it is their problem !!
Who wants the govt’s FHA program .. or for that matter any of their ******* programs.. these programs are nothing but PR for saving their cronies … Let the govt get out of the way and let the strategic default take its course … you will find banks go bust … DO NOT BAIL OUT … house prices will fall .. NOW YOU CAN BUY AT REASONABLE PRICE.. Why is it considered to BE IRRESPONSIBLE WHEN YOU ARE BEING PRUDENT. IT IS BECAUSE THE BANKSTERS WILL STAND TO LOSE A LOT OF MONEY AND THE GOVT AND THE CONNIVING SCOUNDREL AT THE FED DO NOT WANT THAT TO HAPPEN ..
AGAIN STRATEGIC DEFAULT IS THE WAY TO GO .. ALBEIT WITH CONSULTATIONS WITH A LAWYER!!
I wonder if the USG or the FED is helping out any corporates who ‘walk away’???????????
Wide Fallout in Failed Deal for Stuyvesant Town
Yet in walking away, the partners, Tishman Speyer Properties and BlackRock Realty, have left tenants in limbo and other investors with far bigger losses.
Fed cuts Tishman Speyer a break
Tishman bought the 5.7-million-square-foot portfolio in 2007 from Blackstone Group, which had acquired the properties just months earlier in its $39-billion takeover of Sam Zell’s Equity Office Properties Trust.
Strategic defaults PR campaign will probably generate more awareness among mortgage holders of its possibility creating
more interest among those that never gave the idea any credence. It also highlights the general failure of the Governments various mortgage relief programs which must be failing at even faster rates if government actors need to initiate such a PR program.
If the economy and RE market was recovering none of this would be on the table, speaks volumes!
If you can’t default, take in roomers and tear out the front lawn, raise vegetables and in the back yard have chickens (rhode island reds make exellent meat and egg layers), bunnies and goats (milk, cheese and meat).
F%k the planning dept and CCRs!!
I am in favor of debtor prisons if all the bankers who lined up for government bailouts go to the head of the line
When justice has no recourse under the law, vigilantism becomes the way for the oppressed to even the playing field. Guerrilla economics vs an overwhelmingly corrupt, powerful foe- that we pay to retain in power will become the norm. Consequences of disobedience meted out only to the unterrmenschen no longer flies as the plutocrats rip and rape and swindle us blind.
BP Hires Goldman, Blackstone
Published: Monday, 14 Jun 2010 | 6:10 PM ET http://www.cnbc.com/id/37694706
BP has hired investment banks Blackstone Group , Goldman Sachs Group and Credit Suisse Group as advisers in the wake of its massive oil spill in the Gulf of Mexico, according to a source familiar with the matter.
BP hired investment banks in the wake of the Gulf coast oil spill.
BP spokesman Tony Odone said the company had “no comment on who our advisers are and what their role is.”
Odone also said there was no truth to a previous report that the company had hired banks with a mandate to defend it from unwanted takeover attempts.
The company has lost more than 40 percent of its market value since the explosion of the Deepwater Horizon rig that led to the oil spill. It has eclipsed the Exxon Valdez disaster as the worst U.S. oil spill.
There has been wild speculation about how the company will deal with the potentially huge liabilities arising from the spill. Analysts and investment bankers have suggested that the company could sell assets if necessary or even become a takeover target.
Some media reports, including one in the New York Times, have even suggested bankruptcy as a worst-case scenario for the British oil company.
The source did not specify what the role will be for the banks. Investment bankers generally advise companies on corporate strategy including mergers and acquisitions and financings.
Copyright 2010 Reuters.
Ah! This really is amazing! Thanks for countering severalsome misconceptions I had observed about this as of late.
David Walker is president of the Peterson Foundation. He is not affiliated with the Peterson Institute.