The Economist points out that Obama is being disingenuous in promising that he won’t raise taxes on the rest of us. He’s going to have to at some point. And if we’re getting universal healthcare and other goodies, I think it behooves us middle class slobs to pay at least part of our own way, no?
Here’s the thing about the people clamoring for more regulation of financial markets. Whistleblowers were warning us about the crooks; the SEC wouldn’t listen. Let’s try enforcing the laws we have before we pass a raft of ill-advised ones.
This is a perfect illustration of how stupid the GOP has gotten. They’re delaying Austin Goolsbee’s appointment because the Democrats delayed one of Bush’s. Goolsbee is a relentless free market advocate. The President needs to be hearing his voice. As Sullivan says: the Republicans always put the country last.
McArdle hits a point that’s been on my mind lately. Even if your debt should not have been incurred, you still have a moral obligation to pay it off. If we ever lose that, our civilization is doomed. Moral obligation is a critical cog to keeping this human machine running.
Megan McArdle hasn’t really been worth reading since she shed her Jane Galt moniker. I’m not saying there’s a causal connection there, but after watching the quality of her commentary decline steadily since she went to work for The Atlantic I finally gave up on her altogether late last year.
In this case, she is dead wrong. In the context of a contract, which is exactly what a mortgage is, each party has one and only one moral obligation: to honor the terms of the contract. And what were the terms of that contract? In the case of a non-recourse mortgage loan it’s pretty simple: make specified P&I payments over the course of the loan or surrender the property to the lender. Do either one of those, and you have satisfied the terms of your contract, and hence your moral obligation. Everybody involved knew this going in, so nobody should be surprised now that a lot of people are choosing to surrender the property rather than to continue a transaction that has a hugely negative NPV. Don’t like it? Then charge a premium to cover the added risk, or don’t lend in a state that requires home mortgages to be non-recourse.
Appealing to a non-existent “moral obligation” to get people to forgo some of their rights under the contract is the basest sort of con. The bankers that are trying to perpetrate it are in my book right up there with the debt collectors who call up relatives of recently deceased debtors and try to convince them that they have a “moral obligation” to pay off their dead mother’s credit card bills.
Ah, I would agree with much of what you say — and McArdle has said that a good solution to our housing woes would be to allow people to turn over the deed and walk away without hurting their credit rating.
But the argument she’s responding to is that the current mess is all the fault of evil lenders. That you should be able to just stiff the mortgage company and keep your house (i.e., mortgage cramdowns).
Hmm. That’s not how I read her post. In particular, the grill analogy seems to argue against walking away and returning the collateral. Consider the quotes:
The equity in my grill has dropped by about 50%. Given all that, I don’t see why I should be required to pay back the credit card company.
or
This seems to me to be approximately the logic behind the people saying that folks who took out stupid loans don’t have any sort of moral obligation whatsoever to make good their debts.
In fact, she doesn’t even mention judges or cramdowns in her post. Some of her commenters do bring it up, however, so perhaps that’s where you saw it. She does talk a bit about the excuses people make for turning over the collateral in lieu of payment, but they wouldn’t have to make those excuses if there weren’t so many people trying to turn a contractual issue into a moral one.
I’m not surprised to hear that she supported elsewhere the idea she now seems to oppose. One of the reasons I stopped reading her was that her opinions seemed to be rather mercurial, depending on what else she might have read lately.
Finally, I agree with your stance on cramdowns. I think that many banks would be well advised to write down some of their loans voluntarily, but it is not the place of a bankruptcy judge to force them to do so. I also think that the reason there haven’t been more widespread voluntary write downs is that banks are holding out for government hand-/bail- (take your pick) outs. Why take a partial loss on a nonperforming loan when there is a chance the government might come along and take the loss for you?
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Astronomy, Sports, Mathematical Malpractice, Whatever Else Pops Into My Head
Megan McArdle hasn’t really been worth reading since she shed her Jane Galt moniker. I’m not saying there’s a causal connection there, but after watching the quality of her commentary decline steadily since she went to work for The Atlantic I finally gave up on her altogether late last year.
In this case, she is dead wrong. In the context of a contract, which is exactly what a mortgage is, each party has one and only one moral obligation: to honor the terms of the contract. And what were the terms of that contract? In the case of a non-recourse mortgage loan it’s pretty simple: make specified P&I payments over the course of the loan or surrender the property to the lender. Do either one of those, and you have satisfied the terms of your contract, and hence your moral obligation. Everybody involved knew this going in, so nobody should be surprised now that a lot of people are choosing to surrender the property rather than to continue a transaction that has a hugely negative NPV. Don’t like it? Then charge a premium to cover the added risk, or don’t lend in a state that requires home mortgages to be non-recourse.
Appealing to a non-existent “moral obligation” to get people to forgo some of their rights under the contract is the basest sort of con. The bankers that are trying to perpetrate it are in my book right up there with the debt collectors who call up relatives of recently deceased debtors and try to convince them that they have a “moral obligation” to pay off their dead mother’s credit card bills.
Ah, I would agree with much of what you say — and McArdle has said that a good solution to our housing woes would be to allow people to turn over the deed and walk away without hurting their credit rating.
But the argument she’s responding to is that the current mess is all the fault of evil lenders. That you should be able to just stiff the mortgage company and keep your house (i.e., mortgage cramdowns).
Hmm. That’s not how I read her post. In particular, the grill analogy seems to argue against walking away and returning the collateral. Consider the quotes:
or
In fact, she doesn’t even mention judges or cramdowns in her post. Some of her commenters do bring it up, however, so perhaps that’s where you saw it. She does talk a bit about the excuses people make for turning over the collateral in lieu of payment, but they wouldn’t have to make those excuses if there weren’t so many people trying to turn a contractual issue into a moral one.
I’m not surprised to hear that she supported elsewhere the idea she now seems to oppose. One of the reasons I stopped reading her was that her opinions seemed to be rather mercurial, depending on what else she might have read lately.
Finally, I agree with your stance on cramdowns. I think that many banks would be well advised to write down some of their loans voluntarily, but it is not the place of a bankruptcy judge to force them to do so. I also think that the reason there haven’t been more widespread voluntary write downs is that banks are holding out for government hand-/bail- (take your pick) outs. Why take a partial loss on a nonperforming loan when there is a chance the government might come along and take the loss for you?