Personal vs. business morality

This is from the NY Times Magazine:

John Courson, president and C.E.O. of the Mortgage Bankers Association, recently told The Wall Street Journal that homeowners who default on their mortgages should think about the “message” they will send to “their family and their kids and their friends.” Courson was implying that homeowners — record numbers of whom continue to default — have a responsibility to make good. He wasn’t referring to the people who have no choice, who can’t afford their payments. He was speaking about the rising number of folks who are voluntarily choosing not to pay.
Such voluntary defaults are a new phenomenon. Time was, Americans would do anything to pay their mortgage — forgo a new car or a vacation, even put a younger family member to work. But the housing collapse left 10.7 million families owing more than their homes are worth. So some of them are making a calculated decision to hang onto their money and let their homes go. Is this irresponsible?

Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials. Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)

Yeah, okay, it’s the lefty NYT but it’s still a good question: why should individuals be held to a higher standard of morality?
Economics assumes assumes that people act rationally based on cost/benefit but we all know that is not true (at least not monetary costs & benefits). But corporations do and their only legal/“moral” obligation is to maximise return to their shareholders.

Maybe its time to take shareholders out of the scenario.

When someone can afford their incurred debt, yet make the choice to just walk away, it is theft, corporate or personal.

A representative of the banking industry commenting on moral standards; that is hilarious! How dare he. Shut off the flow of hundreds of billions of bailout funding and see how quickly he and his banks are declaring bankruptcy.

Just more polemic from diehard capitalists looking to defend their greedy meal tickets.

Or put them into it.
Stocks owned mostly by institutions (pension funds probably being the biggest) but run by executives and boards of directors. They do not make it easy for even the most savvy stockholder to find out what is going on at the corporation, much less a pesnioner who wants to know what is being done with her money.

As I recall President Kennedy said he would not let personal morality interfere in the operation of government. Should it be allowed to interfere in the operation of business? :rolleyes:

Buisnesses are nothing more than a collection of individuals. They must also be held accountable for their debts.

Obama did a great disservice to out country by not letting poor performing businesses go under in favor of the stronger businesses.

However, business ventures deal with much larger prices for land purchases and it seems appropriate for them to have included escape clauses in their contracts. Were these “defaults” mearly the execution of previously arranged escape clauses?

It isn’t theft if there is collateral on a loan that is now the property of the lender. That, by definition, is a trade.

The problem is that home values were artificially to high to begin with and smart people, like me, refused to pay those prices. Now, I own a home that was foreclosed on by someone else, I can afford the payments, and the bank did not lend me more than the home was worth.

Both sides are to blame. People should never have taken loans they couldn’t afford, and banks should never have made the loans hoping that value would never decline.

First, morality is morality. No one should be held to a different standard, and no one should be able to act illegally or irresponsibly involving commitments to pay. Now it is easy to point fingers, especially when people believe, correctly, that not only did Wall Street take unreasonable risks with other people’s money, those valuing properties were inflating values artificially and the irrational guiding principle was that everything would continue to go up, or perhaps that was just a veneer as well.

When the general public believes they have been taken advantage of by the wealthy, who are then compensated by the taxpayers, it’s possible to see why some feel justified by acting a certain way.


This is why conventional mortgages normally require 20% down and other mortgages normally require mortgage insurance. Even the 20% rule is a bad metric because even in a normal market a house value can go up or down 10% and it will cost 7% to sell a house and other expenses. If you only put 20% down and have to turn around and sell you risk being in an upside down situation even in a good market.

That is why smart people also don’t take out mortgages for amounts as high as 80% and do not stretch themselves out over 30 year loans. Taking out a 15 year mortgage saved us with this latest drop because we paid down enough of our mortgage to keep our debt below market value.

But the mortgage holders have not taken advantage of the banks or mortgage holders. They need to stop blaming the banks for holding them to an agreement they made.

Here is my prediction for the future:

Continuing the theme of not holding people accountable for their actions. I predict that when the dust settles, they will be pushing for those that have defaulted on their loans to have this stripped from their credit reports or will push for legislation of some sort to prevent lenders from looking negatively on those individuals credit reports.

It is interesting that most profess a belief in evolution - survival of the fittest - but are unwilling to see it happen., :smiley:

If you ever want to tick a liberal off, throw survival of the fittest into a welfare or OSHA debate.

There is a billboard near the Detroit Metro Airport that encourages potential home buyers to get full disclosure from institutions offering mortgages. Trust should exist between both parties. During the US Senate hearings on this mess, one Senator said on camera that such mortgages should not have been offered in the first place. Another bit of mismatched thinking said that everyone should own a home and mortgages were going to people who could barely make their monthly credit card payment. A former bank lender friend of mine told me she could not believe how many requirements had been stripped away in the lending qualification process. She could not believe the laxness. So what were the lenders expecting by loosening the requirements? More quick cask pouring in from people who would have been barred a short time ago? Money that could be dumped into various financial instruments to earn a return before the first payment was missed? With the hope that maybe 20% could keep making their payments?

An informed decision backed by a solid qualifications system would have prevented lenders from scraping up the last pennies of marginal and otherwise unqualified people.



So is Best Buy responsible for selling people a TV they can’t afford? are TV stations responsible for couch patatoes not finding jobs? are restraunts responsible for obesity?

No, obviously people have to be responsible for their own actions. If they can not be responsible for their own actions they need a guardian; banks should not be treating all people like 5 year olds because there are some irresponsible individuals out there.

Perhaps I wasn’t blunt enough. Opportunists created this situation. They removed too many of the qualifications for home ownership. We’re not talking about TVs but a long-term commitment, one of the biggest financial commitments a person can make.

I’m still waiting for a plausible explanation for why people on Wall Street, some (most?) with “unique skills,” just completely dropped the ball … on the entire world. I will likely forever remember the newspaper cartoon showing a stunned Allan Greenspan expressing his shock before a Senate committee while a fire raged in the background. On the desk in front of him was an open box of matches with the word greed on it.

Enron? Tyco? Global Crossing? The Savings and Loan Scandal? How many times are the rich going to rob the taxpayers? And get away with it?


Your mixing things up. we are not talking about Enron, etc. we are talking about individuals walking into a bank and getting a loan and prommising to agree to the terms of the contract they signed. By the way I don’t consider cartoons to be a legitimate source of information.

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