From a message to a friend who is underwater on his extremely high interest loan, cannot refinance due to the lack of equity, and whose lender is uninterested in adjustments:
There's a lot of moral pressure on homeowners not to walk away from their loans because it's "just not right", but I hope you disregard that. Your relationship with your lender is a business relationship. Look at every aspect of your banking and financial transactions -- not just for your home, I mean, but for everything. Are these relationships being carried out on a friendly basis? Or a business basis?
In the case of the banks' credit card operations, it's clearly not friendly and it might not even be "business" in the sense that I usually think of business relationships being ideally free of deception. Banks employ tons of smart people whose only job is to figure out ways to nail their customers with surprise fees. I'm not being a cynic here; I know one of those people.
Also, keep in mind that banks build the potential costs that come from doing work in a non-recourse state like California into their loans, i.e., we pay higher interest rates here to compensate lenders for the additional rights we have as borrowers. So you have not gotten this right for free -- no, you paid for it.
So given all this context, you shouldn't feel bad about being aggressive in your dealings with these guys. I'm not saying I want you to walk, but I do think you should make that decision strictly on the basis of your interests and the interests of your family.
[Update:] And for those who think it's a stretch to relate a credit card relationship with a mortgage loan, maybe Morgan Stanley's walk away from some CRE loans will provide a better basis for moral comparison.
Thursday, December 17, 2009
Saturday, December 5, 2009
Socialism as a conversation ender
In the debate over healthcare and other various government initiatives over the last year, I've heard and read many people using the word socialism as a shorthand way to say that a given policy or candidate was unacceptable. The underlying thought is that socialism is at odds with the American spirit, and therefore a socialist policy is out of the question in this country.
This underlying thought is false. If we define socialist as describing redistributionist policies in general, then it is clear after little reflection that we already have many socialist policies which the American public would be loath to terminate. Social Security, Medicare, food stamps, progressive income tax, etc. are all examples of redistributionist policies which have come to be considered mainstream in this country. Certainly there are strict libertarians who would like to eliminate these policies, but they represent a small fraction of the public, and therefore can't be said to reflect American sensibilities in terms of public policy.
So the real question isn't whether any particular policy or candidate is socialist or not. The real question is how socialist do we want to be as a nation? Some individuals would prefer for us to be less socialist, and I would expect those individuals to favor cutting entitlements and flattening the tax burden across different income levels. Others would like us to be more socialist, and I would expect them to favor greater intervention by the government to solve society's ills, e.g., by helping individuals who don't have health insurance. Whatever one's opinion on this matter, it is not adequate to declare something socialist and then sit back silently as if that settles the matter. We need to intelligently find our spot on the spectrum of policy choices by evaluating the trade-offs of individual decisions and then making our choice.
This underlying thought is false. If we define socialist as describing redistributionist policies in general, then it is clear after little reflection that we already have many socialist policies which the American public would be loath to terminate. Social Security, Medicare, food stamps, progressive income tax, etc. are all examples of redistributionist policies which have come to be considered mainstream in this country. Certainly there are strict libertarians who would like to eliminate these policies, but they represent a small fraction of the public, and therefore can't be said to reflect American sensibilities in terms of public policy.
So the real question isn't whether any particular policy or candidate is socialist or not. The real question is how socialist do we want to be as a nation? Some individuals would prefer for us to be less socialist, and I would expect those individuals to favor cutting entitlements and flattening the tax burden across different income levels. Others would like us to be more socialist, and I would expect them to favor greater intervention by the government to solve society's ills, e.g., by helping individuals who don't have health insurance. Whatever one's opinion on this matter, it is not adequate to declare something socialist and then sit back silently as if that settles the matter. We need to intelligently find our spot on the spectrum of policy choices by evaluating the trade-offs of individual decisions and then making our choice.
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