Taking A Walk On The Sanctity of Contract

Our recent recession has had a profoundly pernicious byproduct. People have convinced themselves that nobody in banking or real estate can be trusted. In and of itself, this would be evil. Combined with conveniently self-serving moral relativism, it could lethally undermine the system of credit upon which much of our property ownership rests as a basis.

Brent T. White, of the University of Arizona, has written a regrettably influential intellectual work on behalf of the James E. Rogers College of Law. The paper is entitled Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.

The abstract could easily read “Nice Guys Finish Last. So long, Sucker!” Instead, it dresses these sentiments up it in a Potemkin-respectable raiment of academic pseudo-speak. Contemptible Moral Relativism follows below.

This article suggests that most homeowners do not strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to induce homeowners to ignore market and legal norms under which strategic default might not only be a viable option, but also the wisest financial decision. Unlike lenders, individual homeowners have thus generally not acted to minimize their losses and have born a disproportionate share of the burden from the housing collapse.

The paper repeatedly equates the honorable maintenance of a sworn bargain with abject stupidity. From a legal standpoint, in non-recourse states such as California and Arizona, the author has a narrow point. These non-recourse mortgage laws empower individuals to act like a scumbags with respect to their mortgage contracts. The economic circumstances offer a scumbag a chance to welsh on what has turned out to be a bad bargain.

When the equity in a scumbag’s home equals less than what the scumbag borrowed to purchase his shack, the scumbag gains by breaking his word. Worse yet, honorable people who stick the deal out potentially suffer financial annihilation. Thus, if an individual only makes decisions based on whether they make or lose money, the obvious course of action is to walk away and mail BOA the keys.

Dr. White seems appalled that more consumers of household mortgages don’t do exactly that. The poor fools, they keep their word and pay their bills out of ignorance. Examples of this bilious assault against conventional decency follow below.

Underwater homeowners aren’t knowingly making bad financial decisions, they just can’t cognitively grasp that they would be better off if they walked away from their mortgages.

Unlike lenders who follow market norms, individual homeowners are encouraged to behave in accordance with social norms of “personal responsibility” and “promise-keeping.”

The subtle ability to impart contempt through the use of quotation marks amazes even a cynical Son-of-a Biscuit Eater; such as I. It’s very thoughtful of Dr. White to write this missive for all the Little People.

Dr. White goes further in his amusing trendy paranoia. After having drank the bong-water and feeling cranky about his smoked-up stash, the predictable paranoia seeps into Dr. White’s academic “brilliance”. You see, it was The System, Man. The Man is keeping these poor homeowners conditioned. The paragraph below is a classic of an academic not having the guts to openly say it – but saying it anyway.

This is not to say that there is a grand scheme to manipulate the emotions of homeowners, or even that the government and other institutions consciously cultivate these emotional constraints on default.114 But, to be sure, the predominate message of political, social, and economic institutions in the United States has functioned to cultivate fear, shame, and guilt in those who might contemplate foreclosure. These emotions in turn function as a form of internalized social control –encouraging conformity to the norm of meeting one’s mortgage obligations as long as one can afford to do so.

Then Dr. White brings forth the boogeymen. Hank Paulsen, members of real estate associations and other sundry gubbermint functionaries and hacks are quoted as saying homeowners have an obligation not to walk away. I wonder what Dr. White would think if they reminded Arizona residents to pay their taxes so that Dr. White could continue receiving a paycheck? The nerve of these people.

Normally, this sort of academic garbage would concern me little. You have to say something to get a grant, and our university system will usually require that to be morally reprehensible or blatantly dishonest. I expect little from science or academia, and therefore lick-spittle hackery from “prestigious academic journals” no longer disappoints a man with no expectations. What bothers me is to read it in the mainstream.

When bloggers on Rueters write articles like “2010: Walking Away Will Gain Catchet.” the time draws nigh to invoke Kant’s Categorical Imperative. The author, Rolfe Winkler, has apparently read Dr. White. He begins in similar vain.

Why bother? That’s the question more underwater Americans are asking themselves about their mortgage. Trapped in the abyss of negative equity, more will decide to quit paying. As they should.

At this point, a moral experiment becomes necessary. Mr. Winkler says that I should take a walk on my mortgage if it goes underwater in a non-recourse state. Supposing I, my drinking buddies, and ten-thousand other Billy-Bobs that I’ve never met went sub-surface on our mortgages, took Mr. Winkler’s advice to heart and all mailed the keys back to Wells Fargo? Let’s imagine the chain-reaction that would set into motion.

Every single one of us takes a well-deserved right cross to the credit rating. All of our interest rates on credit accounts go up. Being the smart, cheeky consumers Dr. White knows we all are, we stop buying stuff on credit for a three year hiatus until our credit ratings are no longer chumming the fish with the wreck of The Edmund Fitzgerald. Merry Christmas American retail!

Wells Fargo has now taken possession of hundreds of properties that they fronted mongo cash to purchase on behalf of their mortgage holders. None of these properties will move on the glutted open market. The bank hemorrhages more cash to keep these properties on their books. They pay taxes, they pay maintenance, they pay advertising costs to unload them as best they can.

Local businessmen and consumers discover that banks that have no cash make no loans. This unpleasant reality hampers the ability of the business community to do beneficial things – like pay the workforce. Unable to pay the workforce, the local business community then releases them. You too can be fired from your job by some person you never met who took Dr. White’s coruscating brilliant academic advice.

Now perhaps I’m just an idiot who has a false consciousness full of ideas like paying my bills and honoring my signature on legal documents, but who knows? I’ll admit I’ve got my hang-ups.

Some of these underwater homeowners could still enjoy having a job. They could like their community and want to see it function economically. They could even really enjoy the property they live in. Stupid things like these trap the rubes not as perspicacious as the illustrious Dr. White.

We should all thank God the average person lacks Dr. White’s worldview, if not his piecing intellect. Morals exist for reasons that pin-headed lawyers and economists would appreciate we all forget. Reasons that should make us pray that walking away will never gain catchet. If it ever became trendy; it would be as damaging to our society as was crack cocaine.