As you probably already know about 25 % of the mortgages nationwide (In Nevada the numbers are higher) are upside down. Well, the solution, according to this NY Times article by Roger Lowenstein is to just walk away. University of Arizona professor, Brent White, is surprised that it has not already happened. And if you view it from a simply economics point of view, it sort of makes sense. Why not stiff the greedy banks that the president, and other Dems, have said repeatedly are stiffing us.
Why not, indeed. Just screw them! They deserve it. They conspired to screw us. That’s what the President told us.
But, did they? Really? Even if the lenders were blatantly dishonest, did we agree to pay our debts? Did we agree based upon our understanding of the market place at that time? Do you think the lender had a different understanding of the market place at the same time? And, if so, what is the value of that agreement? If none, what is the value of any other agreement we might make? Oh, and by the way, what would be the value of any agreement that was originally made in our favor?
Now, to view this strictly from an economic perspective, what are the costs? And what are the benefits? We can easily see that the short term benefits are that we no longer have the expense of payments that we cannot afford, or no longer want to pay. We’re out from under the burden, and can move on with our life. What a relief.! But is it real, or is it only a short term illusion?
What would you do if you were the lender that had been stiffed? Would you build in some protection against those that were eager to stiff you earlier? Would you raise rates for everyone else to offset the costs of the next one to renege? Would it be harder to get the next loan, for any reason?
I tend to believe that we create through our word and through our intentions. If we don’t value our word or intentions, we don’t value who we are. Perhaps our only value is what the government gives us. To me, that would be a very dismal existence.
For more view this powerlineblog on the subject.