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Homeowner - Social Responsibility and Manipulation

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October 31, 2009 – Comments (9)

Mish has a great find, which he has summarized:

Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.

  What I read about reasons for people not defaulting and the social manipulation truly fascinating and once again it reminded of this video I saw a long time ago about activity in the brain and corporate executives have more in common in their brain activity with sociopaths.  Parts of the brain associated with empathy show little activity.

I strongly recommend giving this one a read.

 

 

9 Comments – Post Your Own

#1) On October 31, 2009 at 5:08 PM, wolfman225 (70.76) wrote:

OK, I gave it a read.  What was the point I was supposed to get?  What was the great wisdom I was supposed to be given insight into?

This "research paper" begins with the premise that the people who aren't walking away from their mortgages are somehow behaving illogically, that they shouldn't have any qualms about defaulting on obligations they willingly undertook.  I am astounded that anyone would recommend this viewepoint, much less denigrate those who chose to honor their obligations.

It used to be called having a "moral compass"; knowing right from wrong.  I'm sorry if you think I am "showing little activity in the part of my brain associated with empathy.", but the facts are that these people chose to take on these obligations; whether for a new home they really couldn't afford, or over-spending the credit cards on that plasma tv, these are more than simply financial contracts; they are also moral obligations to the lender.

The idea that anyone should be promoting just "walking away" because 1) it's too difficult to keep going on or, even worse, 2) there is no law that allows them to be held to account, is every bit as evil as you claim the lenders to be.  No one held a gun to any of these people's heads to sign the mortgage, no one forced them to treat their homes as ATM's, no one forced anyone to go out and over-spend.  If you want, you could make a case that the over commercialization of society contributed, I can certainly see that, but the moral requirement to repay an obligations is more than some contrivance on the part of lenders to keep people in debt.

If you can't pay, you can't pay. But to just walk away because it easier?  Talk about a "slippery slope"!

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#2) On October 31, 2009 at 7:05 PM, dwot (97.03) wrote:

I agree with the paper that moral standards are being expected to be applied from one side only.  There absolutely was no moral standards applied for the lending of those loans, not to the people they were given to and not to the people the asset back commercial paper was sold to. 

Your response is a perfect example of the difference in the moral standard expected of homeowner relative to the financial institutions, yet you don't see that.

One sided morality isn't reasonable and that's what we've got with this housing mess.

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#3) On October 31, 2009 at 7:44 PM, devoish (99.07) wrote:

dwot,

I agree that the homebuyer has a moral obligation not to default even when it is in his best financial interest, just as the lender has a moral obligation not to foreclose when it is in the lenders best financial interest. 

Or I agree that the homebuyer has no moral obligation and should do what is in his best interest just as the lender has no moral obligation and should do what is in his best interest.

I have seen what the lenders chose, I am surprised that more people aren't paying them back in kind.

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#4) On October 31, 2009 at 10:18 PM, russiangambit (29.49) wrote:

The capitalist society operates on survival of the fittest premise. What morals have to do with it? Nothing. in fact, they are a drag on the sruvival. To expect people who overpaid on their houses to continue paying for them the same as expecting people who overpaid for a stock to hold it all the way down to a loss of 50-60%. It simply makes no economical sense.

In USSR we had another kind of a society, which was supposed to be very moral, yet it wasn't and those in charge ( at the communist party) always broke the rules. People couldn't own houses, they were provided by the government and there always a shortage of flats, several generations were living together in a single 2  bedroom flat. That is what happens when you start mixing morals and free market. Leave morals for interaction among the people, in business contracts replace morals. And if a contract allows a default, then there should be no question of whether it is moral or not to default.

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#5) On October 31, 2009 at 11:15 PM, danteps (29.61) wrote:

To expand on the morality angle . .

What about the morality of one group of citizens subsidizing another's home purchases?  It disturbs many of us.  Assuming that home ownership is the moral right of every citizen (see Barney Frank and Maxine Waters - both should be jailed) is ludicrous.

Some folks simply cannot manage such large liabilities given the vicissitudes of markets, employment, interest rates, etc.  I am one of them.  Although I have 7+ figure net wealth, I don't own a home. I rent.  More people should.  A home is a liability on your personal balance sheet.  The housing credit is disturbing and should be stopped. 

Cash for clunkers has been proven to basically be a fraud, costing tax payers $25k for each car that would have been purchased above baseline demand.

Keynes and FDR put this country on a terrible path.  LBJ made it nearly impossible to turn back.  Bush Jr. did nothing to correct the problem and put us in further debt.  Comrade Obama has thus far proven incompetent with a strong penchant to put his name on a health care plan that likely will erode trillions of value and ensure we can no longer be an economic super power.  Change we can believe in?  No, it's an ego we can believe in. 

If you can't pay your mortgage, simply default, our tax dollars will be there to bail you out.  Just ask the folks in Washington or your local bank.

 

 

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#6) On November 01, 2009 at 10:31 AM, dwot (97.03) wrote:

Interesting discussion here.

I found the social manipulation particularly interesting probably because I have done a lot of anti-tobacco work and there are tons of areas where you have tobacco companies main stream businesses putting out what looks like fairly credible  stuff, until you really tear it apart, and you essential find it is an attack on the credibility of health workers, social workers, teachers, and anyone involved in trying to prevent young people from starting to smoke.  Additionally, if you trace the money, you find tobacco money going into main stream movies that liken anyone saying anything against tobacco to the Nazis.

And, on the Nazi front, I saw a fascinating video on the social manipulation of population which basically conditioned people to be anit-jewish.  There was one that Hitler had a lot of influence in design and it liken the people to rats, and it had little influence.  I forget who was the mastermind behind the social manipulation of that era, but the movie he came up with was that the Jewish people were dirty business people which is why they had more wealth and far more subtle anti-Jewish messages. 

Because of the anti-tobacco work I have done I have studied social manipulation and I think that is also why I found this report so interesting.

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#7) On November 01, 2009 at 11:52 AM, wolfman225 (70.76) wrote:

I still fail to see the connection between so-called "social manipulation" and the expectation that people keep their word to repay their obligations.  Isn't it also "social manipulation" that we as a society expect people to obey our laws and behave in a civil manor?  Isn't it also "social manipulation" that we expect our employers to provide wages for our labor?  And that our employers in return expect us to actually work for our pay?

If you take away "social manipulation" you quickly end up with anarchy.  The most brutal form of "survival of the fittest" and absolute mob rule.

If it is true that some lenders knowingly steered people into mortgages that were well outside their means while being fully aware of the fact, then by all means, prosecute them. (Be careful, tho. The paper trail may well lead back to those compassionate defenders of the "underclass": Barney Frank, Chris Dodd, et al.)  That said, it still doesn't absolve the borrower of the duty to read and understand the documentation he/she is signing.  We, as investors, are well aware of the requirement of doing "due diligence".  Unless you are taking the position that these people weren't capable of reading/understanding the paperwork and the consequences (in which case, they shouldn't have even contemplated entering any large financial arrangement), due diligence applies to all.

That is what equal application of the moral argument means.  The borrower has an obligation NOT to borrow more than they can reasonably repay, and the lender also has an obligation (to the borrower, as well as himself) NOT to write a loan/mortgage if they have a reasonable expectation of default on the part of the borrower.  That's the way it used to work back in the "old days" of 20% down payments, income and employment documentation, and a clear understanding by both parties that there was a risk of possible loss and that the future held no guarantees.  Back before home ownership somehow became a civil right; something to be granted regardless of economic realities.

I am in no way unsympathetic to the plight of some of these people.  I've been broke more than once and have had to struggle to stay above water.  There is a difference between empathy and compassion.  The former is nothing more than empty commiseration and hand holding (Oh, you poor thing!  I feel your pain.), while the latter is based on a desire to help people work their way out of difficulties and to learn the skills needed to avoid the pitfalls in the future. (ie. teaching a man to fish, as opposed to giving a hand out of fish).

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#8) On November 02, 2009 at 5:10 PM, dwot (97.03) wrote:

The borrower has an obligation NOT to borrow more than they can reasonably repay, and the lender also has an obligation (to the borrower, as well as himself) NOT to write a loan/mortgage if they have a reasonable expectation of default on the part of the borrower.

 A lot of the loans we are talking about ought not to have been written in the first place. 

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#9) On November 02, 2009 at 6:19 PM, pedorrero (< 20) wrote:

Let's not overlook the main culprit here -- the government.   In an ideal world, the government would enforce contracts (including its own).   Instead, we get ever-changing rules and interpretations and violations of long-standing laws or procedures (e.g. bankruptcy, bail-outs).    In the very old days, a banker had to answer mainly to his depositors or shareholders.   Perhaps a mortgage to a certain person was too risky.   Fast foward to 2009, and we have guaranteed  loans, securitization, and not to be overlooked, the risk of legal actions against lenders should they "discriminate" against certain borrowers.   Messy messy messy.

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