Mike the Mad Biologist

It’s interesting how we’re trained to tolerate or engage in a lot of behaviors that, rationally, don’t make much sense. Workers who realize that, in today’s job market, loyalty to a company doesn’t make much sense, are accused of disloyalty by their employers, even though those same employers will let employees go at the drop of a hat. Another economic morality tale is that letting a bank foreclose on your home is an awful thing, even when foreclosure makes economic sense:

…why should Mr. Lewis be “astonished” that people who can pay their mortgage refuse to do so when the home value is less than the mortgage? This behavior is nothing more than the same behavior during the bubble, only in reverse. During the bubble consumers were encouraged not to pay down their mortgage. They were sold products specifically for this purpose. The bank loans officers were marketing mortgages on the premise that future appreciation in the home would pay off the debt – the consumer could refinance in two or three years.

It worked for awhile, but now it doesn’t. Now home values are declining and millions of homeowners are underwater. If they weren’t expected to pay down their mortgage when values were appreciating, why should they suddenly be expected to do so now that values are going down? Their home is a commodity and can be walked away from like any bad investment. The underwater mortgage is the bank problem; there are other homes of similar size now much cheaper to buy anyway, or rent is an option as long as the consumer has a job.

Mr. Lewis’s obtuseness is the only astonishing thing here. He trained his customers to behave this way and he should at least have the sense not to imply that there is some moral failing when consumers walk away from their mortgages. A moral failing has occurred, to be sure, but it was ten or so years ago, in the executive suites of banks all around the country.

When we’re all supposed to act like financial speculators, the conservative values of thrift and prudent spending just don’t make any sense (I think this is a bad thing). In fact, you’re a fool if you play by those ‘old’ rules. If the regulators had stepped in and not allowed these ridiculous loans to take place, people would have had to save in order to buy homes. Instead, we’re in a speculative environment, where long-term investing, whether it be a house, a business, or stocks, is a sucker’s bet.

How is that conservative? (And what does that make me…)

Comments

  1. #1 Moopheus
    January 26, 2008

    It’s not surprising. It’s not real ‘good’ behavior, and depending on the state you live in, there might be actual consequences, but they might not be worse than staying in a bad deal. Admittedly, some of these folks probably should have thought about it a little harder before they made the bad deal in the first place, but the lenders really did everything they could to make it seem cheap, easy, and practically risk-free. A lot of people bought with little or no down payment, so they haven’t really invested much of their own money into the house. I think that “old” lending standards will start to reassert themselves, however.

  2. #2 Moopheus
    January 26, 2008

    Sorry for the double post, but it also isn’t quite accurate to say it’s “deregulation.” A lot of the worst abuses came through nonbank brokers that were not well-regulated in the first place, and when the Fed under Greenspan was given authority by congress to oversee these lenders, he did nothing to enforce the rules.

  3. #3 şişme bebek
    June 8, 2009

    It’s not surprising. It’s not real ‘good’ behavior, and depending on the state you live in, there might be actual consequences, but they might not be worse than staying in a bad deal. Admittedly, some of these folks probably should have thought about it a little harder before they made the bad deal in the first place, but the lenders really did everything they could to make it seem cheap, easy, and practically risk-free

  4. #4 erotik shop
    June 18, 2009

    Sorry for the double post, but it also isn’t quite accurate to say it’s “deregulation.” A lot of the worst abuses came through nonbank brokers that were not well-regulated in the first place, and when the Fed under Greenspan was given authority by congress to oversee these lenders, he did nothing to enforce the rules