Let’s revisit this 2008 post of mine in which I discussed
the case of Raymond Zulueta, a California homeowner whose mellow was being harshed because he owed more money on his house than it was worth. So he walked away … and was surprised by how much better he felt about things. At the time, I mentioned that this was a dishonorable thing to have done, calling Zulueta a “therapeutic deadbeat.” But I also cited Patrick Deneen’s acid criticism that the Zuluetas of the world are simply following the example of society’s elite. Deneen:
As the Greeks well knew, the vital ingredient for shame – and, correspondingly, honor – to function in society was immediacy and care for the people in one’s polis, their views and opinions, the esteem they bestowed or withheld. Elites were honored in our society to the extent that they were themselves exemplars of the virtues that they both preached and expected of others in turn. The current widespread hostility to all these elites – Wall Street, lawyers, doctors, politicians – reflects the breakdown of a covenant of respect and honor. As our economy has become more abstract and distant, as our “communities” are compared to bedrooms (or perhaps, more aptly, hotel rooms), as our sense of continuity between past and future has been undermined by rampant mobility, impermanence and instability, there can be little wonder that “shamelessness” has spread like a contagion through our society. Such lack of shame and disregard of honor began at the top and now ripples downward through the feeding chain of class and status.
All this came to mind again today when I read Roger Lowenstein’s NYT Magazine essay. Excerpt:
Time was, Americans would do anything to pay their mortgage — forgo a new car or a vacation, even put a younger family member to work. But the housing collapse left 10.7 million families owing more than their homes are worth. So some of them are making a calculated decision to hang onto their money and let their homes go. Is this irresponsible?
Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials. Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)
There are two reasons why so-called strategic defaults have been considered antisocial and perhaps amoral. One is that foreclosures depress the neighborhood and drive down prices. But in a market society, since when are people responsible for the economic effects of their actions? Every oil speculator helps to drive up gasoline prices. Every hedge fund that speculated against a bank by purchasing credit-default swaps on its bonds signaled skepticism about the bank’s creditworthiness and helped to make it more costly for the bank to borrow, and thus to issue loans. We are all economic pinballs, insensibly colliding for better or worse.
The other reason is that default (supposedly) debases the character of the borrower. Once, perhaps, when bankers held onto mortgages for 30 years, they occupied a moral high ground. These days, lenders typically unload mortgages within days (or minutes). And not just in mortgage finance, but in virtually every realm of our transaction-obsessed society, the message is that enduring relationships count for less than the value put on assets for sale.
Where is this going? I mean, what happens in the long run when the moral sense leaves capitalism to this extent? And to what extent does the erosion of the moral sense governing economic relations have to do with the impersonality of economic transactions, e.g., the fact that your bank doesn’t hold on to your mortgage, but sells it? Remember that great “60 MInutes” report on the mortgage meltdown, which explained how mortgage brokers sold mortgages they knew to be toxic right up the line; the point was to make sure some other sucker was holding the bag when the debt bomb inside went off. A good friend who worked in the mortgage industry during the go-go years confirmed that that’s exactly what went on. It was nothing personal. That’s just the way everybody did business.
That being the case, why, aside from personal honor, should any homeowner who’s underwater struggle to keep paying for his home?