patrick.net

JimAtLaw says

So, for example, if a neighborhood charity, which is also a corporation, loans you money, interest free, to make it until the next month, there is no moral obligation to pay back the charity - it’s a corporation! Or your employer’s family business, which is incorporated - no obligation to pay them back on a pay advance either right? Careful now, because if you say it’s different because they’re corporations whose shares are owned by friends, or by people whose purposes you believe in (charity, rather than profit), now you’re saying you’re not morally obligated because of who the shareholders are - strangers, ok not to pay back, friends, not ok - or whether you think their purpose meets some arbitrary criteria to except them from the usual “corporation means no obligation” rule.

Those are some interesting cases. A charity is presumably acting out of a sense of moral obligation toward the community, so that is an exception where a corporation can have moral obligations. I still say one has no moral obligations to a corporation that has no moral obligations to them, even if their brother owns it. Any moral obligation is to the brother, who's corporation acted on his behalf, not to the corporation.

CrazyMan, first of all, stealing was not the only example, but secondly, your dismissal is without substance, how are they not the same thing in context? If there are no moral obligations to a corporation, there are no moral obligations! Read what Mark wrote: "A corporation has no moral obligations to it’s lenders. Of course not. Corporations have no moral obligations. Only legal ones. Yet here people are suggesting that people have a moral obligations to a corporation (a bank)."

What we are talking about is whether you have a moral obligation, irrespective of what you can get away with under the law (which we all know has little to do with morality and not much more to do with justice) to pay back borrowed money, and if not, why not exactly.

Theft is not the same thing, as somebody voluntarily giving you something and you failing to give it back.

This may be a bit esoteric, but a very key part of the is problem lies with the nature of modern money. It's all debt. Even the dollar bills in your wallet are just a liability of the fed, backed by a liability of the federal government.

Consider this: If I buy a home seller financed, $20K down and a note for $80K to be paid over 10 years, has the seller "lent me money"? Have I "stolen" any thing from him if I fail to pay him? He gets the house back after all.

Bank financing is really no different. They just stand between me and the seller. The bank gets my $82K note (bank fees), and the seller gets $80K of newly created bank money. The bank "money" is just as much an IOU as the IOU I would have given him if it was seller financed, just more liquid The whole notion of something actually having been "lent" is just an illusion, and it's in fact just some numbers being changed showing who owes who and how much, just like in the case of me writing a note to the seller myself. Of course it's not quite this simple, and lots goes on behind the scenes, but the net effect is exactly the same.

So, just like in the case of the seller financed home, has the bank "lent me money"? Have I "stolen" anything from the bank if I fail to pay it? It gets the house after all.

JimAtLaw says

And another thought on the same line - can the owners of a corporation then use it to perform acts that would be immoral if performed personally/directly?

Of course they can. And they do every second of every day. That is why having laws that reflect our moral values, and restrain corporate behavior is so important.

After all, if third parties owe no duty at all of morality to the corporation and it owes them none, and the shareholders can therefore freely and morally have the value of the corporation looted out from under them,

A corporation can't be looted by a third party in legal transactions. It has do make voluntary choices that lead to it loosing, like making bad loans or insufficiently collateralized loans.

The biggest frustrating part of the last three years, was personally knowing about three people that started out 07 in a house, they were upside down on and were in arrears. They were in a new house by last year.

MarkInSF says

JimAtLaw says

And another thought on the same line - can the owners of a corporation then use it to perform acts that would be immoral if performed personally/directly?

Of course they can. And they do every second of every day. That is why having laws that reflect our moral values, and restrain corporate behavior is so important.

After all, if third parties owe no duty at all of morality to the corporation and it owes them none, and the shareholders can therefore freely and morally have the value of the corporation looted out from under them,

A corporation can’t be looted by a third party in legal transactions. It has do make voluntary choices that lead to it loosing, like making bad loans or insufficiently collateralized loans.

But we're not talking about whether the owners can *get away* with doing so, but whether it's *MORAL* for them to do it - whether they are relieved not just of legal liability, but moral culpability for actions technically taken by the corporation. I think many people would say no, just as I think many people would say that when you steal from a corporation, you are really stealing from the shareholders and this is no better than stealing from another person directly, and just as many would say that by the same token, failing to pay back a corporation (and by extension, the shareholders) is morally no better than failing to pay back a single human being, whether it be your mother or a stranger. Many corporations, and people, behave terribly, and the laws have been written and enforced so as to allow them to do so. The question, IMHO, is whether we want to emulate them.

Excellent logic again, Captain. I'm against the death penalty. Therefore, I must have committed a capital crime at some point in my past, right?

@pawn shop example: Maybe not a good example, but ..... The pawn shop keeps your item until you either buy it back or the time is up, they do not sell it until they own it. OTOH, The loan brokers sold house debt without getting the house back, and without the terms of the loan being broken.

also, Franklin and Barney are not telling pawn shops to give money to people that do not have correct colateral. They did exactly that to loan brokers.

also, you can not hand over your pawn, and then rent it to another, collecting the money while the pawn shop holds the item.

Just tossing out some ideas is all

Mark, as always, thanks for trying to keep folks on track. Mr. Fantastic, klarek and others -- we certainly understand your frustration, but try to focus your energy on some of the real evils of the bubble. For instance 'yes, this will be my primary residence' is the little white lie (and fraud, I might add) that nearly destroyed the free world. Thousands of homes were removed from the marketplace by highly leveraged individuals. Complaining about walkaways is like tilting at windmills. The problem is not folks abandoning their homes (and loans) the problem is that many fraudulently obtained mortgages on properties that were purchased and then leveraged again untli the scheme collapsed under its own weight. So many incentives to fib a bit everywhere in the seccuritization food chain -- from the buyer on through to the investment bankers.

Mr.Fantastic says

Mark is just proving he’s a deadbeat, and unfortunately, he probably has deadbeat kids too. This is why the bubble even happened in the first place, deadbeats and their deadbeat values. How disappointing this can still exist in this day and age.

I've never had any debt in my life, more than a credit card balance I've paid off every month. You've really got a lot of nerve making accusations like that.

Bap33 says

The pawn shop keeps your item until you either buy it back or the time is up, they do not sell it until they own it.

Same with a mortgage lender. They are the true owner of the title to your house until you either pay in full or you don't pay in time, and they don't sell until then. There is absolutely no difference except you get to have use of the item pawned. I fail to see how this make the morality of defaulting on a pawn lender different that defaulting on a mortgage lender.

Bap33 says

also, Franklin and Barney are not telling pawn shops to give money to people that do not have correct colateral. They did exactly that to loan brokers.

The vast majority of bad loans were not made to meet any government requirement. They were made because they were profitable to originate and sell on.

JimAtLaw says

But we’re not talking about whether the owners can *get away* with doing so, but whether it’s *MORAL* for them to do it - whether they are relieved not just of legal liability, but moral culpability for actions technically taken by the corporation. I think many people would say no, just as I think many people would say that when you steal from a corporation, you are really stealing from the shareholders and this is no better than stealing from another person directly, and just as many would say that by the same token, failing to pay back a corporation (and by extension, the shareholders) is morally no better than failing to pay back a single human being, whether it be your mother or a stranger. Many corporations, and people, behave terribly, and the laws have been written and enforced so as to allow them to do so. The question, IMHO, is whether we want to emulate them.

The ENTIRE POINT of a corporation is to shield the shareholder from ANY AND ALL obligations beyond their financial investment.

And for the 3rd time, letting a lender have your collateral instead of meeting the terms to claim the collateral, just as was agreed to in writing up front, IS NOT STEALING.

Absolutely wrong Mark. The entire point of a corporation is to shield the shareholder from LEGAL LIABILITY, not from MORAL CULPABILITY, which is not something that can be done by a LEGAL FICTION.

Or do you really think, e.g., that the guys who made the decision to keep selling Pintos they knew would blow up, killing innocent families, truly bear no moral responsibility for the people whose deaths were caused? Of course not - that's an absurd position, the corporation may be the legally liable party by virtue of being the seller of record but these guys all know in their hearts that they bear responsibility for those deaths, and the rest of us know it too. (Of course, in the Ford case, not all shareholders knew, etc., so not all might be morally culpable here (though that's another debate), but you can easily extend the example to similar actions by a smaller business where all of the shareholders are knowing participants.)

And re: stealing, I never said it was the same as failing to comply with loan terms - if you'll recall, I specifically raised stealing as a separate example since if there are no moral obligations to a corporation, stealing should also be perfectly fine if you can get away with it. And the distinction you made re: a charity was specious - they aren't necessarily obligated to do anything, they may be helping because they WANT to, don't invent moral obligations for them for convenience of your argument (and in any event how about a company that donates 50% of its proceeds to charity - the net effect of your stealing is still that the charity is reduced). It's a corporation, so robbing BofA, IBM, Best Buy, your local 7-11, UNICEF or the Red Cross should all be just fine by the "no moral obligations can be incurred from or to a corporation, nor can they pass through to or from shareholders or others" standard.

MarkInSF says

Bap33 says
also, Franklin and Barney are not telling pawn shops to give money to people that do not have correct colateral. They did exactly that to loan brokers.
The vast majority of bad loans were not made to meet any government requirement. They were made because they were profitable to originate and sell on.

We have went around this block a few dozen times. SOMETHING had to change to make/allow those who make loans (BANKS) to make loans to unqualified buyers. That was/is step one in this entire mess. Then came the HELOC and other greed induced actions. But, without any exception, the first step was to make buyers out of non-buyers. I say Barney and Franklin made thus deal over breakfast in bed at Barney's home based tom-cat house, but that's just a guess.

My original post was not intended to reflect on any "moral" issue with walkaways. Allowing folks to walk with zero accountability for the forgiven amount is absurd. That reduces the dollar to ass-wipe. But, in my little mind, the immoral act was handing money to liars/invaders/poor people, to buy something that was over-priced due to their being able to access the free money lever.

Let's not go overboard now - we don't know Mark did any of those things and I wouldn't assume such. This is a theoretical discussion IMHO, and we can all be civilized to each other. That said, the expressed values are, again, IMHO, the impact of moral hazard personified.

We see corporations screwing the ordinary citizen, over and over again, in countless ways, every day of our lives, and our politicians and laws actively supporting them in this.

We see obscenely rich executives getting huge bonuses for destroying shareholder value (see, e.g., Dick Fuld's bonus immediately before the Lehman BK) and/or being rewarded by our politicians with taxpayer money for destroying our economy, for destroying people's savings, for destroying our national wealth, for robbing ordinary citizens, sometimes by straight up fraud and theft.

And it's hard after seeing this every day not to conclude that the system is rigged firmly against both the little guy and the honest person.

And when you see that, over and over again, that regulatory capture in this country is so complete that we are all laid out as ready made victims by the people who are supposed to be representing and protecting us, your own sense of morality starts to give way to a sense of vengeance and entitlement.

If our politicians and business are robbing me and treating me wrongly, why should I treat them better? Why should I comply with anyone else's sense of right and wrong when no one will help me when I've been wronged, and in fact many of them are collaborating to take as much as possible from me every day? Hell, even the police could give a #!@$% less if you've been robbed because they're too busy impounding cars and making DUI arrests due to revenue oriented policing (see, e.g., the story of Bell last week in the L.A. times). I called the police in L.A. because someone tried to break into my house and I couldn't even get them to come take a @#$%ing report! But they're down on the corner with the radar gun, supplied to them for free by an insurance company looking to raise your rates on insurance you're legally required to carry, every morning.

None of this ends well.

Just curious--if I missed your answer, I apologize. But the analogy with GM stockholders is somewhat apt. Is it immoral for shareholders with the ability to pay GM's creditors not to make them whole?

Good question. I think the answer is no, for the same reason it's moral not to pay back the pawnbroker - the creditors who extended credit to GE did so knowing that if GE failed to pay, they would specifically not have access to the assets of the stockholders. This is a legal point rather than a moral one, but it's important from a moral stance as well here because it was *part of the deal*, a deal between GM (the corporation) and the creditor in question - if either party contemplated access to the shareholder assets, the deal would likely have been quite different (and in fact, for small businesses, the owners are often asked to personally guarantee credit arrangements).

I personally would think that if someone is unable to pay a non-recourse loan and the bank takes the house, they have no further moral obligation to pay back any more, provided that they fully complied with the terms of the loan otherwise and didn't obtain it under false pretenses. That was the deal the parties made, and each party fulfilled its end. Of course, for a lot of people, they will find that whatever alternative arrangements they've made (e.g., HELOCs, refinancing, etc.) have rendered their loan a recourse loan, and then, in compliance with the terms they agreed to, they're morally as well as legally obligated to repay the full amount. Honor the deals you make.

The bulk of these analogies are stupid, n'est-ce pas? Since the home loans are collateralized, the banks has its bird in the hand.

Like the pawn broker example, the idea is if you don't get your guitar out of hock within a certain time frame, the broker keeps the guitar. The pawn broker isn't stupid, in fact, he probably gave you less money than the guitar is worth just to cover the chances and make some dough.

Now, the relatives example would be fine, IF....the brother or sister or whomever, agreed that if you don't pay them back they still get xxx. One is a loan, the other is secured, right?

If your family agreed to give you money for a business and that business failed, what would matter would be f they were giving you a personal loan or if they were co-owners or co-investors with you.

If they were investing in your company, even the family should not morally get paid back.

But these are not personal loans, so again, the analogy fails.

The case of home debtors getting large Home Equity Lines of Credit (HELOCs) or Mortgage Equity Withdraws (MEWs) and then walking away could be interesting. Does anyone know what has happened in these cases?

Mr.Fantastic says

Mark is just proving he’s a deadbeat, and unfortunately, he probably has deadbeat kids too. This is why the bubble even happened in the first place, deadbeats and their deadbeat values. How disappointing this can still exist in this day and age.

edit

all of you asshats are typical. no trauma in your lives and always pointing a finger at someone else. when all the wall street types keep giving it to you up the arse. when it the shit really hits the fan and your assets are worth nothing. you will be begging the smart people like Mark and street smart people. to survive and we will watch you starve.

nrc2112 says

all of you asshats are typical. no trauma in your lives and always pointing a finger at someone else. when all the wall street types keep giving it to you up the arse. when it the shit really hits the fan and your assets are worth nothing. you will be begging the smart people like Mark and street smart people. to survive and we will watch you starve.

How about if "we" start with. learning how to it communicate so. we can understand what. you meant.

@nrc2112

Please explain. I may even agree with you but there is "pronoun confusion" in your comment.

nrc2112 says

all of you asshats are typical. no trauma in your lives and always pointing a finger at someone else.

What are you whining about? Are we supposed to feel sorry for foreclosure "victims"?

What I mean to state is that the comments and value judgements towards Mark are coming from typical ignorant persons. Your ideas and values are the same as those who thought going to war in Iraq was a great idea. You probably accept all that the media and the multinational corporations want you to believe in. That this way of life, a life of get what is mine and fuck the rest, that having it all at the expense of time with your children is more important, that your morals are better than

nrc2112 says

Your ideas and values are the same as those who thought going to war in Iraq was a great idea.

You should have said Nazis, or Hitler. I mean if you're going to make a completely stupid comparison to vilify someone, just go right for the Godwin FFS.

nrc2112 says

That this way of life, a life of get what is mine and fuck the rest, that having it all at the expense of time with your children is more important, that your morals are better than

Actually, ironically, I'm arguing AGAINST the kinds of "get what's mine, fuck the rest" attitude that strategic defaulters have. Ya know, the kind of bullshit like "well big evil companies do it, so I should too."

Find a way to gripe where you're at least halfway consistent.

Mr.Fantastic says

Some of them are being ridiculed in local papers, but I agree, the punishment for “strategic defaulting” should include much more severe penalties.
If I go to a bank and rob $350,000, I’m going to prison for 10-15 years if I get caught.
If I buy a house and steal $350,000 of “equity”, I can throw back the keys to the owners, keep the BMW M5, and rebuild my credit within a few years.
Something doesn’t make sense here.

See, the pen is mightier than the sword.

Vicente says

Historically speaking, this is a country of fresh starts.
You can go bankrupt, and have credit card companies falling all over themselves to give you a new card. I know 3 people personally that fell behind and were obviously never going to dig out, and they said screw it and walked. I expect 5 years or so from now they’ll be just fine and not walking around with their heads hung low whenever they see “respectable people”.
....

I'm not so sure this time around it's been 5 years since the beginning of the crash in 2006 and still 5 years later the credit markets remains tight. while in the past it was easy to re-establish credit and have credit card companies throwing cards are you, they are not as aggressive anymore. They are cutting balances and closing accounts for anyone they deem a poor credit risk. Is it possible they learned something?

How about this philosophy for yaz... if someone defaults on some deal they made with some other entity, then hurray -- they freakin' got away with it!!! It's a dog eat dog world out there. If someone is dumb enough to lend money, they deserve to get screwed.

Screw political correctness. Anyone who is dumb enough to be politically correct deserves what's coming to them, and then some. Add a few kicks to the backside while your down, too, for being extra stupid and for trying to spread your stupidity to people who don't give a hoot about your grandiose PC pipedreams.

As if you're going to Heaven. Whoopty do. Not for that, you won't. Screw a banker every chance you have, and you might go to Heaven.

-ep33f5 says

How about this philosophy for yaz… if someone defaults on some deal they made with some other entity, then hurray — they freakin’ got away with it!!! It’s a dog eat dog world out there. If someone is dumb enough to lend money, they deserve to get screwed.

If you think that the pain falls only on the evil bankers and fat corporate fuck execs, you're wrong. Advocating deadbeat behavior shows where your moral compass is.

@nrc2112

Please explain.

Any other interesting stories out there about people who walked away and then later it caught up with them?

I short sold a few years ago, and was contacted by the bank collections department a few months after. A few months after that an outside collection agency called. I sent a debt-validation letter and received nothing. Seven months after that, another agency called. No response by them, either, to my debt validation. Nine months after that, another agency called. Same no-response to my letter. Two months after that yet ANOTHER agency called, and also no response to my debt validation letter.

All totaled I've been contacted by four different collections agencies and none of them have responded to my debt validation letter.

I'm expecting more contact before the statute-of-limitations period ends, and if this goes all the way to court and I lose, the owed amount would be huge, to the point where bankruptcy would be my only realistic option.

tatupu70 says

Mr.Fantastic says

If I buy a house and steal $350,000 of “equity”, I can throw back the keys to the owners, keep the BMW M5, and rebuild my credit within a few years.

Something doesn’t make sense here.

It’s because you are 100% wrong. They didn’t steal anything. The bank made the contract with their eyes open. There was no gun to their head. In fact, most sent out all sorts of propaganda begging you to take a HELOC. They’d send blank checks where all you had to do was deposit them to get the loan. If they didn’t understand the risk, then that’s 100% their fault.
You’re crying that they lost money??

I have to agree 100% the banks knew the risk and from a legal stand point (at least in CA) if you stop making your payment the bank agrees to take the property back..... If you want to talk about moral obligations then start with the lenders, brokers and realtors who talked people into these loans.

Klarek I cannot waste time trying to instruct you

Never try to teach a pig to sing it wastes your time and annoys the pig

klarek says

-ep33f5 says

How about this philosophy for yaz… if someone defaults on some deal they made with some other entity, then hurray — they freakin’ got away with it!!! It’s a dog eat dog world out there. If someone is dumb enough to lend money, they deserve to get screwed.

If you think that the pain falls only on the evil bankers and fat corporate fuck execs, you’re wrong. Advocating deadbeat behavior shows where your moral compass is.

Moral Compass, That is joke, The DEAL is, as follows, If I pay my loan, I get my property and if I don't you get it, Where is that a a moral issue? It is not, that is the deal when they print the loan docs, you pay or you lose it, any one that thinks any morality issues are invented by the ones that are losing.

Will criminal charges be brought on thse that trash their place / steal fixtures and metal from the house?

>A local house just sold at auction after foreclosure. I was planning to bid on it but decided not to after several talks with the county property assessor. The previous owner had gutted it, taking every light & plumbing fixture, kitchen cabinets, even the water heater was gone.

http://patrick.net/?p=635587#comment-720956
(see this post)

While I'm not currently a home owner, and have never walked on a debt, here's the point I struggle with:

Had there not been so many bad loans and defaults which ultimately turned most everyone upside down, people wouldn't be inclined to walk away. The bad loans weren't made in a vacuum, and they have (and have had) considerable effect on the value of property obtained with "good" loans.

Hence the reason the "walk away" crowd doesn't get 100% of my ire--the financial markets/lenders and poor regulation (or overregulation, depending on your view) are at least as much if not more at fault here.

While I was smart enough not to get suckered into a foolish purchase, there are a lot of people who weren't. They had faith in the system as it applied to more than *just* them, and they were wrong.

I’m not sure I wouldn’t be walking if I were in the same situation, too.

Cvoc13 says

If I pay my loan, I get my property and if I don’t you get it, Where is that a a moral issue?

If I profit, I keep the money. If I lose, I stick you with the tab.

Nah..I mean the ability to assume others weren't being given cheap credit, running wild and passing the consequences on to the taxpayer.

Last time I bought a house, the 20% rule still applied unless I wanted to use my zero-down VA benefit. Hopefully those days have returned...even so, I'm not sure I'll ever buy again.

Mr.Fantastic says

Iron Giant says

They had faith in the system as it applied to more than *just* them, and they were wrong.

I’m not sure I wouldn’t be walking if I were in the same situation, too.

Faith in the system? You mean the ability to take cheap credit, run wild, and then pass the consequences to the taxpayer without any risk of punishment? That’s just greed.

I think the original plan was not to pass the consequences to the taxpayer, but to flip it onto another unsuspecting fool.