The morality of walking away from debt

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Normally I'm rather a stickler about keeping your word but I just don't find myself upset about people walking away from mortgages. I've realized the reason. Morality is about relationships between two moral agents. There's no morality interacting with a rock or a computer. I don't think corporations are moral agents. They're webs of contractual obligations with the goal of extracting money from everything they can find. If somebody has a mortgage from an individual or small business I would think much less of them if they walked from a mortgage. However, even then I don't think people should be forced into 10 or 20 years of penury because of one stupid mistake. THAT is immoral.
 
FE, I respectfully disagree.



Morality is about the relationship you have with yourself, not your relationship with the bank. Your morals determine what you would do if you knew no one was watching. Also, corporations ultimately are owned by people. Your are interacting, in a diffused manner, with those people through their invested funds. There is an elderly widow somewhere who depends on the Citibank dividend to help her pay her heating bill. Certainly not the typical case, but present, none-the-less.
 
<p>Being of two halves (scientist and human being) I can agree and see what pros and cons are without judgement.</p>

<p>On this point, I would vote for being honest and moral. Making the right decision and doing things in a proper manner is never an easy thing. Walking away from a bad debt can be done - if you are willing to accept the consiquences. For me, I'd rather tough it out. My opinion/experience is that it will be SO much harder for you to get credit (even with alot of cash) that you'll have put yourself back so many paces that doing nothing would have ultimately been better.</p>

<p>My feeling is that alot of people never accepted the responsibility of taking a loan out for more than they were able or willing to repay. Is it moral to them? Of course not, they can't or won't accept the responsibility that they make a risky/wrong decision and got burned. (i.e. being served cake and eating it! ).</p>

<p>Anyway good luck and don't work too hard.</p>

<p>-bix</p>
 
corporations are not just a collection of rocks, computers, and paperwork voodoo. they are entities with the same legal rights and abilities of carbon-based fleshbags like myself. they can hold assets in their name, sign contracts and make agreements. likewise they can sue and be sued. i don't think anyone believes that huge corporations are simply immune from issues of morality when they declare bankruptcy and walk away from debt. a breach of fiduciary duty or fraud on the part of mgmt is obviously immoral, but what about actions that are totally within the law? off the top of my head i think the s&p500 in this decade has produced an annualized return of around 7%. ceo pay in those 500 companies increases about 10%/yr and never goes down. moral/immoral?
 
Bix



You bring up a really good point that I have been contemplating while reading this thread. The originators and those who took out some of these exotic where probably not "moral" people and were looking for a quick / easy way to get ahead. We have all heard of the cash back schemes, mortgage fraud schemes, and even the schemes where the originator would adjust the docs to a different type of loan without the owners knowledge, all this moral...I don't think so.



So maybe the question of "morality" as to walking away is a frivolous conversation considering that in most cases we weren't dealing with moral people as it be.
 
acpme, corporations *are* immune from moral considerations when considering bankruptcy/defaulting/building toxic waste dumps next to schools/overpaying CEOs/whatever. It very well may bother *you* when they do it - but it doesn't bother *them* and if you wish to stop them you will have to go through the political process to impose some non-moral restriction like a regulatory requirement or financial penalty.



You are correct that governmental rules give them the ability to enter contracts, etcs. They're certainly not just rocks. However, that power does *not* make them moral agents (another demonstration that governments can't legislate morality? lol) It just means that there are profoundly amoral entities out there with access to the legal system, access to the political system, and vast amounts of money.
 
<p>A long ago pope defined a corporation as a person without a soul.</p>

<p>The trouble with big corporations is responsibility gets so diffuse that you don't necessarily know when you are doing wrong. Good moral leadership at the top occasionally happens, and is good for the corps, and also good for long term profits.</p>

<p>A corporation is composed of people who ARE moral agents. Morality can be very painful sometimes. In fact sometimes you can tell how moral it was by the degree of pain you are suffering!! Long term, I think pain is less with moral actions.</p>
 
If the buyer and lender agree to the short sale, then there's no immorality; people can always change their minds and mutually amend a contract.. Somebody said something about the immorality of squatting, but if you think it thru, it's usually better that someone is living there, if only to keep bums and teenagers from trashing the house or burning it down.
 
<p>Liz, </p>

<p> I completely agree with you. I've let some tenants say in houses (at no cost) i've owned to get them to sell quicker. Its not ideal or fun, but as you mentioned it keep alot of the riff-raff out and to some degree protects the property. </p>

<p>Hell, i've even had to PAY people to leave my rentals because it was cheaper than evicting them.</p>

<p>In this case I think a shortsale is about the best compromise you can get. Usually you get out (but with a nominal loan) and they at least stop the hemmorage of spending money chase a debtor....</p>

<p>-bix</p>
 
<p><em>Lets take a straw poll.....does Mozillo run CFC in a moral way?</em> </p>

<p>What about the kids from Google?</p>

<p>The original Hewlett & Packard?</p>

<p> </p>
 
One thing about Google and H&P version 1: the leaders did not come up through the ranks. Becoming a CEO of an ongoing big corporation is fiercely competitive, absorbing the entire lives of most who succeed. The #1 criteria is making short-term money for the corporation on the way up. Morality tends to get in the way of that, and so CEOs are comparatively immoral even for business managers. When the leader is the founder, especially if they are successful because of genuinely productive skills like the cited cases, they have average morality for humans and engage in moral behavior more often than is in the best interest of the company.
 
FE...so are you saying Mozillo is a moral CEO?





I think their are alot of good CEOs out there that are very moral. Jeff Immelt comes to mind first.
 
Wow. That's quite the link. And I thought the 401K cashing (<a href="http://www.chicagotribune.com/business/yourmoney/chi-ym-borrowing-1014oct14,0,5181066.story">http://www.chicagotribune.com/business/yourmoney/chi-ym-borrowing-1014oct14,0,5181066.story</a>) was bad...
 
No, Mozillo isn't moral. He *might* have been, because he wasn't selected from hundreds of MBA's to be the most single-minded moneymaker. But actually, he seems worse than most. There are some bad apples in the general population too.
 
<p>Check out Downey Financial Non-Performing Assets at <a href="http://calculatedrisk.blogspot.com/2007/12/downey-financial-non-performing-assets.html">http://calculatedrisk.blogspot.com/2007/12/downey-financial-non-performing-assets.html</a></p>

<p><strong>Borrowers have so much leverage (first lien + second) and house prices are falling so fast, that they are just deciding to walk away from the home. This is something the Paulsen plan does not address.</strong> It’s not a question of being able to make the next payment…it’s looking at the value of your home and thinking ‘wow I am going to be under water for a long time…better to get out now before the next guy does’. Classic prisoner’s dilemma. The only way I think we can get out of this mess is by cramming down the mortgage. A very scary thing for the banks but the reality is there is too much leverage in US housing and prices are falling very quickly</p>

<p>Attempting to link the graph from <a href="http://bp1.blogger.com/_pMscxxELHEg/R2LtTI81IHI/AAAAAAAABV0/danzxmZKods/s1600-h/DSLnonperformingNov.jpg">http://bp1.blogger.com/_pMscxxELHEg/R2LtTI81IHI/AAAAAAAABV0/danzxmZKods/s1600-h/DSLnonperformingNov.jpg</a> not sure if it'll work</p>

<p><img alt="" src="http://bp1.blogger.com/_pMscxxELHEg/R2LtTI81IHI/AAAAAAAABV0/danzxmZKods/s1600-h/DSLnonperformingNov.jpg" /></p>
 
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