The New York Times continued its campaign to get the average Jane-and-Joe to adopt the questionable ethics of investment or mortgage bankers this weekend with an article by Professor Richard Thaler of the University of Chicago wondering why more of the millions of homeowners who owe more on their homes than the places are worth don’t just walk away from their mortgages, and their homes. Thaler assumes that people are going to finally get with the program and start abandoning underwater homes in waves, and therefore proposes a big idea to stop this theoretical rush to default.
As I said in my January 11 blog entry about another New York Times article that explicitly advocated walking away from underwater mortgage, these economic experts propose that instead of passing regulations to restrain bankers and business operators from actions that common sense tells us are unethical (such as making loans to people with no means and then selling the loans in packages to investors), people should instead adopt the faulty ethics of the business world.
It’s shameful that in this country freedom has been reduced to meaning that everyone can behave at the lowest common ethical denominator in a dog-eat-dog winner-take-all economic struggle. It doesn’t take a PhD in economics to figure out that if we have minimum rules restraining economic actions, the rich will get richer at the expense of everyone else, because the lack of constraints creates an environment in which the possession of money gives the possessor an enormous edge.
The rationale behind campaign contribution limits has always been to level the playing field by creating rules that limit the naked power of money. Of course, the Supreme Court recently used the principle of “freedom of speech” as its rationale for declaring unconstitutional this attempt to create more real freedom of speech (the narrow margin of victory provided in advance by the Democrat’s decision not to filibuster the Roberts and Alito nominations several years back).
In yesterday’s news was an announcement that exemplified the kind of unethical behavior which unfortunately is quite common in the business world: Tishman Speyer Properties and BlackRock Realty, two of the very biggest financial players, have defaulted on $4.4 billion in loans they used to buy Stuyvesant Town and Peter Cooper Village, two vibrant middle class apartment complexes in Manhattan. Each will lose $112 million, not pennies by any means, but as yesterday’s New York Times detailed, Tishman Speyer manages a $33.5 billion portfolio. They’ll be nicked, but not hurt much.
The default will cost much, much more to the investors that Tishman Speyer and BlackRock Realty brought into the deal when it purchased the two large apartment complexes for $5.4 billion at the top of the market in 2007. For example, the pension fund for California public employees is losing $500 million and the Singapore government is losing $575 million. Those who rent the apartments—completely innocent victims—are also suffering; for one thing, the company that is negotiating with Tishman Speyer and BlackRock is still looking for someone to manage the apartments now that Tishman Speyer is no longer doing so.
The investment went bad so these financial behemoths just walked away. And these economic theorists are telling us that the average person should do the same. Trust is the basic fabric which holds together every economic system. Without appropriate regulation, we are allowing and enabling the actions of the big players and the words of many economic right-wingers continue to rip this basic fabric to shreds.