In “The Way We Live” column of this week’s New York Times Magazine, Roger Lowenstein notes that about 10.7 million families owe more on their houses than the homes are currently worth. He advises those people to do what any smart bank or business would do, which is to walk away from the loan and the house.
The article is really quite canny in how it demonstrates that the amorality of business should rule the actions of the individual. He tries to dispose of the ethical constraints that prevent people from walking away from a bad debt, e.g., it debases the character of the borrower and it depresses the prices of the other houses in the neighborhood, by questioning why homeowners should have these feelings in the real world of commerce. He gives many examples of businesses walking away from commitments through default and bankruptcy. He also gives the example of a baseball team not signing a new contract with a big star as an example of why loyalty should not be considered a virtue in the world of business (although in this case, there is no contract!).
Of course, Lowenstein forgets that many loans are worth more than the asset that served as the reason for borrowing the money. Every time a business or an individual buys a car, airplane, copy machine, computer or any other type of equipment, the value of the item declines immediately and precipitously, and to typically far below the funds borrowed.
But instead of comparing a home to these loans, Lowenstein wants to turn the average homeowner into a sophisticated multinational corporation that makes all decisions based solely on improving the bottom line.
Roger, I have an idea: Instead of asking homeowners to act more like amoral businesses, why don’t you instead call for new regulations that would bring some ethics into business actions?
Roger would not even think of this approach because behind his article is the ideological message that underpins much writing about both economics and personal business: the idea that regulation of business is always wrong and that the marketplace will solve all our problems if we just get government and society out of the way. Laissez faire means do what you want, and by giving homeowners permission to do what they want, he keeps that option open for the banks securitized and sold bad loans, big companies that walk away from communities to lower their cost structure or hedge fund managers who open new funds “rather than try to earn back their investors’ lost capital” (from the actual article).
But I wonder, if we all play by the rules of the big, do the small have any chance at all?