Sunday, October 10, 2010

Banking and foreclosure, a moral question?

This episode of the daily show got me thinking again about the profound unfairness of our money system.

To me it is sad more than it is funny. Forget the obvious irony of their story, that the mortgage banker's association ITSELF defaulted on its own mortgage obligation while telling everyone else not to. You can choke on the irony. However, the writers at TDS don't really realize how amoral the whole money game is. I don't expect them to, they are hired for their funny bones, not their degrees in economics.

The problem is simply stated. You have taken a loan on a house. Your house has lost value. You walk away from your mortgage. It is the right financial decision to take, but is it moral.

A straightforward answer is that money is created by the banking system. If you deposit a dollar in the bank, it is really multiplied by 10 or more in loans. THIS is how money is created. Out of thin air. So when you default you are not returning money that didn't exist in the first place. And the bank ends up owning the asset.

Stop at that, reread this a couple of times. Wrap your head around that fact. Banks create money out of thin air and end up owning the asset. Banks own assets out of nothing. Brilliant. Period. Amoral.

move on


Claude Vedovini said...

Hi Marc,
There's a problem with the link to the video

Marcf said...


Andrew Meyer said...

A previous American humorist, Will Rogers, famously said: "It's not what people don't know that hurts them. It's what they do know that just ain't so."

In this brave new world, how is that going to effect individuals making financial decisions, supra-national organizations like the European Union making financial-political-structural decisions, countries working out the economics of fiat money or central bankers dealing with currency manipulation?

In all each of these situations, people grew up with a particular paradigm for interacting the world. And surely the individuals were successful in part because they made good decisions working within that paradigm. However, what if the world has changed and the old paradigms are no longer helpful?

Then, to be successful, will we not have to escape the old paradigms and define new ones before we can move ahead?

Hopefully those who see the world more clearly have an advantage over those who don't. Which individuals, countries or organizations will adjust more rapidly and appropriately?

"It's not what people don't know that hurts them. It's what they do know that just ain't so."

Jean-Luc Vanhulst said...

What I found very ironic was the JP Morgan Chase commercial that I got while watching the show online just now. "The way forward" about how they have helped 200,000 people since 2009 refinancing. :)

bjdraw said...

My mom used to tell me, "don't worry about what everyone else is doing, worry about yourself."

And she is/was right, it doesn't matter what the banks do, it matters to me and those around me that I honor my commitments. And just like it wouldn't be right for me to be unfaithful to my wife, if she was unfaithful to me, it isn't ok for me default on a loan just because the bank would do it to me.

I the best I can do is what is right by me and my family, and defaulting on a contract just because I can profit from it, isn't right.

Marcf said...

Ddefaulting on a mortgage is within the realm of the contract, if you do, the banks keep the house. That is what your contract says.

bjdraw said...

I just went and watched the segment and it is pretty ridiculous for them to preach to the public and then do the same thing they scolded others for.

And I don't need a contract to tell me what is wrong and right and contributing to the problem instead of the solution is never the right thing to do.

pcleddy said...

thank you bj and andrew for confirming for some things. about humanity. i'll shut up now.

i miss mr. happymeal, btw. rip.

Bill Pyne said...

@bjdraw: Contracts are essentially promises. Honoring promises is important so honoring contracts is as well. No qualms from me.

However, here's a not unrealistic scenario; it's actually one I heard a few months ago on NPR. It's been a few months, so some of the details are fuzzy in my mind.

Betty and Bob have stable jobs and a couple of kids. They purchase a home based on their household income. Both their jobs go away as a result of a poor economy leading to some downsizing.

They're on unemployment for a couple of months, but it's not really enough to make ends meet. Jobs don't seem to be plentiful in their area. They expand their job search to areas outside a 100 mile radius from their home. After some time, Betty gets an offer from a company 500 miles away. The job pays okay, has medical benefits, and is probably stable - for a time. The family decides to move.

Here's the dilemma. Their house lost $50K in value. To get work again, they're willing to sell the house for a loss but have to come up with the $50K by the closing. They try to obtain a loan for $50K but cannot get approved.

Do they turn down the job in order to honor their mortgage contract?

Marcf said...

again, you honor your contract by walking away. it is a clause in your contract that says you will be foreclosed.

morals in shady cases like this are very personal decisions. It is pretentious and naive to talk about "the right thing".

Dee Son said...

One thing I have actually noticed is always that there are plenty of misconceptions regarding the finance institutions intentions whenever talking about property foreclosures. One misconception in particular would be the fact the bank needs to have your house. The lending company wants your hard earned cash, not your home. They want the amount of money they loaned you together with interest. Averting the bank will simply draw the foreclosed final result. Thanks for your posting.

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