[TheThinker]

The Marxists never stop trying to infiltrate and destroy America. They always attack where America is weakest; the real estate crisis, for example.

[paul51]

There is nothing moral about being a chump. When the banks and our own elected politicians set about shafting americans every way they can it makes more sense to do whatever you must to protect yourself and your family. It’s not about morality.

[only1percent]

The most famous formulation of contract law is this: “a contract is the duty to perform or pay damages.”

You ALWAYS have that choice and anyone who performs at higher cost than their damages if they breach is, quite frankly, an idiot. If a corporate manager performs a contract which is cheaper for the company to breach, he actually violates his fiduciary duty to his shareholders.

The reason why this is rarely an issue is that well-drafted contracts will provide for high damages, and well-functioning markets will penalize you severely in denial of future customer / counterparty credit if you avail yourself of breach (i.e., another measure of damages). If banks systemically violated this basic risk-management precept, that’s their fault.

The “second wrong” in two wrongs don’t make right here is for a borrower to keep performing in the absence of any duty to do so, thus being as stupid now as his lender was to loan to him in the first place.

[rlmorel]

Here is a conversation I would like to see:

AUTHOR OF ECONOMICS BOOK: “Dick, I know that I contracted with you to provide me with 200 hours of consultation on economic matters, which you agreed to do contractually with 10% up front, which I have paid.”

RICHARD THALER: “Yeah? So, I know that we shook hands, and I signed the contract too. So what is the deal? I have already given you 200 hours of my time. When do I get the rest?”

AUTHOR OF ECONOMICS BOOK: “Well, here’s the thing, Dick. I need to use that money I owe you for something more important to me. My retirement account hasn’t been building up quickly enough, and my wife needs that new kitchen put in. She still has those old turquoise appliances from the Fifties in there.”

RICHARD THALER: “But, I put in my time! We signed the contract! You OWE me! The contract stated that if you didn’t meet your obligations, I could legally get any profits from the book to make it up! I’m gonna take every cent of profit right off the top...”

AUTHOR OF ECONOMICS BOOK: “Well, I’m not gonna finish the book. You can have it.”

RICHARD THALER: “But...but...”

AUTHOR OF ECONOMICS BOOK: Gotta go. My kid is calling me on his new iPhone. We all got em...great stuff, especially if you get the unlimited plan and the new top end models with 80GB, which we had to get...can’t scrimp THERE! Even though they cost $700 each, that was important to my wife and four kids, just as important as those high end sneakers they wear...”

[FightThePower!]

Why shouldn’t people walk away from a bad purchase, a hit to your credit is far better than paying on an underwater mortgage for 10 years.

[Alberta's Child]

I would have to be destitute and/or deathly ill or dead before I ever considered walking away from a mortgage like this, but the author does raise a good point.

Why should individual homeowners have any moral or legal qualms about walking away from a $200,000-$400,000 mortgage when a private equity firm can walk away from a $3 billion mortgage on a major apartment complex in New York City like that?

[Mr. Jeeves]

You are a cog in the wheel of a machine that is killing this country and if you remain a cog you enable it. Remove your cog and the machine will not keep running. Remove millions of cogs and the machine gets replaced.

That's how I feel about voting.

Ultimately, the costs of the Great American Real Estate Get Rich Quick Scheme are going to be borne by all of us, in two ways: 1) Taxes will go up to bail out the politically-connected financial institutions. 2) Retirement account values will go down as bonds and mortgage-backed securities will lose a great deal of their value. The nearly-retired who had much of their money in "safe" fixed income instruments are in for an ugly surprise. So walking away is a good short-term solution only if you are starting your own business and use the money you save to invest in yourself.

Go back to playing the job-holding/401K-owning "safe" game and they'll end up getting back everything you walked away from and then some.

[Oceander]

I don't have a problem with the "walk away from it" theory - because, quite frankly, sometimes the only rational economic response to a bad investment is to just abandon it rather than throwing good money after bad.

That being said, that's not what I really hear anyone really advocating (other than a few theorists who actually study markets and economics); no, what I hear politicians - particularly the crypto-soviets on the left - arguing is letting people walk away without any consequences whatsoever. That's not the same thing, and since it generally involves government using it's bully power to bear down on hapless lenders and use the threat of force to coerce the lenders into "going along" what's being advocated under a seemingly benign economic theory is, in fact, a very malign, age-old political ideology: socialism/communism.

No, if people rationally decide to walk away from a house, that's because the cost of continuing to pay on the mortgage is greater than all of the other costs, including the massive hit to your credit rating that you should deservedly get because you clearly are a very unintelligent borrower as you got yourself into an investment that turned out to be so bad you had to abandon it. That is not the sort of person whom we want lenders lending to at prime, or below-prime, interest rates.

[redgolum]

Major companies do this all the time.

A contract cuts both ways. If you are so far out of wack that you will never be able to get ahead, turning the house back to the bank is an option.

That is part of the contract. The outrage on FR over people doing this, while accepting the same when large companies do the same, is kind of funny.

[Cvengr]

Careful, this has the makings of how Big government is going to try to pay off the debt. Just get everybody to walk away from their obligations, seize the material assets, then liquidate to other promises.

(At some point in time, a promise won’t have any more value.)