What are the rules? And what are the judgments?

Remember my co-worker who was thinking about walking away from his mortgage? Well, he recently did exactly that. His mortgage was around $2500/month. Now he's renting a similar sized house (maybe a bit smaller) for about $1200/month. Financially, it's a no-brainer for him.

When I talk to him about it, he doesn't see himself having any role in what went wrong--"You know, Jonathan, I work hard, pay my taxes, and keep my promises, but when the housing market does something as crazy as this, I really have no other choice."

In other words, the fact that his house dropped in value by $200,000 is something akin to a natural disaster...an earthquake or hurricane. He had nothing to do with it. He's a victim. His purchase of the house was something within the rules, within the background structure of society. It's something that people do at a certain point in their lives. It was not a judgment.

Of course, I don't see it that way. He bought the house at a bubble peak. When someone makes a purchase by taking out a loan, he's making a judgment call. Sure, there are background rules - mortgage laws, tax rates, interest rates, etc. But the purchase is a judgment about the future value of that purchase. And people are indeed responsible for that judgment.

My co-worker sees himself as a good citizen who follows the rules and was victim of the whims of nature. I see him as a good citizen who follows the rules and made a bad judgment for which he bears some responsibility.

I bring this up because there was a recent essay by Gonzalo Lira called "The Coming Middle-Class Anarchy" (not the good kind) in which he talked about a retired couple who are simply giving up on the system.

Just like the poker player who’s been fleeced by all the other players, and gets one mean attitude once he finally wakes up to the con? I’m betting that more and more of the solid American middle-class will begin saying what Brian and Ilsa said: Fuckit.

Fuck the rules. Fuck playing the game the banksters want you to play. Fuck being the good citizen. Fuck filling out every form, fuck paying every tax. Fuck the government, fuck the banks who own them. Fuck the free-loaders, living rent-free while we pay. Fuck the legal process, a game which only works if you’ve got the money to pay for the parasite lawyers. Fuck being a chump. Fuck being a stooge. Fuck trying to do the right thing—what good does that get you? What good is coming your way?


When the backbone of a country starts thinking that laws and rules are not worth following, it’s just a hop, skip and a jump to anarchy.

TV has given us the illusion that anarchy is people rioting in the streets, smashing car windows and looting every store in sight. But there’s also the polite, quiet, far deadlier anarchy of the core citizenry—the upright citizenry—throwing in the towel and deciding it’s just not worth it anymore.

The essay got a lot of readers and was reprinted in innumerable places. The featured couple is a lot like my co-worker: they follow the rules, pay their taxes, etc. They're middle America.

What few people notice about Lira's couple is that they took out a massive loan during their retirement! Is that wise? Isn't that risky? Retirement should be a time of thrift, a time to live off your accumulated savings, not the time to take out a massive loan for a house in a gated community on the golf course. I guess the easy credit of the past few decades has become such an essential part of American life that taking a big loan during retirement is, ahem, par for the course.

What bugs me about both the couple in Lira's essay and my co-worker is a refusal to see how their poor judgment was a big part in their current woes. They see the bursting of the housing bubble as a random event that they had no way of predicting.

Sure, when middle-class people say "fuckit", that doesn't bode well for society. But what's worse is when people refuse to take responsibility for their own foolish, risk-laden decisions. The next decade is going to teach some painful lessons.

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Jonathan, I think you're


I think you're wrong about your co-worker.

He has not ended up with any kind of gain, but rather extensive losses to his future credit and he has effectively spent years paying a rental rate with a 100% premium or so. His mortgage lender certainly priced his product allowing for a substantial risk of non-repayment and then presumably sold his mortgage as part of a packaged deal to someone else.

The housing bubble was certainly no accident but a deliberate political act from the ilk of Alan Greenspan and Barney Frank, among others.

Regards, Don

Your co-worker is simply

Your co-worker is simply understanding the game.

Would you agree that as children we are taught by our parents, or through various means, what it is to be fair? Fairness is not getting what you want - or even deserve - it is getting to play by the same rules as everyone else. The middle class, your co-worker, my family.. me: We all see that the banks and government play by a distinctly separate and secret set of rules that insulate their interests in a self-serving fashion. Failure of the ponzi scheme is the fault of the plebeian, while the saccarine material success of the economy is entirely controlled by the oligarchs.

This is not fair, so why play by unfair rules that are routinely rewritten to enslave you? When your friend purchased that house, he was going in to the purchase with the false assumption that the economy is not rigged and that the numbers he had looked at are indeed correct. Good faith, he had it going in but the banks and government did not. He was the victim of fraud all his life, his house value being stolen was simply the latest surface manifestation.

This is the state breading middle-class chaos, which is incorrectly deemed synonymous with anarchy.

When your friend purchased

When your friend purchased that house, he was going in to the purchase with the false assumption that the economy is not rigged and that the numbers he had looked at are indeed correct.

The false assumption was that current prices were a good price and that they were not inflated to bubble values.

Good faith, he had it going in but the banks and government did not.

The banks had as much good faith as him. They don't want to give out money they won't get back.

Temporal Pyramid Scheme

If I walked away from my mortgage you would be right, but I know the scam. These people have it right, a banking system based on fractional reserve banking is a kind of scam, similar to a pyramid scheme. The bankers know this, or should since they are running it, but the general public does not.

Fractional reserve banking is a temporal pyramid scheme that collapses when the world runs out of sucker to bilk. Then it resets, and the game starts all over again.

All the arguments I've heard for fractional reserve banking are frankly, stupid. Even in the case of those who believe in free banking.

They make oblivious arguments like the idea you couldn't have 100% reserve currency because then people would have to pay transaction costs on the notes, and no one would do that. What the hell do they think is happening with credit card purchases? Do they think they are transaction cost free? No their is a fee with each transaction. People are charged to use their own money.

Even more sympatheic than you portrayed

I read the article and it doesn't fit your narrative because they were NOT walking away from the mortgage (just paying smaller payments), even before the current update to the article, which really changes things:

"First of all—as I thought I made clear early in the piece—HAMP would not change the principal of Brian and Ilsa’s mortgage: It would only extend their payment period, and refinance the loan with the now-lower interest rate, so as to lower their monthly payments. Brian and Ilsa would still owe more money than their house was worth, but at least they’d be paying less money per month.

Second—and an issue I debated quite a bit before publishing the post—I didn’t highlight the fact that, in order to qualify for HAMP, one of the conditions was that one of the homeowners had to have a medical event which had required large out-of-pocket expenses.

In the case of Brian and Ilsa, both of them had had such medical expenses: Ilsa for breast cancer, which has since gone into remission, Brian for cardio-vascular problems, which have also been cured, though at great cost.

I didn’t highlight these medical issues because I wasn’t trying to write a sob story—I was trying to write a piece describing a middle-class couple who are throwing in the towel."

They are not walking away...

...and I did not mean to imply they are. My co-worker is the one walking away.

The similarity I see in both is that neither sees the risk of their own decisions in buying their house at bubble prices as their responsibility.


If your co-worker exercised bad judgment, what of the judgment and responsibility of the lender?

The possibility of default is supposedly factored into the loan decision, isn't it? Both parties to the loan made a wager and both will bear costs for bad judgment. If we're lucky that is and the state doesn't decide to impose the costs on someone else.

I don't see this kind of default as a moral crime, it's a foreseeable possibility that parties to the deal need to take into account.

And your friend, as a taxpayer, is probably already paying for the poor decisions of others through government fiat, isn't he? Hell, it's not unlikely at all that he's already paying to bail out the same bank that made a bad loan to him and thousands of others.

There's a strong case to be made that paying for what you can't afford now amounts to dumping your resources into a crooked game - and the game has gotten decidedly more crooked since most of these loans were made. I wouldn't blame anyone for saying "fuck it" under these conditions.

I was not talking about moral responsibility...

I'm not saying that my co-worker is morally wrong. I'm saying he should recognize what role he played leading to his present circumstances. Those circumstances are not a function of mere bad luck like being diagnosed with pancreatic cancer or having your house torn apart by a tornado.

I would say the same of the lender.

Yes, all parties ought to

Yes, all parties ought to recognize any errors in their calculations, though it's less important that they admit them publicly or to their friends. While your friend may be reluctant to openly accept blame for his circumstances do you really think that he learns nothing from negative consequences? Do you really think that given these experiences he will not modify his decisions in the future? Regardless of the stories they tell, almost everyone adapts to positive and negative reinforcement.

And I don't see what this has to do with them saying "fuck it" when it comes to paying back their loans.

It would be nice if his story was more congruent with reality, but the real question of consequence now is whether he should pay back the loan or not.

You can only make the decisions that are in front of you now. Is he making a sensible decision now by walking away from his loan? Sounds plausible to me that he is, but you know must more of the particulars.

If it had been a signature loan then it would be a matter

of honor to keep paying. But your friend and the bank agreed that the loan more than covered the VALUE of the house. The value of a house is the shelter it provides. It was a fair trade.

On the other hand, if the hyper inflation nuts like Schiff and Liddy are correct you friend should have been patient and then paid off at 5 cents on the dollar.