Mish and business
Hat tip to afferent input for this link:
Morality vs. Business Decisions
But this is not about morality at all. This is about business decisions. See Moral Obligations Of Walking Away and The Business of Walking Away for more on the morality vs. business decisions.
In a nutshell, banks made business decisions to lend money to people to buy houses that banks knew people could not afford. Banks also made business decisions to lend with no money down. Banks knew there were risk to these strategies but they took the risks anyway.Those were bad business decision for banks. Banks, not taxpayers should pay the price.
Paulson is now begging people to do something that may not be in their best interest to do. My recommendation is simple. If it benefits you to walk away, then walk away.
Note too that walking away is not one sided. Banks and businesses “walk away” all the time when it suits their best interest. Deals are being broken as I type and banks are paying breakup fees. See Businesses Advised To Walk Away for more on this topic.
The “breakup fee” for homeowners walking away is a bad mark on their credit report and loss of their down payment. In many cases the down payment was zero. Banks have only themselves to blame for setting the breakup fee too low.
Bubbles, greed, and bailouts, not walking away, are the real moral hazards. And if enough people do walk away (forced or unforced), banks will be more careful about who they lend to next time and what the breakup fees (down payments) need to be. If and when banks (and the Fed) are more careful, fewer bubbles will get blown, and the better off we all will be.