The morality of underwater mortgages
Tim Kane recently appeared on the Nightly Business Report, discussing the millions of 'underwater mortgages' – where people owe more money than their homes are worth.
Last night, NBR ran a short commentary of mine. Turns out what I said offended some people. Tell me what you think:
SUSIE GHARIB: As we mentioned earlier in the program, millions of people still owe more money on their mortgages than their homes are worth. Tonight's commentator has some thoughts on the growing tide of people walking away from loans for just that reason. He's Tim Kane, research fellow at the Kauffman Foundation.
TIM KANE, SR. FELLOW, THE KAUFFMAN FOUNDATION: Solipsism is the economic word of our times. Actually, it's a philosophical term -- the inability to believe anyone else exists but you and your reality. It was on display earlier this month when Lebron James returned to Cleveland, a town he had abandoned in July to play basketball elsewhere. Athletes move often, but Lebron announced it on prime time. Was he just fulfilling the role of economic man, optimizing his own personal benefit with no consideration for others? Solipsism is also on display in the U.S. Congress, where Charlie Rangel of New York expressed defiance, almost pride, rather than shame at his censure for cheating on taxes. So are we the people solipsists, too? Well, that's how I read a recent story documenting the rising number of Americans who think it's just fine to default on their debts, but if it makes economic sense. These strategic defaults are estimated to be 30 percent of all defaults. This is when a borrower has the means to keep paying their mortgage, but simply chooses not to. In America today, there could be as many as 20 million homes with negative equity, but thankfully only about half [a million] are defaulting strategically. It sure is scary to think what could happen to our financial system if we the people stop playing by the rules -- the moral rules. But I have to say, it does make me proud of those quiet Americans, maybe some watching tonight, who are honoring their promises, even if it doesn't make sense to neoclassical economics or Congressman Rangel. Thank you. I'm Tim Kane.
CORRECTION: I mispronounce solipsism apparently. Happens to the best of us amateur philosophers ...
CORRECTION #2: I said "half" but should have said "half a million" -- a huge difference.
A lot of viewers seemed to think I was standing up for big corporate bailouts. That's too bad. I'm more a fan of speed bankruptcy than TARP bailouts. But that's too much to add to a 90-second piece. I really just want to make people think about the trust that keeps our macroeconomy running. Low trust equals more precautionary activity (see Samuelson's latest) and less growth. Maybe a lot less.
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