The gulf between law and morals is on display in yet another forum: home mortgages. Some contend it is unethical to walk away from a mortgage. A debt arising from contract creates a moral oblgation to pay, they say. But who benefits from this sort of argument? Certainly not homeowners, who struggle to make mortgage payments that find their way to distant bankers. These are the same bankers who bid up real estate prices by floating risky debts and packaging derivatives. These are the same clowns who were bailed out by your tax dollars because they were too big to fail. So focus, people: The bankers always win, and you always pay. It is a theme as old as the Republic, only this time the people seem to be laying down to die.
But first some fundamentals: Aren't we morally obliged to perform on the contracts we enter into?
As a matter of law, a contract is simply a promise the law will enforce. That's all there is to it. There are plenty of contracts the law willl not enforce. Pay me to whack your wicked Aunt Sally, and you can't sue me successfully for a breach of contract. The law doesn't enforce murder for hire contracts. The reason is obvious. These sorts of contracts are against public policy.
There are other, implicit limits on the power to contract. Parties are held to a standard of implied good faith and fair dealing. If one side withholds important information from the other during negotiations, such as the fact that there is, in fact, no engine in the car being sold, the contract can be voided. We are expected to enter into our enforceable agreements with a modicum of good faith. Civilization, especially a commercial and complex society such as ours, depends upon it.
So where does this leave us in the foreclosure mess?
Real estate prices exploded in part based on the promise of cheap and easy credit. Refinancing was for many Americans only a phone call away. You refinanced, the mortgage broker quickly sold your mortgage and pocketed a substantial refinancing fee, other investors gambled on your failure to make payments. Everyone was making money off the backs of the monthly payer, who, although called a homeowner, was in fact merely renting property from which they could be evicted. When the bubble burst and property values tumbled, the bankers went to Congress to get a bailout. In other words, you got stuck paying a loan that is worth more than the value of your property, bankers who lost money went to Congress to ask for your tax dollars to keep them from going belly up, and, when the press of all these payments was more than a homeowner could endure, the bankers moved you into foreclosure to retake your home. And we now learn that many of these mortgages were fraudulently transferred from one bank to another. Why no federal prosecutions for fraud as to these racketeers?
Why is it that when ordinary Americans, the so-called little people, get screwed, no one listens?
The relationship between bankers and ordinary people has been complex throughout the nation's history. Just after the war of independence, farmers rebelled against bankers in Shay's Rebellion, and order was restored through force of arms. Populists and progressives went to war with monied interests late in the nineteenth century and early twentieth century. During the Great Depression, the nation struggled, and nearly collapsed, in the face of another financial meltdown, and was arguably salvaged only through the stimulous of government spending in the Second World War.
I'd like to see a return to some good old-fashioned populism in today's foreclusore crisis. Have real estate values crashed now that a bubble inflated by predatory lending practices has collapsed? Fine, then let's not save the predators. Why not insist that home mortgages be adjusted, thus lowering the debt owed to debt peddlers and their specualtion-hungry wholesalers? Congress won't do it because members know where their next campaign contributions are coming from? Fine, then how about a moratorium on mortgage payments? How about consumer's unions that simply refuse to pay mortgages struck as contracts in bad faith?
Sure, such a strategy would be risky. Some folks would lose their homes. But these homes are going onto the auction block anyhow, and neither lawmakers nor courts show much willingness to do anything about the financial rape of the little guy. Why aren't consumers pressing for legislation that would require mortgage holders to write down the value of their loans to reflect actual property values? It makes no sense to ordinary people to struggle to pay debts that reflect no value. That is the very worst form of financial slavery.
Contracts are only as good as the paper they are written on. I say consumers should band together in leagues, calls then Spartacus Unions, after the legendary Roman slave, and simply refuse to pay debts that bear no rational relationship to reality. If enough people acted in unison, lawmakers would have to listen to their voices. If the government permitted enough people to be evicted, it would soon have to listen to other noises, the sounds, perhaps, of actual resistance as the people said to those in power: "enough!"
Such noise has happened before on this continent. It can happen again.