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This article makes a good argument that free markets don't work on morality, instead they are rooted in the assumption that everyone acts in their personal best

This article makes a good argument that free markets don't work on morality, instead they are rooted in the assumption that everyone acts in their personal best interest. I read it with just the opposite meaning. I understood it to say that the actual, observed behavior in the mortgage market is that howeowners are being moral. The Fools seem to question why people would act following their morals rather than purely financials. And this points to one of my favorite misunderstandings of economics, and one that I'm surprised an economist would fall for. Economics is NOT about just money. It's about why people make a choice for one thing, foregoing another. And it's all tied to what people value. It seems to me that this article validates that people really do value behaving morally, having a clear conscience. And I'm glad, because I don't want to live in the world where people take advantage just because they can.

brc 17y ago
And if you want to go studying Adam Smith for some 'invisible hand', you first need to understand the 'Theory Moral Sentiments'. You are correct in that it's what they value. This is the monetary aspect + other aspects. It's clear to me the reason that people with underwater houses don't default because of the credit history damage, social stigma and other feelings. Plus, they may consider walking away equivalent to selling at the bottom of the market. The article, overall, adds very little to the discussion because it approaches it from the wrong angle.
billjings 17y ago
Homeowner's opinions will likely change if they begin to perceive their lenders as taking advantage of that morality.
- dagw 17y ago
  Exactly, I'm all for acting morally and sticking to the spirit of an agreement even if I can screw my counterpart by abusing some loophole, but only as long as I feel my counterpart will do me the same courtesy. If I feel my bank is out to screw me and won't give me a break, then I'll have much less problem screwing them right back. If on the other hand I feel that my bank has treated me fairly in the past, and given me a break when they technically didn't have to, then I'd be far more willing to do the moral thing.
chrisgoodrich 17y ago
That is an interesting contrasting viewpoint. You are absolutely correct that the observed behavior is to act morally (as they should). I had missed this point earlier.
whyenot 17y ago
There's an awful lot of experimental evidence coming from psychology that most people do "take advantage just because they can," especially if they think nobody is watching. If you could anonymously walk away from a financial obligation like a morgage, people might behave quite differently.

brc 17y ago

And if you want to go studying Adam Smith for some 'invisible hand', you first need to understand the 'Theory Moral Sentiments'. You are correct in that it's what they value. This is the monetary aspect + other aspects. It's clear to me the reason that people with underwater houses don't default because of the credit history damage, social stigma and other feelings. Plus, they may consider walking away equivalent to selling at the bottom of the market. The article, overall, adds very little to the discussion because it approaches it from the wrong angle.

billjings 17y ago

Homeowner's opinions will likely change if they begin to perceive their lenders as taking advantage of that morality.

dagw 17y ago
Exactly, I'm all for acting morally and sticking to the spirit of an agreement even if I can screw my counterpart by abusing some loophole, but only as long as I feel my counterpart will do me the same courtesy. If I feel my bank is out to screw me and won't give me a break, then I'll have much less problem screwing them right back. If on the other hand I feel that my bank has treated me fairly in the past, and given me a break when they technically didn't have to, then I'd be far more willing to do the moral thing.

chrisgoodrich 17y ago

That is an interesting contrasting viewpoint. You are absolutely correct that the observed behavior is to act morally (as they should). I had missed this point earlier.

whyenot 17y ago

There's an awful lot of experimental evidence coming from psychology that most people do "take advantage just because they can," especially if they think nobody is watching. If you could anonymously walk away from a financial obligation like a morgage, people might behave quite differently.