3 ms·

This seems...morally questionable?

scarface74 6y ago
Was it morally questionable when the same banks did predatory lending that went bad and got bail outs from the taxpayers? It’s a business transaction. Businesses default on loans and go bankrupt all of the time and it’s just part of doing business. Startups fail all of the time and lose investor money and can come right back to the trough. That’s like businesses that say “we are family and we are in this together and we need to make a shared sacrifice” while they walk away with golden parachutes and leave the employees with nothing. Heck we elected a president that filed for bankruptcy 4 times. Businesses love to talk about morality as long as it benefits them. My last company had a budget shortfall because of Covid and trotted out the “we are family” schtick along with a 10% pay cut. The same day of the announcement I was looking for another job. 3 years later when I did get another loan, the banks saw my foreclosures and short sales and were more than happy to give me a mortgage that was 50% more than my prior one. It was just business to them too.
- opo 6y ago
  >...3 years later when I did get another loan, the banks saw my foreclosures and short sales and were more than happy to give me a mortgage that was 50% more than my prior one. It was just business to them too. FHA loans are guaranteed by the the federal government. During the next recession if you default on this loan because you no longer want to pay the loan, it will be the rest of us taking the loss, not the bank. So, not very surprising that the bank was willing to give you the loan.
  - scarface74 6y ago
    That’s not the way insurance should work. You pay private mortgage insurance. The entire idea of insurance is that it should be priced to take losses into account and break even. Btw, none of the other loans were “conforming” ie government backed. Especially the investment property. The banks should also take risk into account when deciding interest rates. The government had no reason to be on the hook for non conforming loans.
    - chordalkeyboard 6y ago
      > The entire idea of insurance is that it should be priced to take losses into account and break even. insurance needs to make a profit or there is no incentive for investors to risk the loss of capital or assume the opportunity cost (meaning they could invest elsewhere). The person selling the insurance exchanges gives up a known regular amount to protect themselves against an unpredictable potential loss. The insurer accepts the risk of paying the unpredictable future cost in order to receive known predictable regular income. If the expected value of the transaction is zero then the insurer is essentially risking their capital for nothing.
      - scarface74 6y ago
        The FHA is a government backed program. PMI goes to the government.
  - chordalkeyboard 6y ago
    > FHA loans are guaranteed by the the federal government. During the next recession if you default on this loan because you no longer want to pay the loan, it will be the rest of us taking the loss, not the bank. everyone likes socialism when they get paid, no one likes socialism when they have to pay for other people's stuff. This is probably a failure mode.
    - scarface74 6y ago
      Taxpayers shouldn’t have to pay for foreclosures backed by the FHA. That’s what private mortgage insurance is for. The problem was the banks weren’t following the guidelines. The taxpayers definitely shouldn’t have had to bail out the banks for loans that the government didn’t back.
- site-packages1 6y ago
  > Was it morally questionable when the same banks did predatory lending that went bad and got bail outs from the taxpayers? Yes.
rhizome 6y ago
Capital is amoral, don't require individuals to follow a standard that is applied nowhere else. Wikipedia has a more-substantive bit on the ethics: https://en.wikipedia.org/wiki/Strategic_default#Ethical_issues https://en.wikipedia.org/wiki/Strategic_default#Ethical_issu...
- site-packages1 6y ago
  "More substantive" technically, but really it's just a few short sentences that boil down to "some people think strategic default is morally questionable, others do not." I would be interested in a more substantive exploration of the issues though. In my perspective as someone who hasn't thought about it too much: Morally because strategic defaults (which contain an intent element) end up being paid for by other people not parties to the transactions, it brings it into a morally questionable area. Breaking a contract by itself isn't morally questionable, but if you perhaps contract to provide PPE for hospitals in a pandemic, and then choose to not provide that PPE for no reason other than you don't want to (or it's more profitable to just not fulfill the contract) causing people not a party to the contract to be harmed, that's morally questionable. It's a very fact specific inquiry.
cko 6y ago
It's a contract between the bank and lender. The bank can take your house if you default - that's the agreement both parties sign. When you put 20% down the bank puts down the other 80%, making them a co-investor, but as a trustee in the first position. Depending on context it can be a sweet deal for both parties. When times are tough it's time to play the game.
tomjen3 6y ago
A business only job is to make money for its share holders. You should act accordingly when dealing with them.
- dragonwriter 6y ago
  A business’s job is to serve the common joint interests of it's owners (proprietor, partners, shareholders, members, etc., depending on business form); the more widely it is held, the more likely that reduces to making money, but that's by no means the only function businesses serve.

Was it morally questionable when the same banks did predatory lending that went bad and got bail outs from the taxpayers? It’s a business transaction. Businesses default on loans and go bankrupt all of the time and it’s just part of doing business. Startups fail all of the time and lose investor money and can come right back to the trough. That’s like businesses that say “we are family and we are in this together and we need to make a shared sacrifice” while they walk away with golden parachutes and leave the employees with nothing. Heck we elected a president that filed for bankruptcy 4 times. Businesses love to talk about morality as long as it benefits them. My last company had a budget shortfall because of Covid and trotted out the “we are family” schtick along with a 10% pay cut. The same day of the announcement I was looking for another job. 3 years later when I did get another loan, the banks saw my foreclosures and short sales and were more than happy to give me a mortgage that was 50% more than my prior one. It was just business to them too.

opo 6y ago
>...3 years later when I did get another loan, the banks saw my foreclosures and short sales and were more than happy to give me a mortgage that was 50% more than my prior one. It was just business to them too. FHA loans are guaranteed by the the federal government. During the next recession if you default on this loan because you no longer want to pay the loan, it will be the rest of us taking the loss, not the bank. So, not very surprising that the bank was willing to give you the loan.
- scarface74 6y ago
  That’s not the way insurance should work. You pay private mortgage insurance. The entire idea of insurance is that it should be priced to take losses into account and break even. Btw, none of the other loans were “conforming” ie government backed. Especially the investment property. The banks should also take risk into account when deciding interest rates. The government had no reason to be on the hook for non conforming loans.
  - chordalkeyboard 6y ago
    > The entire idea of insurance is that it should be priced to take losses into account and break even. insurance needs to make a profit or there is no incentive for investors to risk the loss of capital or assume the opportunity cost (meaning they could invest elsewhere). The person selling the insurance exchanges gives up a known regular amount to protect themselves against an unpredictable potential loss. The insurer accepts the risk of paying the unpredictable future cost in order to receive known predictable regular income. If the expected value of the transaction is zero then the insurer is essentially risking their capital for nothing.
    - scarface74 6y ago
      The FHA is a government backed program. PMI goes to the government.
- chordalkeyboard 6y ago
  > FHA loans are guaranteed by the the federal government. During the next recession if you default on this loan because you no longer want to pay the loan, it will be the rest of us taking the loss, not the bank. everyone likes socialism when they get paid, no one likes socialism when they have to pay for other people's stuff. This is probably a failure mode.
  - scarface74 6y ago
    Taxpayers shouldn’t have to pay for foreclosures backed by the FHA. That’s what private mortgage insurance is for. The problem was the banks weren’t following the guidelines. The taxpayers definitely shouldn’t have had to bail out the banks for loans that the government didn’t back.
site-packages1 6y ago
> Was it morally questionable when the same banks did predatory lending that went bad and got bail outs from the taxpayers? Yes.

rhizome 6y ago

Capital is amoral, don't require individuals to follow a standard that is applied nowhere else. Wikipedia has a more-substantive bit on the ethics: https://en.wikipedia.org/wiki/Strategic_default#Ethical_issues https://en.wikipedia.org/wiki/Strategic_default#Ethical_issu...

site-packages1 6y ago
"More substantive" technically, but really it's just a few short sentences that boil down to "some people think strategic default is morally questionable, others do not." I would be interested in a more substantive exploration of the issues though. In my perspective as someone who hasn't thought about it too much: Morally because strategic defaults (which contain an intent element) end up being paid for by other people not parties to the transactions, it brings it into a morally questionable area. Breaking a contract by itself isn't morally questionable, but if you perhaps contract to provide PPE for hospitals in a pandemic, and then choose to not provide that PPE for no reason other than you don't want to (or it's more profitable to just not fulfill the contract) causing people not a party to the contract to be harmed, that's morally questionable. It's a very fact specific inquiry.

cko 6y ago

It's a contract between the bank and lender. The bank can take your house if you default - that's the agreement both parties sign. When you put 20% down the bank puts down the other 80%, making them a co-investor, but as a trustee in the first position. Depending on context it can be a sweet deal for both parties. When times are tough it's time to play the game.

tomjen3 6y ago

A business only job is to make money for its share holders. You should act accordingly when dealing with them.

dragonwriter 6y ago
A business’s job is to serve the common joint interests of it's owners (proprietor, partners, shareholders, members, etc., depending on business form); the more widely it is held, the more likely that reduces to making money, but that's by no means the only function businesses serve.