Where’s the Win?

In a discussion about mortgages and foreclosure, someone commented that a system has to allow for failure if it is to have any chance of success. This is not unlike the theological argument that forced confession does not engender faith. Even more so, I think this is analogous to the idea that winning a competition is meaningless unless there was a real chance of losing the competition. It’s hard to boast if everyone wins.
I think the commentator was pointing to the genius of free market capitalism. All things being equal, the most industrious and effective people win. But all things are not equal and the ideology of capitalism is no more applied in the real world than the ideology of communism. They are interesting economic theories, but have little to do with the world we live in.
When groups organized around the principle of capital creation grow powerful enough, they change the rules to reduce the possibility of losing. An empty victory is still a victory because the capital continues to grow.
I think the commentator was missing the problem entirely.
Mortgage lenders stand to loose a tremendous about of money through foreclosure. Our country stands to loose a tremendous asset of patriotism through the loss of a sense of rootedness in the land. Corporations loose a level of dedication in their labor force rooted in the sense of indentured servitude a thirty year mortgage conveys.
What does an individual or family stand to loose through foreclosure? Is their sense of financial security better or worse without paying two and a half times the purchase price of a home that is worth only two thirds of that price? Will they have more or less to save for retirement and health care costs? Will they have more or less to save for their children’s education? Is it better or worse to be able to move closer to one’s workplace?
I think a system has to allow for success if it is to continue.



I will NOT calm down

When I saw a person holding this sign at OccupyMN Sunday afternoon, it struck a cord.

When one thinks they are being taken advantage of, or thinks others are being taken advantage of, being calm is not a rational response.

When I shared this sign via Twitter, someone noted the irony. Shouldn’t I advocate calmness if I’m thinking about peace?

Is it odd to agitate for peace?

Working toward a more peaceful existence means being willing to offend the sensibilities of those who exploit others.

Mortgages are not Social Contracts

Mortgages are annuities, financial instruments, not social contracts. Familial relationships, households, are social contracts. Our closest bonds form the fabric of our social structure. Changes in one household ripple through other households. Unjust acts in one household damage other households. Generally, we pressure each other to behave honorably. Sometimes we ask one person to maintain their household structure even though they are being treated unjustly within it. Here I am referring to abusive relationships and the social censure the abused faces when trying to dissolve the relationship.

Mortgages are not social contracts. When one household borrows money to purchase a home, they are not promising to help their neighbors maintain the value of their own investments. If a store offered to charge a minimum price for an item so that they and other stores could make a profit, we’d call it price fixing. We’d say it was illegal — unless they were selling gas, but that’s another question for another time.

Mortgages are financial instruments, annuities, like savings accounts. A person might offer to let a bank hold, and use, their money in return for a small periodic fee. Typically the bank reserves the right to change that fee at anytime. If the fee, the interest rate, is too small, the person might move that money to another bank. Too bad for that person the Federal Reserve sets interest rates, but that’s another question for another time.

A bank might offer to let a person use their money in return for a small periodic fee. They don’t want the person to change the fee at will, so they ask the person to agree to pay a specified interest rate, or rates, for as long as they are using that money. Banks also know that they can’t just move their money from one person to another if the first person isn’t paying enough. The money typically isn’t there. So they secure their investment with physical property of equal or greater value. Essentially banks are buying a financial interest in a physical property.

Generally, if a store tried to substitute one item for another, say glass for diamond, we’d call it fraud. If a broker tried to sell financial interest in a company that didn’t exist, we’d call it fraud. If real estate is said to have a greater value than it does, we call it ____?

Banks have purchased financial interest in physical property of lesser value than their investment. Sounds like a bad business decision. One way to remedy this is to drop the bad investment and move to more profitable investments. That’s business. Another is to convince people the physical property is worth more than the investment. That’s fraud.

One way to convince people that the physical property is worth more than the investment is to attach emotional equity – a social contract – to it. Still fraud.