Corporate developers abandon "underwater" property -- why not individuals?

Tishman Speyer Properties and its co-investors just walked away from the largest real-estate deal in US history, simply defaulting on the properties and the loans that bought them and leaving their creditors in the lurch. The properties, Manhattan's 56-building, 11,232-unit Peter Cooper Village and Stuyvesant Town, were "under water" (worth less than the debt hanging over them), so the corporate developers elected to simply jettison them.

They're not alone -- Morgan Stanley recently dumped five San Francisco office buildings, stiffing their creditors when the buildings went underwater.

As a business-strategy it makes sense: why repay loans secured by assets that are worth less than the loans? Just turn the assets over and cut your losses.

But individuals are shamed, bullied, and counselled not to do this when it's their private homes that fall underwater. Everyone from former US Treasury Secretary Hank Paulson to credit counsellors to the Mortgage Bankers Association tell you that defaulting on underwater property is low and dishonest (unless you're a Wall Street player -- then it's just "protecting shareholder value").

Former Treasury Secretary Hank Paulson once said: "And let me emphasize, any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator - and one who is not honoring his obligations."
The head of the Mortgage Bankers Association, John Courson, played up the moral argument against walking away, telling the Wall Street Journal last month: "What about the message they will send to their family and their kids and their friends?
But corporations and businesses don't play by those rules. Like CalPERS's McKinley said, "You come to a point where you write it off or stay in the game. If you want to stay in you got to put in more capital. We reached our limit on that. It was not a prudent thing to put more money into it.
"You get to a point where you can't keep throwing good money after bad," he said. "These are illiquid investments. You gotta fish or cut bait."
As for homeowners walking away en masse -- perhaps lenders' biggest housing-related fear -- McKinley added: "We're hopeful that won't happen."

Don't Look Back: Major Players Continue To 'Walk Away' From Poor Mortgages (Thanks, Fipi Lele!)

(Image: Friendly's Underwater Restaurant, a Creative Commons Attribution ShareAlike image from nlnnet's photostream)

Previously:

I write books. My latest is a YA science fiction novel called Homeland (it's the sequel to Little Brother). More books: Rapture of the Nerds (a novel, with Charlie Stross); With a Little Help (short stories); and The Great Big Beautiful Tomorrow (novella and nonfic). I speak all over the place and I tweet and tumble, too.

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gollux

The Speculator often was the person who sold the property in the first place. Yes, there were house flipper buyers, but most of the foreclosure notices now appearing in the local paper are of the long term people who intended to own the property.

It’s time to quit flogging a dead horse and return real estate to store when your employment opportunities render it impossible to pay for it.

Unless you consider the expectation of full time employment to be speculation as well.
dainel

I don’t understand how simply stopping payment and giving up the property will stop the creditor from suing you for the balance of the debt. Or do the laws in that country work differently than from other places?
- Antinous / Moderator
  
  I don’t understand how simply stopping payment and giving up the property will stop the creditor from suing you for the balance of the debt.
  
  In California, if your house is your homestead and your current mortgage is the purchase instrument, you’re off the hook. Or something like that. I don’t remember the exact details.
maryr

It’s always weird when you recognize stock footage. I think I’ve been to that Friendly’s…
Micah

Yeah, the arguments about “moral responsibility” are more or less BS. But individual home owners and commercial real estate investors are very different animals legally and economically. There therefore are real differences in the consequences of “walking away.”

First, the consequences of an individual walking away vary by state. In some states, you can walk away and the only consequences are losing your home and damage to your credit rating. But in other states, the lender can go after your other assets. In those states, walking away isn’t a very practical option unless you are completely broke.

Second, there is an enormous difference in the balance of legal and economic power between borrowers and lenders in the home lending and commercial lending spheres.

Home mortgages tend to be relatively simple: individual (or couple) buys a home using a loan secured by a mortgage on the home. The terms of the loan are usually based on a form provided by the lender, and very little negotiation goes into those terms. Depending on the state, the lender may or may not ultimately have recourse against the borrower’s other assets as well as the home itself.

Commercial mortgages–particularly those on the scale of Stuytown–typically involve a customize loan agreement that is 100-200 pages long and costs hundreds of thousand dollars in legal fees to negotiate. The ownership structure is also far more complicated. In Stuy-town, for example, there is at least one layer of mezzanine debt in addition to the first mortgage loan, and ownership is through a joint venture between a group of equity investors. Commercial real estate investors also typically set up single-purpose companies to be the borrower and property owner, so that if they ultimately default, the harm runs to the single-purpose company and not the investor’s overall organization.

The reason lenders are willing to lend into this riskier structure, however, is because their decision isn’t as much based on the income or credit rating of the borrower as it is on the income potential of the real estate asset itself. That is a fundamental difference between home lending and commercial lending.
- Courtney
  
  This, and also, aren’t commercial mortgage rates higher than personal mortgage rates to help offset this very problem? Also, I don’t believe there is any exemption for taxes on the proceeds of the sale of commercial real estate like there is for personal real estate. Both things combined make “sticking with it” a somewhat better deal for an individual than a corporation, in addition to the points about credit ratings and such.
zyodei

What – it was simple greed that caused the banks to ignore the obvious bubble situation in the housing market and write way too many crummy mortgages.

The natural punishment for this greed is, yes, for many of these lousy, frenzied mortgages to go belly up.

If you can’t afford your house, or you’re underwater, I would argue that it is MORAL to walk away, whether individual or corporate. It is your fault, yes, but it is also a failure of the bank’s long term planning. They deserve to be punished for this to incentivize them not to do it again in the future.

A nuance to this, is that it depends what bank you use. If you borrowed from the local mom and pop, you enjoy saying good morning the the teller and you don’t want them to lose their job in a bankruptcy, AND they didn’t sell the note to some derivatives idiot, then maybe you would reconsider. But if your bank was some JPMorgan or Citi or one of these other mafiosos who have received such massive government largess, then by all means – they deserve to die, and your best strategy is to just stop sending off that check every month to get as much free rent as possible, ignore any subsequent letters they send, be prepared to move, and wait for the sheriff to knock on the door.

Yes, people did help create this problem. But they’re not professionals, they’re just suckers who will lose their equity anyhow. The finance firms hire teams of forecasters, and if they couldn’t predict this imminently predictable meltdown, they deserve to burn, burn, burn.
Mac

I’m not sure why on earth it would be considered ‘immoral’ for you to ‘default’ under this system.

There is a contract between the you and the bank.
The agreement says that you fulfil your obligations if you either:
1. Pay the money to the bank -or-
2. Give the property to the bank.

They are both valid options under the agreement. That’s the deal the bank signed off onto when it loaned you the money. The bank was taking a risk too.

If you decided to keep the property AND not pay the mortgage then it would be immoral. But exercising the second option ? Perfectly reasonable.
- jdkjjk
  
  In certain States this is a perfectly legal action to take. Mortgages in these States are so-called non-recourse loans. That is you Deed the House back to the bank in Lieu of Foreclosure the bank cannot pursue any additional avenues of collection against you personally.
  However, I am not certain if the IRS will exempt the Mortgage amount received from taxable income in those States that have non-recourse lending procedures. In other words if you default on a $100,000.00 mortgage you may be liable for income taxes on $100,000.00.
  While you can pursue this option in non-recourse States the Bank still has the ability to seek a deficiency judgement against you personally.
  Here in the Northeast, during the prior housing bust of the 1990′s, deficiency judgements were quite rare. One reason was at forclosure the bank would typically bid the entire amount due, including penalties,interest, and taxes paid, on the day of the foreclosure auction.
  This precluded the first lienholder from seeking a deficiency judgement but it did not extinguish the right for sunsequent lienholders.
  On the positive side of the recent tax changes; if the bank allows for a Short Sale, the IRS will not penalize the borrower for the difference between the amount loaned and the amount forgiven.
patrick_bateman

Yes, do Americans realise that in other, saner countries one cannot simply vacate a building and walk away whenever one pleases and thus escape the mortgage?

If I buy a house in Australia tomorrow for $500,000, and next week the property market collapses and its value falls to $250,000 then if I walk away I still owe the bank another $250,000 in cash, plus they get the house.

This applies whether I am a corporation or a private individual.

Otherwise you have an insane system where people can make money if the market goes up, but if it goes down they can just walk away. Like a casino where you only have to pay for your bet if you win…
Ingmar

In a sane legal environment & society things don’t work that way. Because a collateral is an additional means to secure a debt, but no substitute for the debt proper. Even if the value of the collateral is reduced to zero, the debt as such remains. So, unless the debtor files for bankruptcy at the same time, I don’t see how that would work. Over here, at the very least.
DWittSF

What wasn’t noted above makes Tishman-Speyer even more dastardly; Stuyvesant Town was conceived and run as ‘working class’ housing in Manhattan. The Greedheads saw this huge piggybank, and snarfed it up, on the dream of turning it over to ‘market’ housing… and getting rid of the ‘losers’ who don’t have six figure incomes. Heckuva job!
InclinedPlane

Well, indications are that people HAVE been just walking away from their mortgages. In 2008 just over 1 in 4 of all subprime mortgages was delinquent (60 days without a payment).
Deidzoeb

I’ve been thinking it’s like any investment that you might make. You buy Action Comics #1 on the assumption that it’s going to be worth X and retain that value until you’re ready to unload it. Someone uncovers a warehouse full of pristine copies of them and suddenly yours isn’t worth that much. That’s the risk you took when you bought it.

So I took a risk when I bought my house that it would keep going up in the long term or short term. Luckily I didn’t have any plans to sell it in the short term, so I’m still holding out that it will be worth it in the long term.

But should banks and mortgage owners be immune to taking risks in this situation? Aren’t they taking a risk when they judge that some house or piece of collateral is worth X? Shouldn’t they take responsibility for the possibility that some piece of collateral might turn out to be worth less than what they expected, especially if they’re the friggin financial experts?
Deidzoeb

“By not paying on your credit cards, you simply stole money from the banks. That makes you a common thief.”

Depending how much principal the person might have already paid back and what kind of absurd interest rates or “fees” had been charged, it could be characterized as stealing money like a common thief, or refusing to be gouged by loan sharks. There used to be stiffer laws limiting how much interest they could charge. Maybe they wouldn’t have tripled your rates if those reasonable limits had been left in place.
Anonymous

“But individuals are shamed, bullied, and counselled not to do this”

Is this article not evidence that corporations are also shamed and counselled not to do this? It seems to me that both individuals and corporations are encouraged not to do this, but to do it anyway when it’s in their own best interest.
Anonymous

Ok, say I walk away from my mortgage (and my house.) How do I get my next house? I would think that a recent foreclosure would impede my ability to get another mortgage, or even a rental.
Anonymous

It all starts from the top. In the days of noblice-noblige and when your local banker was (usually) a good community steward, walking away would seem unthinkable. Now, with rapacious mega-banks that turn around and screw their depositors with fee’s, crappy credit lines and the like, and bilk their small shareholders with outlandish bonuses paid to the insider crowd, the individual homeowner, as a moral duty, should walk away on underwater loans if from a socially irresponsible mega bank (most of them)…
BJN

Mortgages that include a surrender clause cost more. You paid for the option, there’s nothing immoral about using it. Your credit rating will suffer for about four years.

Businesses (and especially lenders) look at the cold, hard bottom line facts. There’s no reason an underwater borrower shouldn’t do exactly the same. Especially after business lobbies were able to get much more restrictive bankruptcy laws passed.
Comedian

I used to think that Steven Katz was just peddling crap, but I’m beginning to think that he is right.

Individuals have no moral obligation to repay debts to corporations. They may well have a legal obligation, but they don’t have a moral one.

The extension of credit is a risk that the corporation was willing to take, and as we can see in OP, a corporation has no moral obligation to honor its word.

__________

“People are brainwashed to think that paying a credit card is more important than paying for the necessities of life,” Katz says. “If you’re in a position where you have to make a choice, my argument is food, clothing and shelter come first… Nobody ever went to hell for not paying a debt.”
Clif Marsiglio

Personally, I think EVERYONE should walk away from their debts of corporate America right now…I did.

Well, most of it…I still like my house, so I pay those bills, but credit cards? I stopped paying last year when all the banks got bailed out, and mainstreet didn’t. My reward for holding a job, one that I didn’t particularly care for over the last few years (but I have a work ethic) was that I got to have my taxes increased to pay for everyone else that couldn’t live within their means and failed (honestly, I don’t know if I can blame corporate america for this when my next door neighbors did the same thing…it is a problem with america, not corporate or otherwise)…

So I just stopped paying and I sent notices out letting the banks know I just wasn’t going to pay again. My credit is in the sh*tter, but I don’t care…I live within my means and could actually pay all my bills off except my student loans right now. Had to go to court over this, and the judge actually agreed with me. Well, other than the fact that I lost the case…personally, he agreed.

My credit rating dump was well worth it…the banks STILL don’t have my money and the rate the court gave me for the default? 8%…thats better than my friends with killer credit scores…its pretty bad when a court decision against you is far more fair than what the banks would charge you anyways.

I encourage EVERYONE to stop paying…f*ck the banks…
- Antinous / Moderator
  
  I still like my house, so I pay those bills, but credit cards? I stopped paying last year
  
  If you stopped paying on your house, the bank would take it, and there would be some quid pro quo in the transaction. By not paying on your credit cards, you simply stole money from the banks. That makes you a common thief. You’re the reason that my credit card rates have tripled even though I haven’t made a late payment in 30 years.
  
  I can’t wait for your next rant about the sacredness of intellectual property. This is like early Christmas.
  - Clif Marsiglio
    
    My credit card rates had gone up considerably because I had a mark against me that wasn’t related to anything I had done. By the time I had it corrected, the laws governing the cards allowed them all to up my rates to 28%.
    
    They upped my rates and lowered my limit…the only way I found out about this was I was getting notices about not making my minimum payment (I rarely made ‘minimum’ payments…I generally automated my payments to be much higher than what should be minimum…I blame myself for not looking at the bills, even if the initial mistake was elsewhere…my fault and I admit this)…
    
    I did get myself in trouble when I was younger…got out of an industry where I had ready money and wasn’t use to not having it. I spent several years correcting this even though my attorney kept telling me there was no shame in bankruptcy — even arranged a way to keep most of my property and kill off the bad debt…I find that sleezy…I paid it all off even with the rates I was given. I worked hard to get my rating back to something decent.
    
    This last year, with the banks getting bail outs by the gov’t and everyone else getting a free ride, I decided that with the screwjob I was getting by the corporations, I wasn’t taking it any more.
    
    The banks stole money from you and I through whatever back office deals they made with Bush and Obama. At this point, I feel as a tax paying citizen I paid them off…the courts didn’t agree and the put a hold on a bank account of mine for the amount owed (i.e., they will be paid, but I’m just not going to make it easy…its futile, but I feel good about it).
    
    As for my rants on intellectual property…I’ve never said the corporations weren’t corrupt…I just believe screwing artists simply because the corporations are doing the same doesn’t make it right. I’m going directly after the banks on this, not throwing a brick through someones window simply because their business uses Bank of America. So I’m not certain how the two are connected…have fun with your second xmas Ant.
Anonymous

John coursen who made the comment about walking away is a creep. He walked away from his mortgage company owing his employees millions of dollars. No notice at all. He is now getting paid over a million a year to be the Mortgage Bankers mouthpiece. He still hasn’t paid us.
scisco

I think individuals need to realize that mortgages are nothing more than a financial investment. The Bank makes an agreement with an individual to lone them a sum of money for the purchase of an asset. At the time of signing, you both agreed to the terms of what happens when A) the payments are completed or B) you default. Therefore, when the contract was written, both parties deemed the terms fair because no one held a gun forcing the other to sign.
Now if the investment goes bad because you walk away, it becomes just that, a bad investment. I look at it as no different that having to cash out a stock that became worthless.

@patrick_bateman
I would argue the insanity is not allowing people to walk away. What should be the alternative then? You become a debt slave for life? You suggest that there are no disincentives for walking away but I would suggest that there are. People “should” have money invested in their properties (it used to be a ~%20 down payment). The fact that people were getting houses for 0 down is a separate problem. Also they are loosing their home and taking a hit on their credit rating.

@Ingmar
I agree with you that collateral is not a substitution for debt but I would like to suggest that is not the purpose of it. Collateral is a disincentive for walking away because it forces the borrower to “have skin in the game”. Another purpose for the collateral is to help the lender recoup their losses if the borrower walks away. It is help offset the losses incurred when the asset is repossessed and later sold. The fact that housing has lost so much value is nothing more than bad financial forecasting by the banks.
Anonymous

If I ever buy a house, I’ll form a LLC to hold the property and rent it to myself.
DanIzzo

I bought my house intending on living there for at least 5 years (figuring I’d sell it when we had kids and needed a bigger place). When my second son was born, and we needed to sell, the market collapsed. My house is now worth half of what I paid – so I’m deep underwater.

A large part of what’s keeping me underwater are the foreclosures in my neighborhood. A bank foreclosed on my neighbor’s house, and sold it at fire sale prices – further driving down the value of my house. If that sale were used to value my house, it’d be worth 25% of what I bought it for.

The bank’s are playing both sides – driving down property values as they liquidate their underwater assets, but expecting me to hang in there and preserve my house so the speculators who are buying the banks foreclosed properties will benefit when the market comes back.

It’s not about moral consequences, it’s about being hit by an economic tsunami (or earthquake) and trying to figure out how to dig out and start again.

I want to be fair to the bank, they were fair to me when I got the loan. But why do they get to walk away and I’ve got to stick it out. That doesn’t seem fair. At all.
Anonymous

I’m astounded at the number of people here who believe they are under no moral obligation to repay a loan that they can afford to repay. Mortgage deals are cash flow deals, or at least they should be. A properly underwritten mortgage should have payments that are easily covered my the homeowners income net of living expenses. The intention if or the loan to be repaid from that cash flow, not from the sale of collateral. Collateral is taken to reduce the risk of the lender, not as an expected method of repayment. When you take out a loan, there is an implicit promise that you will repay it as long as it is reasonably feasible. The idea that somehow you could default on any loan in which the underlying collateral is valued at less than the debt is preposterous. First of all, it ignores the entire world of collateral-free debt. If I charge a meal to a credit card and then eat it, the remains are nearly valueless. That doesn’t mean that I’m now somehow voided of my responsibility to repay the debt. Such thinking is rather quickly shown to be immoral, at least in the Kantian sense, via a trivial application of the categorical imperative.

Of course, many people have a problem acting morally when that conflicts with their own well being. Financiers have a legitimate interest in knowing when such a person reveals themselves as willing to behave immorally through default on debt. This explains the large credit reporting industry. This is also why any legal entity that is allowed to hold debt must justify to a bankruptcy judge why there should be either a stay or a settling of such debt. You will get no sympathy from a judge if you admit that your income does comfortable support debt repayment. The presence of consequences for default does not magically mean, however, that default is now perfectly moral.

It is likewise just as immoral for corporations to default on debt obligations. There are, of course, analogs to credit reporting for corporations such as the Dunn and Bradstreet reports. These reports not only contain far more information than a personal credit report, but they are also publicly available to anyone willing to shell out a hundred dollars or so. If you believe that massive default won’t seriously hamper a corporation’s ability to secure debt in the future then you are seriously deluding yourself.

I am familiar with the Cooper story and your portrayal of the decision to default as being something that was easily arrived at via some cost benefit analysis is either shoddy reporting or sensationalistic editorializing. I am unfamiliar with the Morgan Stanly deal, but I’d be amazed if, again, there were not serious circumstances underlying the decision to default.

The distinction in all cases is whether or not the debtor has the ability to repay. That is clear in Paulson’s quote above and is likely implicit in Courson’s argument.
- dcamsam
  
  I suppose it’s obvious that it would be unwise, economically, to repay a debt that would be, well, unwise economically to repay. But I think the assumption that it would nevertheless be moral to repay deserves some scrutiny.
  
  Is it really moral to repay a creditor who would, if they were in your position, refuse to repay you? Over time, that would merely serve to enrich immoral creditors at the expense of both moral creditors and debtors. How would that be moral?
  
  I’d say that a debtor has a moral obligation to behave exactly as the creditor would, were the creditor in the position of the debtor. Really, it’s the homeowners who’ve continued to pay, even when it was unwise, who should be ashamed.
imag

As someone who didn’t buy into the real estate investment hype, I have to laugh at the idea that people are blaming others for their bad bet. Many of you are positively giddy that the banks and corporations are irresponsible, because it enables you to act the same way.

To be clear, I understand the rationale: the banks and corporations are irresponsible and getting bailed out. It’s not fair for people to act any differently.

But you homebuyers would have been crowing about your profits had things gone the other way, as you did for the last ten years, counting up your real or paper earnings while those of us who were paying attention didn’t buy into all that crap.

The the thing to remember is that it’s not *just* the contract you made that lets you walk away – it’s the bankruptcy laws. Yes, the contract was made with an understanding of those laws, but the banks were just the enablers for your bad behavior, and our laws allow you to get away with minimal consequences.

Do I think we should have debtor’s prisons? No. Do I think people shouldn’t walk away? No – go ahead – it doesn’t affect my property value, because I invested in things like my life instead of some crushing dream of home ownership. In fact, the more people who walk away, the more likely it is that homes will come back to a level where it could actually make sense to buy.

So please, walk away. But remember that you were complicit. You gambled with another’s money (and they let you), so go ahead and take advantage of you. But don’t even start to play the victim in the mix. Take the credit hit – take the emotional hit, and admit that you made a bad bet which you can fortunately get out of, because the rest of us support laws which protect you. And thank your lucky stars you don’t live somewhere where you would be held more accountable.

Oh, and while you’re taking advantage of leniency, remember that sometimes criminals deserve second chances too. The prison situation is out of control because of people’s need to punish, even though it hurts us all. America is about second chances, and we should support them for everyone who can be found to be deserving of them.
jjasper

Cliff @ #19 – . My reward for holding a job, one that I didn’t particularly care for over the last few years (but I have a work ethic) was that I got to have my taxes increased

If your taxes were increased, at least on the federal level, you were earning more than a quarter million a year, and the increase was only on the amount over $250k. You want sympathy for that?

to pay for everyone else that couldn’t live within their means and failed

You misspelled “Bush’s failed wars”
- Clif Marsiglio
  
  No, my property taxes — which are the biggest unexpected expense over the last few years — were tripled because I live in a downtown environment where half the people no longer work. I live in a semi-rural state, and the governor decided to make an example out of the big cities and decided to reassess anyone that lives in one while pretty much letting the farmers and other huge corporate land owners pay practically nothing.
  
  Beyond that, I have a crack house right next to me…it is the same floorplan as my own house. Both built by the same family in the late 1800s…mine has been kept up, and I take care of it. For some reason, they pay a total of $200 a year on taxes because they have declared bankruptcy several times (each time, the home sold to the spouse not declaring), while I’m paying far far more. The property tax has been my biggest unexpected expense in my life…
  
  As for Bushes Failed Wars…Bush was voted in by the population twice. I didn’t vote for him, but I’m not going to blame him for everything and let the idiots that voted him in have a pass. The vast majority of the people in the US are looking for short term gains, be it the left or the right…90% of the country is made up of these idiots and I have no pity for them. Both these groups of idiots were responsible for the current economy…Bush was just the scapegoat (and was elected because he was an affible idiot that did what people wanted)
Anonymous

Part two: Credit card companies…
Anonymous

Talk of the Nation on NPR had an excellent program on this:

http://www.npr.org/templates/rundowns/rundown.php?prgId=5

Read this excellent paper referenced on the show:

http://www.sacbee.com/static/weblogs/real_estate/SSRN-id1494467.pdf

Short version: Banks know they can “shame” people into sticking with mortgages even when that is not a rational decision. Banks use this to their own advantage.
Anonymous

“So, you think homeowners haven’t been walking away from their properties, but corporations have? ”

Apparently you need to re-read what is being written here. The author is stating that Businesses can shed property where they owe more than what it is worth without much in the way of criticism, particularly from government officials. Meanwhile, the rest of America is heavily ridiculed and chastised for doing the same thing with insults tossed at them such as being immoral. Welcome to Capitalism at its finest. It’s ok for a business to make good financial decisions that have a negative impact on others, but for certain those officials will condemn the average citizen for making the same choice.
Daemon

Conceptually related: Why on earth do people keep moving back into places that flood out every 1-2 years… and keep receiving money to rebuild in the same place, without making the necessary adjustments to construction techniques to make them reasonably flood proof.
Kid Geezer

Yes, and now those same corporations can legally and effortlessly buy more “free” speech than any of us. It’s a wonderful life.
- Aurini
  
  You should read up on that court case.
  
  The Corporation in question was a non-profit group of citizens filming a documentary about the history of a specific politician.
  
  The ACLU and New York Times are also corporations.
  
  BoingBoing – while not a corporation – is nonetheless privately owned, and known to voice its opinions on political matters. Should it be prevented from speaking politically within 9 months of an election date?
  
  Robin Hanson has been suggesting that the censorship isn’t so much about paternalism to one’s fellow citizens (who are smart enough to vote, but too stupid to see through corporate lies) but is instead due to the perceived ‘low status’ of evil corporations. They’re not respectable enough to deserve free speech. It has nothing to do with the message. I’m inclined to agree with him.
  - Anonymous
    
    “censorship isn’t so much about paternalism to one’s fellow citizens (who are smart enough to vote, but too stupid to see through corporate lies) but is instead due to the perceived ‘low status’ of evil corporations. They’re not respectable enough to deserve free speech.”
    
    There are two problems with this statement. First, it isn’t that corporations are not respectable enough, it is that they are not human enough.
    
    Second, participation in democracy comes from being a citizen, whose barriers are quite low (ie, being born in the States for example). It has nothing to do with educational levels. They argument that it’s the people’s fault for not being ‘smart enough’ has been tried a hundred times before, and it fails every time.
    
    There is a reason justice is blind, and why there are statements like ‘all men are created equal’ that form the basis of our government. It is the responsibility of government to ensure a level playing field for everyone to participate in. Otherwise, the foundation of democracy will be in jeopardy.
  - endstar
    
    This is of course off topic, but when I read up on that court case, it seemed that the non-profit corporation that wanted to run the add could have done so if they had used the money they had from private donors. However, they wanted instead to use money from for-profit corporations, and were told they could not. That is where the lawsuit came from. I apologize that I can’t quickly find the right link.
    
    More on-topic, the idea that corporations should be treated as individuals under the law dates back from the 19th century. However, they were not given all of the rights of a “natural person”. http://www.npr.org/templates/story/story.php?storyId=122843898&ps=rs
    
    The New York Times ran an op-ed saying the same thing as implied here: what’s good for corporations (bankruptcy) is only reasonable for individuals.
  - rick386
    
    Free speech is all fine and good. Boing Boing, the ACLU, the NYT, or Pfiser can say what they want. The ruling stated that limiting capital expenditures was limiting free speech and with that I don’t agree. Free speech is limited for real people too. You can’t yell ‘fire’ in a crowded theater, you can’t joke about bombs at the airport. The amount of $ a company can spend on a political campaign is a very real issue. With the billions in market caps that many large companies enjoy, they can buy every vote in a state like Mass. (and that’s a prime example for this argument). The results of the senatorial race in Mass. may have far reaching results for healthcare for the rest of this country. Would you be happy if you found out Kaiser Permanente paid for it??
johnnyaction

I’m under water on my house and my car plus I’m jobless to boot. With the recent supreme court ruling I’m shedding the house and car and declaring bankruptcy before the bankruptcy law changes.
Anonymous

I’m cynical about the modern role of (investment) banks as much as anybody, but…

what’s the point of this article, really? summary: some current/former heads of banks encourage people to put the economy ahead of personal interests while in turn putting their bank interests ahead of the economy(!)

Is that really so outrageous? I know the bank=person idea is under a lot of heat right now, but imagine you, as a private individual, have a neighbor who is in the “underwater” investment situation. As a homeowner and in turn, a real estate investor, wouldn’t you also prefer not to live next to a foreclosure?

Of course, an ideal neighbor is also a friend, who would want to give his friend sound financial advice. Then again, how many truly friendly neighbors have you had in life? (I’m from New York City, maybe the rest of the country is different…)
- Mazoola
  
  summary: some current/former heads of banks encourage people to put the economy ahead of personal interests while in turn putting their bank interests ahead of the economy(!)
  
  No, the point is that while hypocritically urging/shaming/penalizing individuals into sucking it up and loyally cranking out a monthly mortgage payment, regardless of the property’s current value, investment bankers themselves have no qualms about walking away from similarly underwater obligations of the companies they manage.
  
  Likewise, they’re much more likely to be given an opportunity to rewrite contracts to reflect a reduction in principal owed than they are to offer similar adjustments to individual homeowners.
  
  And should you still not be able to detect the different seasonings used in the goose and gander sauce, try this experiment: 1) Default on your mortgage. 2) Try to buy another house. 3) compare and contrast your success in obtaining a new mortgage with that of Morgan Stanley when it next desires credit. Think you’ll be paying similar rates?
  
  and bankers-turned-government-officials
- rick386
  
  The point? I think the author was just pointing out the doublespeak involved. Lenders are investors, they will ‘shame’ you into honoring you loan commitments, and walk away from theirs when no longer profitable, at the same exact time. In the end you do what’s best for you. Do you like the home? How will this affect your credit?
  Who cares is some banker somewhere thinks your ‘word’ is no good? His ain’t.
kebko

So, you think homeowners haven’t been walking away from their properties, but corporations have? That just seems like a really weird thing to say. I think this must be because you imagine the homeowner to be the victim when they “lose” their house, but the corporation is the antagonist when they “abandon” their property. I think you must realize that businesses & families are both making very difficult decisions that frequently involve losing a lot of invested savings. We don’t picture a corporation being “on the street”, but the money they are leaving behind is from real people. They aren’t funded by Cylons. If there is a development company abandoning a property, there is likely some personal hardship going on somewhere as a result.

And, I just can’t believe that the media you are exposed to has been characterized by opinion-makers chiding underwater homeowners while blowing kisses to Wall Street. It surely is weighted in quite the opposite direction. Again, I think your impression is the result of the narrative you’ve constructed, with pre-ordained good-guys & bad-guys.

I find this post perplexing. Surely you have managed to have some savings. Didn’t it hurt you badly to lose so much of it in the last couple of years? I know I’ve been hurt. I’m just a regular guy, but a small little part of those corporations is me, and I assume it must be you, too.
How do characterizations like those in your post represent anything but bigotry?
- Anonymous
  
  kebko
  
  “but a small little part of those corporations is me, and I assume it must be you, too.
  How do characterizations like those in your post represent anything but bigotry?”
  
  are you serious?
  
  I sincerely hope your post was just trolling.
- Mazoola
  
  I know I’ve been hurt. I’m just a regular guy, but a small little part of those corporations is me, and I assume it must be you, too.
  
  How fortunate for you, then, you’ve only owned stock in those companies who bailed, and not in those that made the now-worthless loans or had to step in and take over defaulted real estate.
  
  Again, people, the point is not that it’s OK for individuals to default but not corporations, but that it either should be OK for both or not ok for both. Instead, even as investment banks demand federal bailouts to protect them from the effect of homeowner defaults and their officers and former-officers-turned-administration-officials issue stern proclamations about the depravity of those who could even consider walking away from their commitment to a mortgage, they themselves feel no compunction over abandoning similarly underwater property. (And, as I suggested in an earlier comment, when they next do business, will no doubt pay far less of a penalty for their earlier transgression than would you or I.)
  
  That they wrap their solemn pronouncements as to the evilness of homeowner defaults in terms of patriotic pride and civil responsibility makes the situation even more disgusting.
Anonymous

Consumers don’t cling to their mortgages because duty and honor compel them to. They do it because their standard of living is directly tied to their credit rating.

There is no true corollary for a large financial institution. Yes, they have their own credit ratings… But shirking a financial obligation, even one worth billions of dollars, will in many cases improve their economic posture.
Anonymous

Well, the answer to “why not” is because YOU, Cory, are a creditor for a lot of homes and a lot of commercial real estate, by way of your savings accounts, and if enough people and companies walk away to overwhelm the FDIC, it’s your savings that’s toast.
mjohnson

Try just not paying your mortgage. My brother worked for a sub prime bank trying to get people to pay mortgage repayments on their underwater houses. They want you to pay, but the last thing they want you to do is walk away. If someone on the other end of the phone made it clear that they would walk unless they stopped chasing them for payments – they stopped. I personally wouldn’t do this, but worth a go.
scisco

imag @ #23 I do agree with a lot of what you say except I would not even call it bad behaviour. Capitalism only works when good decisions are rewarded with profits and bad decisions take a loss. I am of course assuming that fraud was not committed.
Walking away is taking advantage of clauses that were agreed to by both parties when the agreement was made. Just like a bank evicting a family when they fail to meet the terms of the contract, there is nothing wrong with calling the banks on their mistake in thinking housing prices will never fall. It is important to remember banks will only give you money if they think they can extract a profit from you. Well, this time their bets were wrong.
Anonymous

The argument made here: that foreclosure is a “luxury” of the “sophisticated” investor, reminds me of the sexist argument that infidelity is the privilege of the wealthy male. Its not ok for the little guy, and it is not ok for the major player. If we as a society don’t have a good way of punishing the “big guys” in the short run when they default, then that is maybe a defect in the system.

But I’ll tell you one thing. I hear about Morgan Stanley defaulting on a debt, and I guarantee I won’t invest with them (Investors are all just small scale creditors, right?). I suspect the same would be true of most folks.

Trust is the fabric of society. If trust fails on a large scale civilization falls with it. We punish defaulting on debts for the same reason we punish burglary (albeit to a lesser degree). A few bad actors get away with dishonesty, stealing, even murder. But if we condone or accept these practices we all lose big.
andreinla

Corporations have no moral values, just greed. I can see how corporations would like to exploit moral values that humans have toward other humans. I don’t see how applying moral values in a relationship with a corporation can in any way benefit humans.

It’s basically dealing with a machine made with the sole purpose to exploit the relationship and squeeze as much as legally possible/profitable from it. Legally possible = lawsuits + fines < monetary_benefit.

Unfortunately, corporations have resources unavailable to most individuals and leverage these resources to tip the odds in the ecosystem by buying laws, hiring expensive lawyers, dispersing propaganda+FUD etc.

Most corporations are cancer to humanity and humanity is getting sicker and sicker.

They are not your friends, they are the con man in the street who wants your money and is looking around to see if the police is near when choosing his methods.
foobar

The developer of the athlete’s village for the 2010 Olympics (and the IOC) has done this to Vancouver, and left the city nearly bankrupt.
- gollux
  
  Yet another city ravaged by the Olympics.
- Yamazakikun
  
  foobar: The Olympics is run as a massive giveaway of your money (if you’re unfortunate enough to be a local taxpayer) to developers, broadcasters, etc. The city going bankrupt is always part of the deal.
  
  It’s no different than American cities giving billionaires free stadiums, just much bigger.