Authors Forum: Walk Away - The Rise and Fall of the Home-Ownership Myth

0:00This book came about because about, I don't know, a year ago, 18 months ago, there was this kind of

0:14discussion between libertarians and others about the ethics of a strategic default. If you can pay on your mortgage, but it doesn't make economic sense because you're so far underwater, should you have to pay? Libertarians would say, listen, you signed a contract, you signed a contract with a friendly banker, maybe the family banker sold the note to Fannie Mae or Freddie Mac, or Bank of America or any of our other friends, but you still owe, and you can pay for the rest of your life, that's what you should do, because that's what libertarians say, we live and die by contract, and I wasn't terribly satisfied with all that.

0:59And I really thought somebody else would write something on this. And I've come to find out that if you're waiting for somebody else to do something, you better do it yourself. So for all you scholars out there, think about that. If you're waiting for somebody else to weigh in, then you probably shouldn't do it. You should probably go ahead and do it yourself. So this started out as a speech for the Las Vegas version of our Mises Circles, which we did in July. By the way, we'll be back in Las Vegas for those who enjoy hot times in Nevada in the middle of July, although they do not hold the talks outside.

1:47So it's very cool and a very nice place, other than it's held at a union hotel, so this is where I say something derogatory about union cocktail waitresses. But anyway, I get criticized for saying those kind of things flippantly, so I'm not going to say them, but you know what I mean. So anyway, it has nothing to do with the book. But anyway, this started out as a speech and I ended up writing about double what I should have for my 30 minutes and I sent it over to Jeff Tucker and BK Marcus and said do you want to print as a daily everything I've written or do you want me to cut it down to what I actually gave as a talk and they both came up with the bright idea of writing a book So I wrote the book, literally every day there was something to add to it, but you know I had to stop because there's other things I need to do like write on plastic surgery and movies and things like that that I'm good at.

2:59Anyway, but the book talks about the double standard involved with homes as opposed to businesses. If you own a business and you have shareholders and your properties are underwater, your fiduciary duty will be to hand the keys to the mortgage company because that's the prudent financial thing to do and so that's what you're encouraged to do but if you're an individual suddenly you're not supposed to do that even though you may if you can pay you're supposed to pay till the bitter end none other than Henry Paulson said that if you didn't pay you are a You're a greedy speculator, and what kind of message would you be sending to your children, and that sort of thing.

4:02And I thought there was, again, a double standard at work there. Don't individuals have a fiduciary duty, not to themselves, you can't have a fiduciary duty to yourself. Fiduciary duty means that you have a duty to someone else, But, don't you have a fiduciary duty to your family, for instance? Why should your family go without potential well-being, college educations, those kind of things, because you're paying $4,000 on a mortgage when you could walk away and maybe pay $1,000 down the street. So anyway, I explore that in the book, and then I bring in some Rothbard about, you know, Murray says that private parties should always honor their debts, but then again, the entities that you're paying your debts to, Fannie, Freddie, B of A and the like, have, in Rothbard's Howard's words have been funded illicitly.

5:10And he says that any dealings with the state should be done on a pragmatic basis. So he also made the point that government debt should be repudiated. And if it shouldn't be repudiated, then at least the government should be put into bankruptcy. So taking this idea a little further and walk away, I said, well, imagine if we put Fannie Mae, Freddie Mac, B of A, and the rest of the bailed out, too big to fail banks, if we put them in bankruptcy, as they should be, what would that mortgage paper trade at? Would it trade at 100 cents on the dollar? Because that's the way they're acting when they won't negotiate with people who are cornering on their mortgages, even though the mortgages may be underwater.

6:05And I don't think that it would. I think that the mortgage paper would trade at pennies on the dollar, and the buyers of that paper would be able to quickly, they would quickly seek out the owners of the home, the payers of the mortgage and say, let's make a deal. You owe 400, the house is worth 200. I'm going to, you know, I bought your mortgage for $100, let's make a deal at $150 or $180 and let's move on. And that's essentially the case that I made. There was all kinds of reasons why people weren't supposed to walk away from their mortgage involving their neighbors, supposed to, you know, if you walk away from your mortgage, The property values of your neighbors will go down, and of course, that's not very libertarian to sacrifice for your neighbors anyway.

7:04But also, I bring into Murray's slander argument that nobody owns their reputation in themselves, and you also don't own the reputation in your, the value of your home, and that's what the market value is, essentially is a reputation, so it's an interesting argument there. I will also say, if you can pay, you should pay, again I compare that to the argument for progressive taxation, the idea that if you can pay, you should pay, and I don't think it's a very compelling argument to say that. Also, if you can pay, what's it mean that you can pay? You get two jobs, three jobs, And in the case of Weimar Germany, should everybody in the household sell themselves into prostitution to pay the bills?

7:58So, I talk about that as well. And there's some benefits to walking away. You lower your personal debt. You probably can't get any more for a while. And that's a good thing. Mortgage debt is non-productive. I talk a little bit about houses versus cars, because you get that argument too. If you buy a car, the minute you roll off the lot, it goes down in value. Doesn't mean you walk away from your car. But car loans amortize the way that the value of cars do. So you can't make that direct comparison. Also, I talk about houses being a higher-order good in the Austrian sense.

8:47There's been a bit of argument about that. And I would contend the land and entitlements make it a long-term higher-order good that's subject to the speculation. I bring in the financial self-defense argument. Again, libertarians will say that you can protect yourself through self-defense, and if that would imply being able to have a gun and protect your property, then why can't you protect yourself from a bailed-out financial institution who won't negotiate with you on your house? And I essentially close the book with the idea that no obituary will ever read.

9:37He was a good man, he was a ethical man, his family starved, but he made every payment on time to Fannie Mae. I don't think it would happen that way. The interesting part of the book was, for me, was the research in how the United States government sold the idea of home ownership, beginning with Herbert Hoover, followed by FDR. It's a very interesting story. It's been carried through to, of course, Bush 41, Bush 43, and, of course, Bill Clinton. So, it's a big chunk of the book in the middle, and I think it's very interesting.

10:24This is not a problem that's going to go away. As of yesterday, CoreLogic came out and said 23% of all mortgaged homes are underwater. That's 11 million households, and that's up from the previous quarter. And in the case of, say, Las Vegas, 75% of the homes in Vegas are underwater. And there are only nine states where the recorded percentages are less than 10 percent. This problem isn't going to go away, people are going to think about this more and more, and so I think it's a very relative book. It is the cheapest book. It is the cheapest book on this panel. I get no royalties, buy a hundred of them and burn them up somewhere, benefits me, doesn't benefit me, it only benefits the Ludwig von Mises Institute.

11:20So it's also the shortest book. So it's cheap and it's short, written by the heaviest guy on the panel. But please give it some thought. I think it's rated currently on Amazon at $1,641,000. Do what you can.

11:46Thank you very much.