WEBVTT

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

1
00:00:00.000 --> 00:00:10.000
This book came about because about, I don't know, a year ago, 18 months ago, there was this kind of

2
00:00:14.000 --> 00:00:19.000
discussion between libertarians and others about the ethics of a strategic default.

3
00:00:19.000 --> 00:00:26.000
If you can pay on your mortgage, but it doesn't make economic sense because you're so far underwater,

4
00:00:26.000 --> 00:00:56.000
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

5
00:00:56.000 --> 00:00:59.680
I wasn't terribly satisfied with all that.

6
00:00:59.680 --> 00:01:01.600
And I really thought somebody else

7
00:01:01.600 --> 00:01:03.800
would write something on this.

8
00:01:03.800 --> 00:01:07.320
And I've come to find out that if you're waiting for somebody

9
00:01:07.320 --> 00:01:10.440
else to do something, you better do it yourself.

10
00:01:10.440 --> 00:01:15.920
So for all you scholars out there, think about that.

11
00:01:15.920 --> 00:01:18.240
If you're waiting for somebody else to weigh in,

12
00:01:18.240 --> 00:01:20.280
then you probably shouldn't do it.

13
00:01:20.280 --> 00:01:22.420
You should probably go ahead and do it yourself.

14
00:01:22.420 --> 00:01:31.060
So this started out as a speech for the Las Vegas version of our Mises Circles, which

15
00:01:31.060 --> 00:01:32.620
we did in July.

16
00:01:32.620 --> 00:01:41.940
By the way, we'll be back in Las Vegas for those who enjoy hot times in Nevada in the

17
00:01:41.940 --> 00:01:47.380
middle of July, although they do not hold the talks outside.

18
00:01:47.380 --> 00:02:04.380
So 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.

19
00:02:04.380 --> 00:02:12.380
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.

20
00:02:12.380 --> 00:02:15.380
So anyway, it has nothing to do with the book.

21
00:02:15.380 --> 00:02:45.380
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

22
00:02:45.380 --> 00:02:59.380
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.

23
00:02:59.380 --> 00:03:11.380
Anyway, but the book talks about the double standard involved with homes as opposed to businesses.

24
00:03:11.380 --> 00:03:18.380
If you own a business and you have shareholders and your properties are underwater,

25
00:03:18.380 --> 00:03:28.380
your fiduciary duty will be to hand the keys to the mortgage company

26
00:03:28.380 --> 00:03:33.480
because that's the prudent financial thing to do and so that's what you're

27
00:03:33.480 --> 00:03:40.260
encouraged to do but if you're an individual suddenly you're not supposed

28
00:03:40.260 --> 00:03:46.580
to do that even though you may if you can pay you're supposed to pay till the

29
00:03:46.580 --> 00:03:54.180
bitter end none other than Henry Paulson said that if you didn't pay you are a

30
00:03:54.180 --> 00:04:02.180
You're a greedy speculator, and what kind of message would you be sending to your children, and that sort of thing.

31
00:04:02.180 --> 00:04:07.180
And I thought there was, again, a double standard at work there.

32
00:04:07.180 --> 00:04:15.180
Don't individuals have a fiduciary duty, not to themselves, you can't have a fiduciary duty to yourself.

33
00:04:15.180 --> 00:04:20.180
Fiduciary duty means that you have a duty to someone else,

34
00:04:20.180 --> 00:04:27.140
But, don't you have a fiduciary duty to your family, for instance?

35
00:04:27.140 --> 00:04:34.540
Why should your family go without potential well-being, college educations, those kind

36
00:04:34.540 --> 00:04:39.980
of things, because you're paying $4,000 on a mortgage when you could walk away and maybe

37
00:04:39.980 --> 00:04:42.580
pay $1,000 down the street.

38
00:04:42.580 --> 00:04:50.880
So anyway, I explore that in the book, and then I bring in some Rothbard about, you know,

39
00:04:50.880 --> 00:04:58.920
Murray says that private parties should always honor their debts, but then again, the entities

40
00:04:58.920 --> 00:05:05.380
that you're paying your debts to, Fannie, Freddie, B of A and the like, have, in Rothbard's

41
00:05:05.380 --> 00:05:10.980
Howard's words have been funded illicitly.

42
00:05:10.980 --> 00:05:18.820
And he says that any dealings with the state should be done on a pragmatic basis.

43
00:05:18.820 --> 00:05:23.980
So he also made the point that government debt should be repudiated.

44
00:05:23.980 --> 00:05:31.180
And if it shouldn't be repudiated, then at least the government should be put into bankruptcy.

45
00:05:31.180 --> 00:05:39.240
So taking this idea a little further and walk away, I said, well, imagine if we put Fannie

46
00:05:39.240 --> 00:05:45.320
Mae, Freddie Mac, B of A, and the rest of the bailed out, too big to fail banks, if

47
00:05:45.320 --> 00:05:51.040
we put them in bankruptcy, as they should be, what would that mortgage paper trade at?

48
00:05:51.040 --> 00:05:54.460
Would it trade at 100 cents on the dollar?

49
00:05:54.460 --> 00:05:59.360
Because that's the way they're acting when they won't negotiate with people who are cornering

50
00:05:59.360 --> 00:06:05.400
on their mortgages, even though the mortgages may be underwater.

51
00:06:05.400 --> 00:06:06.560
And I don't think that it would.

52
00:06:06.560 --> 00:06:12.680
I think that the mortgage paper would trade at pennies on the dollar, and the buyers of

53
00:06:12.680 --> 00:06:21.160
that paper would be able to quickly, they would quickly seek out the owners of the home,

54
00:06:21.160 --> 00:06:24.120
the payers of the mortgage and say, let's make a deal.

55
00:06:24.120 --> 00:06:27.680
You owe 400, the house is worth 200.

56
00:06:27.680 --> 00:06:34.020
I'm going to, you know, I bought your mortgage for $100, let's make a deal at $150 or $180

57
00:06:34.020 --> 00:06:36.280
and let's move on.

58
00:06:36.280 --> 00:06:40.520
And that's essentially the case that I made.

59
00:06:40.520 --> 00:06:46.740
There was all kinds of reasons why people weren't supposed to walk away from their mortgage

60
00:06:46.740 --> 00:06:55.260
involving their neighbors, supposed to, you know, if you walk away from your mortgage,

61
00:06:55.260 --> 00:07:01.460
The property values of your neighbors will go down, and of course, that's not very libertarian

62
00:07:01.460 --> 00:07:04.860
to sacrifice for your neighbors anyway.

63
00:07:04.860 --> 00:07:12.460
But also, I bring into Murray's slander argument that nobody owns their reputation in themselves,

64
00:07:12.460 --> 00:07:17.300
and you also don't own the reputation in your, the value of your home, and that's what the

65
00:07:17.300 --> 00:07:24.100
market value is, essentially is a reputation, so it's an interesting argument there.

66
00:07:24.100 --> 00:07:35.100
I will also say, if you can pay, you should pay, again I compare that to the argument for progressive taxation,

67
00:07:35.100 --> 00:07:42.100
the idea that if you can pay, you should pay, and I don't think it's a very compelling argument to say that.

68
00:07:42.100 --> 00:07:48.100
Also, if you can pay, what's it mean that you can pay? You get two jobs, three jobs,

69
00:07:48.100 --> 00:07:58.100
And in the case of Weimar Germany, should everybody in the household sell themselves into prostitution to pay the bills?

70
00:07:58.100 --> 00:08:05.100
So, I talk about that as well.

71
00:08:05.100 --> 00:08:10.100
And there's some benefits to walking away. You lower your personal debt.

72
00:08:10.100 --> 00:08:13.100
You probably can't get any more for a while.

73
00:08:13.100 --> 00:08:17.100
And that's a good thing. Mortgage debt is non-productive.

74
00:08:17.100 --> 00:08:22.100
I talk a little bit about houses versus cars, because you get that argument too.

75
00:08:22.100 --> 00:08:26.100
If you buy a car, the minute you roll off the lot, it goes down in value.

76
00:08:26.100 --> 00:08:28.100
Doesn't mean you walk away from your car.

77
00:08:28.100 --> 00:08:36.100
But car loans amortize the way that the value of cars do.

78
00:08:36.100 --> 00:08:40.100
So you can't make that direct comparison.

79
00:08:40.100 --> 00:08:47.500
Also, I talk about houses being a higher-order good in the Austrian sense.

80
00:08:47.500 --> 00:08:50.540
There's been a bit of argument about that.

81
00:08:50.540 --> 00:08:54.820
And I would contend the land and entitlements

82
00:08:54.820 --> 00:09:03.380
make it a long-term higher-order good that's subject to the speculation.

83
00:09:03.380 --> 00:09:06.780
I bring in the financial self-defense argument.

84
00:09:06.780 --> 00:09:15.700
Again, libertarians will say that you can protect yourself through self-defense, and

85
00:09:15.700 --> 00:09:21.380
if that would imply being able to have a gun and protect your property, then why can't

86
00:09:21.380 --> 00:09:28.020
you protect yourself from a bailed-out financial institution who won't negotiate with you on

87
00:09:28.020 --> 00:09:30.420
your house?

88
00:09:30.420 --> 00:09:37.340
And I essentially close the book with the idea that no obituary will ever read.

89
00:09:37.340 --> 00:09:46.040
He was a good man, he was a ethical man, his family starved, but he made every payment

90
00:09:46.040 --> 00:09:49.380
on time to Fannie Mae.

91
00:09:49.380 --> 00:09:53.140
I don't think it would happen that way.

92
00:09:53.140 --> 00:10:00.700
The interesting part of the book was, for me, was the research in how the United States

93
00:10:00.700 --> 00:10:06.420
government sold the idea of home ownership, beginning with Herbert Hoover, followed by

94
00:10:06.420 --> 00:10:08.460
FDR.

95
00:10:08.460 --> 00:10:09.800
It's a very interesting story.

96
00:10:09.800 --> 00:10:17.100
It's been carried through to, of course, Bush 41, Bush 43, and, of course, Bill Clinton.

97
00:10:17.100 --> 00:10:24.960
So, it's a big chunk of the book in the middle, and I think it's very interesting.

98
00:10:24.960 --> 00:10:27.080
This is not a problem that's going to go away.

99
00:10:27.080 --> 00:10:34.180
As of yesterday, CoreLogic came out and said 23% of all mortgaged homes are underwater.

100
00:10:34.180 --> 00:10:39.500
That's 11 million households, and that's up from the previous quarter.

101
00:10:39.500 --> 00:10:47.020
And in the case of, say, Las Vegas, 75% of the homes in Vegas are underwater.

102
00:10:47.020 --> 00:10:52.020
And there are only nine states where the recorded percentages are less than 10 percent.

103
00:10:52.020 --> 00:10:56.740
This problem isn't going to go away, people are going to think about this more and more,

104
00:10:56.740 --> 00:11:01.220
and so I think it's a very relative book.

105
00:11:01.220 --> 00:11:03.220
It is the cheapest book.

106
00:11:03.220 --> 00:11:09.460
It is the cheapest book on this panel.

107
00:11:09.460 --> 00:11:16.080
I get no royalties, buy a hundred of them and burn them up somewhere, benefits me, doesn't

108
00:11:16.080 --> 00:11:20.360
benefit me, it only benefits the Ludwig von Mises Institute.

109
00:11:20.360 --> 00:11:24.240
So it's also the shortest book.

110
00:11:24.240 --> 00:11:28.600
So it's cheap and it's short, written by the heaviest guy

111
00:11:28.600 --> 00:11:30.920
on the panel.

112
00:11:30.920 --> 00:11:34.160
But please give it some thought.

113
00:11:34.160 --> 00:11:40.840
I think it's rated currently on Amazon at $1,641,000.

114
00:11:40.840 --> 00:11:41.640
Do what you can.

115
00:11:46.080 --> 00:11:48.080
Thank you very much.