Friday, March 5, 2010

I'm Mad at You Because I Didn't Pay You Back, Part II

If someone did not pay back a loan to me, I would get mad at them. Imagine someone directing anger and hostility towards me because they did not pay me back!

In my post from April 2008, I'm Mad at You Because I Didn't Pay You Back, I discussed the absurd spectacle of the national outpouring of hostility directed at banks because many mortgagee's couldn't pay their loan backs. This recent article describes a particularly egregious example of this phenomena where a janitor was evicted from "her" home for not paying her mortgage but then, in a supposedly ironic twist, found herself cleaning up after the CEO of the bank who foreclosed on her.

In our culture today, this story is held out as a prima facie example of twisted moral irony wherein the poor helpless janitor, evicted from her home by this perpetrator of evil, must suffer the double injustice of now having to serve her feudal overlord. As the article states:

The Service Employees International Union, of which Gomez is a member, could not resist the opportunity to draw attention to the soon-to-be-evicted woman cleaning up after one of the bankers taking her home away. [emphasis mine]

I have an alternative take.

The bank loaned her money to buy a home which she did.

In 2006, Gomez said she and her husband went to Chase for a refinancing. Gomez said she thought they'd gotten a fixed-rate mortgage and they were shocked to learn in October 2008 that the rate would adjust. The monthly payment would jump by $100, and then it would jump again in six months. Gomez said that she and her husband stopped making mortgage payments last year. They filed for Chapter 7 bankruptcy in May.

First, the home is not "her home" until she pays for it. Until then, it is the bank's home. That is why it is called a mortgage contract.

Second, I have sat through about a dozen home closings in my time. When one enters into these contracts, you must sign about 10,000 documents in quadruplicate attesting to understanding every single page. Yet, she was "shocked" to learn that she was entering into an adjustable rate mortgage. Despite that, she simply stopped paying. Some people would break her legs for that, but, in America, you just declare bankruptcy, and all is forgiven.

But, evidently, it got worse for her. After not paying the bank back, she then had to suffer the indignity of being employed by the CEO. Oh, the injustice - he provided a job for her to earn a salary. Do these evil CEO's ever stop?!

Gomez said she was glad she'd won the postponement, but she and her husband have already rented an apartment. She said they hope to move back. In the meantime, she said the transition has been tough on her family.

"We have a boy and he used to have his own room," she said. "It broke our hearts to tell him we're moving to a one-bedroom apartment because that's all we can afford. The bedroom is for us and you have to sleep in the living room."

Imagine that. She had to move to a one-bedroom apartment which was within their budget. When I was a kid, I lived in nothing but apartments, including a stint where we lived in my mother's car. I was happy to have a roof over my head.

I have an idea. Perhaps, Gomez, in addition to not paying back the loan, could accept her paycheck and NOT do any janitorial work. Then she could be really, really, mad!

8 comments:

Mike said...

I know it's just a technicality, but having a mortgage does not actually mean that the bank owns the house. The mortgage is not the actual loan, though in shorthand that's how we refer to it these days. The mortage is the promise of payment of the loan. The promise, not the loan, is secured by the house. The house isn't being held in trust or rented-to-own or anything. Technically, it was her house, just as my mortgaged house is mine, but it ceased to be her house when she deliberately ceased performing on the contract (in other words, missed a payment other than by mistake). Simply put, she lost the house to the bank when she broke her promise. That breach triggered the remedy in the contract that converts the bank's collateral interest on the house into ownership interest.

You are entirely correct in all other respects, of course, including the underlying principle of the matter. I just hope this lends some granular clarity to your illustration, because I think it's important to show that Gomez's "loss" of her house occurred as a consequence of EXACTLY ONE ACT, which was her breaking of her promise to pay back the loan.

The article you quoted does a great job of avoiding that very point every way it can. It does everything from arbitrarily calling for "higher wages" for unskilled janitorial labor -- provided by blank-out of course -- to praising the union for successfully coercing Chase to the bargaining table, to shifting responsibility for the whole fracas to Gomez's health insurer.

Doug Reich said...

Mike,

Excellent point. You are exactly right. I roughed over this technicality to answer the article's implication that it is "her home" as if the obligation to pay the bank was some onerous or extraneous sidenote. Thanks much for the clarification.

Doug

Harold said...

Like you, I grew up living in apartments and even now, I choose to rent one. Buying a house is not a game.

I wasn't able to open the "This recent article" link.

Doug Reich said...

Harold,

I fixed the link. Thanks!

madmax said...

Doug,

This is off topic, but I was wondering if you have seen this book:

http://www.amazon.com/Free-Trade-Doesnt-Work-Replace/dp/0578048205/ref=sr_1_2?ie=UTF8&s=books&qid=1267824576&sr=1-2

Fletcher argues that Ricardo's comparative advantage is wrong and that "Free Trade" is failing America. He believes a tariff is necessary for the US to be competitive. He also argues that Austrian economics is wrong.

The reason I bring it up is that it is big with not only Progressives but with many Conservatives especially the anti-immigration PaleoCons who are trumpeting it loudly.

I was wondering if you were familiar with Ian Fletcher and the Joseph Schumpeterian "evolutionary" economics approach that he is influenced by.

Doug Reich said...

MM,

I am not familiar with this book but I looked it over and looks like worthy of a post so thanks for putting me on to it. will give it a thorough read and get back to you.

Just from skimming through it looks like pretty standard, typical stuff. The externalities argument is typical and he claims to rely on "Krugman" which should be the ultimate red flag.

These guys are kind of a neo-mercantilist theory - "the trade deficit is evil, we import more than export...oh no!!!" and "china can pollute (externalities) so their costs are lower and we can't compete..."

usually a failure to understand fundamentals

thanks

madmax said...

Doug,

Thanks for the reply. I'm going to read the book too. I look forward to your view on it. I too thought that it sounds like neo-Mercantalism. Also, I would love to know exactly what these people mean by "free trade". What is their definition of free?

It seems that there is a common view, a view which I am tempted to say is metaphysical, that individual freedom is harmful for society. Leftists usually argue that if individuals are left free in the economic realm than society is doomed (ie global warming, bank meltdowns, etc in their view). Conservatives will say this with regard to the realm of personal freedoms (ie gay marriage, abortion, etc - all will destroy the moral foundation of society and end Western Civ. etc, etc.). The idea that individual freedom is essential for civilizational success is rejected by these people. This is frustrating to say the leas.

Doug Reich said...

Madmax,

Check this out:

http://aynrandlexicon.com/lexicon/conservatives_vs_liberals.html