Just and Christian Arguments

In today’s Times, Bank of America explains why there can’t be any principal reductions for homeowners who aren’t already in default:

Bank of America executives said on Tuesday that the idea was unworkable and warned that it would be unfair to borrowers who had managed to stay current on their loans. “There’s a core problem that if you start to help certain people and don’t help other people, it’s going to be very hard to explain the difference,” said Brian T. Moynihan, the chief executive of Bank of America. “Our duty is to have a fair modification process.”

Of course. Bank of America isn’t interested in maximizing the payments it receives from homeowners, it’s just trying to be fair.

Even the most outspoken attorney general on the issue, Tom Miller of Iowa, acknowledged on Monday that too generous a program might encourage homeowners to walk away from properties where the value of the loan exceeded how much the underlying property was worth.

God forbid that homeowners be encouraged to act in their own financial self-interest!

“There may be as much as $1 trillion worth of mortgages that are underwater,” said Terry Laughlin, the Bank of America executive whose unit, Legacy Asset Servicing, handles mortgages that are delinquent or in default. “What do you do for those borrowers that have a job but have negative equity and have paid on time and honored their obligations?” “This is an unsolvable question,” he said. … The comments by Mr. Moynihan and Mr. Laughlin came at a daylong meeting with investors and analysts in New York, the first of its kind for Bank of America since 2007. … Writing down billions of principal now could actually retard the recovery by encouraging borrowers to default, they argue. “It’s not that we don’t want to help troubled borrowers,” Mr. Laughlin said. “It’s a moral hazard issue.”

One’s heart goes out to those Bank of America executives, tossing and turning all night as they wrestle with the unsolvable question of how to help borrowers without imperiling the recovery or creating “moral hazard”. The profound ethical dilemmas our betters must struggle with, as they try to do what’s best for everyone. Laughlin, Moynihan and their fellow Bank of America executives must hardly have time to think about the “$35 to $40 billion a year” of profits they’re expecting in coming years. Including — much to their dismay, no doubt — the payments from those homeowners whose principal they would love to write down, if only it weren’t for their strict regard for fairness and the good of the economy.

Where have I read about such scrupulously ethical creditors before? Oh, right, here:

Don Ramon … made no secret of the business he conducted. … The Mexican citizen, he explained, was free. Slavery was strictly forbidden and severely punished. No Mexican citizen, whether of Spanish, mestizo, or Indian descent, could be kept or sold as a slave.

But debt was not slavery. A man, any man, was as free to contract debt as not to contract it… Nobody compelled the Indian to get into debt, to drink, to set off fireworks in honor of the saints, or to buy his wife necklaces of glass beds and glittering earrings. There was no reason to call Mexico uncivilized because the dictatorship recognized debt and supported the creditor in exacting payments. He who has contracted a debt must pay it…

“And over and above all that, and however you look at it,” don Ramon went on, putting forward the just and Christian argument for his trade, “the monterias and coffee plantations must have labor if the prosperity of the country is to be maintained… It’s all aboveboard. There’s no compulsion. But all the same it is made clear that debts must be paid. Business depends on convincing the people that their debts must be paid.”