Bailout

The ethics of walking away, cont.

By Felix Salmon

Yesterday, I asked Megan McArdle how much of one’s life?s savings should be given to the bank before they take one’s house. She answers, gratifyingly, that in the particular case I was writing about, “obviously he should have walked away immediately.” Good, we’re in agreement on that. If you’re going to lose your house, best just to lose your house, rather than to lose your house and your savings.

But then, puzzlingly, Megan asks “what Felix thinks this has to do with people who decide to default on their mortgages so that they’ll have more money to spend on cruises and new furniture”.

Um, everything? If you have savings, you can spend that money on cruises or new furniture or anything else you like. If Tom Vellucci had walked away immediately, as Megan says he should have done, then he would have thousands of dollars in the bank. And good libertarian that she is, I’m sure she wouldn’t mind him then spending that money on a cruise, if that’s where he thought his money would be best spent. Once he’s saved his money, it’s up to Tom Vellucci, and no one else, where he spends it. Or is Megan saying that he should walk away from his mortgage obligations only if he doesn’t spend his savings on furniture or cruises?

Full post as published by Macroprudential on December 30, 2009 (boomark / email).