Sequoia Fund head Roger Lowenstein says it's OK for people whose homes are underwater to walk away from their mortgages.
"Businesses — in particular Wall Street banks — make such calculations routinely," Lowenstein writes in The New York Times magazine.
"Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged."
"Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with,” Lowenstein notes.
“But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials."
Yet government pressure on homeowners continues.
For example, HUD-approved housing counselors are supposed to counsel people against foreclosure.
“In many cases, this means counseling people to throw away money,” Lowenstein points out, adding that market societies do not hold people responsible the economic effects of their actions.
“Every oil speculator helps to drive up gasoline prices,” Lowenstein says.
Every hedge fund that speculated against a bank by purchasing credit-default swaps on its bonds signaled skepticism about the bank’s creditworthiness and helped to make it more costly for the bank to borrow, and thus to issue loans.
“We are all economic pinballs, insensibly colliding for better or worse.”
The Commodity Futures Trading Commission is expected to set up limits on oil, gas and other energy futures contracts, the Financial Times reports, a job that is currently delegated to exchanges such as the New York Mercantile Exchange.
The new rules would address the system of exemptions from existing limits that many Wall Street banks enjoy, differentiating them from so-called “bona fide hedgers” such as oil companies.
Details are still being worked out and could change before public release.
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