Tuesday, April 13, 2010

Sanctity of Contract for Thee, But Not for Me

I was going to caption this photo, but someone else has already done a better job than I could possibly hope to do.
News (hat tip to John Cole):

With millions of homeowners losing their homes to foreclosure during this recession, megabank JPMorgan Chase plans to argue against the Obama administration’s latest weapon in its fight to stem the problem—principal cuts for struggling borrowers—by citing the sanctity of contracts and the borrower’s “promise to repay.”
Morgan? Yes not that Morgan, but here's the other Morgan:

Dec. 17 (Bloomberg) -- Morgan Stanley, the securities firm that spent more than $8 billion on commercial property in 2007, plans to relinquish five San Francisco office buildings to its lender two years after purchasing them from Blackstone Group LP near the top of the market.


The San Francisco transfer would mark the second real estate deal to unravel this year for Morgan Stanley, which bet on the property markets as prices were rising. The firm last month agreed to surrender 17 million square feet of office buildings to Barclays Capital after acquiring them for $6.5 billion in 2007 from Crescent Real Estate Equities. U.S. commercial real estate prices have dropped 43 percent from October 2007’s peak, Moody’s Investors Service said last month.


“This isn’t a default or foreclosure situation,” Barnes said. “It is a negotiated transfer to our lenders.”

I hope Barney Frank opens hearings by saying "we're don't want to encourage any defult or foreclosure situation. We're trying to help homeowners negotiate a transfer to their lenders." That would put the hearings into language that Morgan's top brass could understand.

To review the lessons of the past few years: when management has to reneg on pay or benefits in a union contract, that's just facing reality. When Morgan surrenders office buildings to lenders, that's just bidness. But you, the individual mortgage holder! How dare you walk away from your promise to pay! Heaven forfend that circumstances put you in a situation where the decision that makes the most financial sense is to stop paying the morgate, become a renter, and wreck your credit rating. You must continue your unsustainable monthly payments on a house no longer worth the principal on your loan!

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