10. Conclusion

CHAPTER

TEN

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Conclusion

“Economic interventionism is a self-defeating policy,” Ludwig von Mises wrote in Bureaucracy. “The individual measures that it implies do not achieve the results sought. They bring about a state of affairs, which—from the viewpoint of its advocates themselves—is much more undesirable than the previous state they intended to alter.”

Professor White argues that the current negative equity problem is “market failure,” but of course this isn’t a market failure at all, but the result of decades of continuous government intervention to promote individual home ownership and the financing of those homes. These policies have led to government standardization of neighborhoods and virtually a complete government takeover of the financing of homes.

Government guarantees have become the entire secondary mortgage market and gave birth to the securitization of mortgages that provided the incentive for lenders to relax underwriting guidelines going into mortgage transactions and the disincentive for lenders to negotiate with borrowers as market conditions and circumstances changed.

No libertarian argues that one has a moral duty to pay their taxes. However, virtually all libertarians pay their taxes. The penalties for not paying taxes are too harsh. The cost of government harassment is considered high by most people, eventually the government will place a lien on your assets in order to be paid and ultimately prison awaits those who thumb their nose at Uncle Sam.

You may say to yourself, “taxes are different than mortgages,” no matter that housing has been a government agenda for nearly a century and that a 30-year loan is an unrealistic government construct. A person enters into a mortgage voluntarily, while we are forced to pay taxes.

However, people pay property taxes because they choose to own property. People owe income tax to governments on the state, local and federal levels because they choose to earn income. Sales taxes are ladled on when we choose to purchase goods.

This is not the Ivory Tower. In the real world, we know the taxman waits around the corner of every voluntary decision we make. So the rational person, seeking to better his or her circumstances, does everything possible to pay as little in taxes as possible.

Contrary to being considered immoral, libertarians consider paying the least amount possible to the state in taxes to be heroic. Tax money paid to the state wastes capital and not only makes the individual poorer but all of society as well. Yet some of these same libertarians contend that a person has a moral obligation to honor a financial obligation that is now owed either directly or indirectly to the state.

And while it’s possible that virtually all libertarians would quit paying taxes if the cost was that their credit would be ruined for a few years, that some jobs might not be open to them and that they would have to leave a home that they had grown attached to, those making the rational economic decision to hand Fannie Mae the keys to their underwater houses are demonized as acting immorally.

Strategic defaulters do not set out to defraud their lenders by taking the money and running. They made their payments and watched the value of their property sink. They approached their lenders to work out a compromise to no avail. In financial self-defense they are forced to walk away. Libertarians don’t believe in the initiation of physical violence, but they do support the idea of defending one’s person and property from aggression. By the same token, these libertarians should support the idea of defending one’s financial health and property.

These default moralizers expect everyone to live up to the moral standards of their utopian laissez-faire world, while on the other side of the transaction are government constructs that are maintained by force, violence and arbitrary changes in accounting rules. Ironically, the utopian libertarians end up preaching the same message that the big government bail-out apologists do—you must honor your obligations no matter what.

For individuals to make uneconomic decisions that are profoundly detrimental to their individual finances and well-being in order to make government bigger and more intrusive is directly contrary to the notion of freedom on every level.

There will be no salvation for those who sacrifice and put their financial futures at risk to remain current on an underwater mortgage. Whether you can pay or not, if it makes sense to walk away, that’s what a person should do.

No obituary will ever read, “He was a good and ethical man. He died broke, his family suffered, but he never missed a payment to Fannie Mae.”

To walk away is not a breach of freedom ethics. It might be the beginning of a rediscovery of those ethics, and a recapturing of the pioneering spirit of the old days, but with a digital twist.

We live in times when physical ownership is becoming ever less valuable as compared with the life we can create for ourselves in the world of digits that know no plots of lands and national borders. Just as capital itself became internationalized several decades ago, with great gains for freedom and prosperity, we might all follow that trend today, walking away from the mess that the state has made and creating a new life for ourselves that defies the impulse to control.