Voluntary Foreclosure

The otherwise completely forgettable movie Larry Crowne had one scene I found quite interesting. The eponymous protagonist, played by Tom Hanks in his blandest mode, is presented as an all-around good guy. He is gentlemanly, helpful, considerate, and in fact has no flaws except for the rather minor one which starts the little action there is in the movie: he did not go to college. In college he studies, among other things, economics, in a class taught by Lt. Sulu.

Studying economics leads Larry Crowne to the one interesting scene: he abandons his mortgage and returns his house to the bank. The bank representative warns him that this will hurt his credit, but he assures her that it is the right thing for him to do, and that he has the right to do it, provided he vacates the house in 30 days.

The U.S. is a country which famously agreed to pay all its debts when it was founded—the newly created federal government assumed the debts that the various states had accumulated during and before the War of Independence. In general American culture assumes that you are required to pay all your debts. Declaring bankruptcy is a sign of personal failure.

Apparently the financial crisis, and the stagnation of middle class income compared with the increasing price of housing, has now made it acceptable for a mainstream movie character to renege on his debt. This is of course a calculation that businesses make routinely, but not individuals. Admittedly voluntary foreclosure is not quite as bad as bankruptcy. After all, the bank does get the house, which is worth something although it is clearly understood that the bank does not want it.

Given the current main news story, I just have to hope that this acceptance of foreclosure does not carry over to thinking it is OK for the entire country to go into default.