Just Drop off the Key Case Study discussion case 1.2 (“Just Drop Off the Key, Lee”, Shaw pp 33 – 34) ( read the case and respones) This should be analyze a
Just Drop off the Key Case Study discussion case 1.2 (“Just Drop Off the Key, Lee”, Shaw pp 33 – 34) ( read the case and respones) This should be analyze and argumentative essay, 1 single pages minimum 500 word. Please base on the Morality, Normative Theories of Ethics, Justice, Economic Distribution, the Nature of Capitalism to write essay. base on what my professor want, don’t answer the questions at the end of the reading. The questions can spark your ideas – but what he want is for you to take a position on the case study. What do you think would be the moral thing to do? Do you agree or disagree with what the people did and why? That kind of thing.These responses will be graded on clarity of argumentation (yes, these responses should be argumentative!) as well as your usage of the moral theories we have learned in the course. It ought to go without saying, but I will say it anyway, that the usual cannons of good academic writing apply in the case of CSRs just as they do for every piece of work you submit to a university level course – so, you are expected to spell words correctly, format your assignments in a rational way, and make use of citations where appropriate.The most important feature of your grade, however, is your use of the assigned theory. Merely mentioning a moral theory is not enough so, for example, if you think that raising the minimum wage would be the correct course of action for utilitarian reasons, then you ought to proceed to give an argument why utilitarians in particular should agree with you. That is, you should argue not just that raising the minimum wage would be nice, or make people feel good, but that it would have the best consequences (this line of thinking will make sense when we cover what Utilitarianism is). Moreover you should be specific about what those consequences would be, and why they support your conclusion. CHAPTER ONE THE NATURE OF MORALITY
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Just Dropske ce
HINDSIGHT, THEY SAY, IS 20/20. So, in retrospect, it is
not so surprising that the boom in real estate prices of just a few
years ago was followed by a painful collapse. Encouraged by low
interest rates and a willingness of banks to lend money to almost
anybody, many people had jumped into the housing market,
sometimes buying expensive homes with mortgages they could
barely afford, based on the belief, celebrated in televisions shows
like “Flip This House,” that housing prices would continue to go
up and up and up. But the law of gravity applies to housing prices,
too, it seems. Inevitably, the housing market cooled down, and
housing prices stopped rising; then they slowly reversed direc-
tion and began steadily declining. As a result, many people found
themselves making mortgage payments on homes worth far less
than what they had originally paid for them. Moreover, many of
them had been talked into taking mortgages they didn’t really
understand, for example, mortgages with adjustable rates or with
special “balloon” payments due after a few years, or that were too
expensive for them to afford in the first place. The financial crisis
of 2008 and the recession that followed only made things worse.
Faced with monthly payments they could no longer sustain, these
borrowers lost their homes through foreclosure. Widespread
foreclosures, in turn, drove housing prices even lower, leaving
more and more homeownersby 2010 an estimated 5.4 million
of them “under water,” that is, with mortgage balances at least
20 percent higher than the value of their homes.
Consider thirty-year-old software engineer, Derek Figg. He paid
$340,000 for a home in the Phoenix suburbs. Two years later, its
value had dropped to less than $230,000, but he still owed the bank
$318,000. As a result, Figg decided to stop paying his mortgage,
defaulted on his loan, and walked away from his home. Or consider
Benjamin Koellmann. He paid $215,000 for an apartment in Miami
Beach, which three years later was worth only $90,000. Although still
paying his mortgage, he is thinking about following Figg’s example.
What distinguishes Figg and Koellmann from many other
homeowners whose homes are under water or who are in
mortgage trouble is that both have good jobs and could afford
to keep making their monthly payments-if they chose to.
Moreover, they are smart guys and knew what they were doing,
or thought they did, when they bought their homes. However,
figuring that it would take years for their properties to regain
their original value and that renting would be cheaper, they
are among a growing number of homeowners who have either
walked away from their mortgages or are considering it, not
out of necessity, but because doing so is in their financial
interest. Experts call this “strategic default. Or, in the words
of an old Paul Simon song, Just drop off the key, Lee, and get
yourself free.”
As any financial advisor will tell you, there are lots of good
reasons not to default on a mortgage. A foreclosure ruins a con-
sumer’s credit record for seven years, and with a low credit score,
one must pay a higher interest rate on auto and other loans.
Moreover, some states allow lenders to seize bank deposits and
other assets of people who default on mortgages. Benjamin
Koellmann also worries that skipping out on his mortgage might
hurt him with a future employer or diminish his chance of being
admitted to graduate school. Still, there’s no denying that for
some borrowers simply mailing in the keys and walking away can
make sense. But that leaves one question unanswered: Do they
have a moral responsibility to meet their financial commitments?
The standard mortgage loan document that a borrower
signs says, I promise to pay” the borrowed amount. A promise
is a promise, many people believe; they think you should keep
making your mortgage payments even if doing so is inconve-
nient. In fact, 81 percent of Americans agree that it is immoral
not to pay your mortgage when you can. George Brenkert,
professor of business ethics at Georgetown University, is one of
them. He maintains that if you were not deceived by the lender
about the nature of the loan, then you have a duty to keep
paying. If everybody walked away from such commitments, he
reasons, the result would be disastrous. As Paola Sapienza,
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PART ONE MORAL PHILOSOPHY AND BUSINESS
For his part, Derek Figg admits that defaulting was the
“toughest decision I ever made.” Still, he faced a “claustrophobic
situation,” he says, because if ever he lost or quit his job, he
would have been unable to sell his house and move somewhere
else. Moreover, he says, lenders manipulated” the housing mar-
ket during the boom by accepting dubious appraisals. When I
weighed everything,” he says, “I was able to sleep at night.”25
DISCUSSION QUESTIONS
1. What would you do if you were in Figg’s or Koellmann’s
situation? What factors would you consider?
a finance professor at Northwestern University, points out, each
strategic default emboldens others to take the same step, which
he describes as a “cascade effect” with potentially damag-
ing consequences for the whole economy. Economist David
Rosenburg adds that these borrowers were not victims. They
“signed contracts, and as adults should be held accountable.”
Others disagree. Brent White, a law professor at the University
of Arizona, says that homeowners should base the decision
whether to keep paying or walk away entirely on their own inter-
ests “unclouded by unnecessary guilt or shame.” They should
take their lead from the lenders, who, he says, ruthlessly seek
to maximize profits or minimize loss irrespective of concerns of
morality or social responsibility.” People who think like Professor
White also argue that the banks fueled the housing boom in the
first place by loaning money, based on unrealistic appraisals of
home values, to people who were unlikely to be able to keep up
their payments in order to resell those loans to other investors.
Others suspect a double standard. Homeowners are criticized for
defaulting but businesses often declare bankruptcy even when
they have money in the bank and could keep paying their bills. In
fact, doing so is often thought to be a smart move because it trims
their debt load and allows them to break their union contracts.
Benjamin Koellmann, for his part, remains conflicted. “People
like me are beginning to feel like suckers. Why not let it go in
default and rent a better place for less?…There is no financial
sense in staying.” Still, he struggles with the ethical side of the
question: I took a loan on an asset that I didn’t see as overvalued,”
he says. “As much as I would like my bank to pay for that
mistake, why should it?” John Gourson, chief executive of the
Mortgage Bankers Association, concurs with this. In addition, he
says, defaulting on your mortgage and letting your home go into
foreclosure hurts the whole neighborhood by lowering property
values. He adds: “What about the message they still send to
their family and their kids and their friends?”
2. Do people have a moral obligation to repay money that
they borrow, as Professor Brenkert thinks, or is this simply
a business decision based on self-interest alone, as
Professor White thinks?
3. It is morally permissible for homeowners whose homes are
under water to default on their mortgages even if they could
continue to pay them. What arguments do you see in favor
of this proposition? What arguments do you see against it?
4. When it comes to paying your debts, does it matter
whether you borrow money from a bank or from an
individual person? Explain why or why not.
5. Suppose your moral principles imply that you should keep
on paying your mortgage, but financial self-interest coun-
sels you to walk away. How are you to decide what to do
6. Repaying a loan is a legal obligation. Is it also a moral
obligation? Explain why or why not.
7. Are the banks responsible for the housing boom that
enticed people to buy homes at inflated prices? If so, does
this affect whether you have an obligation to repay your
loan? What about Professor White’s contention that the
banks themselves care only about maximizing profit?
Date
Percentages
2005
2006
2007
2008
2009
Below 1%
?
2010
2011
2012
From 1% to 2%
2013
X
?
From 2% to 3%
From 3% to 4%
X
From 4% to 5%
?
?
?
?
U.S. foreclosure rates in recent years, in percentages
X
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