White, however thinks the real question is about who is better able to shoulder the loss: Individuals or banks? "Many economists would argue, and I tend to agree," White said, "that it would be better to shift those losses to the banks who could better bear them than to the individuals, who because of this burden, don't spend, can't move to take better jobs, and it is a long prolonged drag on the economy."
The back-and-forth moral and business arguments of White and Zingales are familiar to business consultant and ethics author Quinn McKay.
McKay said most people live by two different moral standards. One is "personal ethics" — where people try to be honest in all they do. The other is "gaming ethics" — a different standard found in sports and games where players deceive and take advantage of opponents' weaknesses. "If business is a competitive game, then I suggest gaming ethics is appropriate for business," McKay said.
But is business a gaming ethics situation?
"If a business chooses to use gaming ethics, they should let their customers know and let them play by the same rules," McKay said. "If you argue that this is a competitive game and we are playing by gaming ethics, then I think (White) is absolutely right. If you think we live all of our life by personal ethics, then (Zingales) is right."
The danger of making moral decisions doesn't come from choosing between good and evil, McKay said, but from between two rights — when two right principles come in conflict with each other. He said in the mortgage situation the "promise to pay the mortgage" comes into conflict with "doing what is best for family finances." "Both are right principles," he said.
Add pressure to the mix and McKay said people have more difficulty making a better choice. "Sometimes these pressures get overwhelming and causes us to justify things we otherwise find morally repugnant."
Although Zingales thinks it is better for society if people keep their promises when their circumstances allow it, he also doesn't think the status quo is a good situation.
He proposes a law requiring banks to lower the mortgage amount to what homes are currently worth. The banks would then be entitled to 50 percent of the appreciation on the home. Even White has expressed his approval of Zingales' plan, but it hasn't been adopted yet. "It hasn't gotten any traction because it is fair solution," Zingales said. "There isn't a big winner, and without a big winner there isn't a big lobbyer for that solution."
Meanwhile Smith stays in his home in West Jordan. He continues to pay off the mortgage and works to rebuild his financial life. For him the ethical and moral considerations boiled down to his 13-year-old girl and 11-year-old boy. "We could have walked away very easily. We decided we were going to stay because of stability reasons — for keeping our kids in their school, keeping them near their friends. We didn't want to make those big changes," Smith said. "Every payment just goes to interest or buys down the amount I owe. But maybe I'll catch up in a few years."
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