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A recent essay in the NY Times Magazine, written by Roger Lowenstein, had this recommendation for homeowners who are "underwater" with their mortgages:

Time was, Americans would do anything to pay their mortgage -- forgo a new car or a vacation, even put a younger family member to work. But the housing collapse left 10.7 million families owing more than their homes are worth. So some of them are making a calculated decision to hang onto their money and let their homes go. Is this irresponsible?

Businesses -- in particular Wall Street banks -- make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral -- perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials.

Which is exactly his point. Why should the average American be treated any different from the average corporation when it makes a business decision?

And yet multi-gazillion-aire Hang Paulson wants us to act differently:

Former Treasury Secretary Henry M. Paulson Jr. declared that "any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator -- and one who is not honoring his obligation." (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)

Imagine how the banks would act if we average Americans walked out all together? Think they would re-negotiate the terms of the contract?

Homeowners operate under a "powerful moral constraint" while lenders are busily trying to maximize profits. More important, it might get the system unstuck. If lenders feared an avalanche of strategic defaults, they would have an incentive to renegotiate loan terms. In theory, this could produce a wave of loan modifications -- the very goal the Treasury has been pursuing to end the crisis.

Voila! Treat the housing market like the business it really is, and suddenly you'd get a much quicker return to normalcy.

Listen up bankers! You won't know what hit you once us customers get our acts together!!

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