I was struck recently by the contrast between individuals discussing the personal moral obligation to keep paying the mortgage on a home that is "under water" (they owe much more to the bank than the home is currently worth) and business advice encapsulated in this New York Times Headline:
Fire Your Relatives. Scare Your Employees. And Stop Whining.
So this business consultant's approach is to be clear-eyed, unsentimental, and focus always on bottom line business principles. In contrast, we have a discussion about consumers strategically defaulting on a home loan, and part of the topic is whether it's morally wrong to do so. Meanwhile, the entire financial system is depending on all of those homeowners continuing to make their payments, feeling bound by more than a clear-eyed, unsentimental focus on bottom line principles. (Last November it was estimated that nearly one in four American homes are underwater.) Here's an analysis by Richard Thaler. Should banks be guided by different principles than people? If so, is that in some way unfair?
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