The horizon is not so far as we can see, but as far as we can imagine

Master and Slave Morality

Just read a large piece on strategic defaults in the Huffington Post.  That is to say, walking away from bad mortgages you can’t pay off, especially when the value of the loan is more than the value of the house.  Most of them felt horrible for walking away.

The bottom line is this: there is one morality for masters and one for slaves. Your lords and masters, who have made you or are making you into a wage or debt slave, have one morality and you have another.  The masters don’t just walk away from bad debts, they force other people to pay the master’s debts off or they change the laws so that the masters debts don’t count.

It is, for them, a cold clear business decision. They do what is best for them, no matter what the cost to anyone else.  When dealing with the master class, you should operate in the same cold clear fashion: you do what’s best for you and if it hurts a corporation or a rich person, that’s their look out.

Trust me, that’s the way they do it.  The cost of the financial crisis is a millions of destroyed lives, including many many deaths.  You don’t see any of the people who caused it having moral crises over the fact that they caused a depression, do you?

As the sociopaths on Wall Street like to say, they eat what they kill.  What they don’t say is that what they kill, is you.  If you’ve lost your house, if you can’t afford your medicine, if your interest rates or the cost of your food has gone up, if someone you know has died due to poor or not health care, odds are high that’s because they made that choice, because that suffering pays for their bonuses, for their foie gras, vacations in the Hamptoms and so on.

It’s you or them, baby, and they’re determined it’s going to be you.  So keep acting like slaves, so they can dine off your suffering, misery and death.


The Egyptian Bottom Line


AOL Buys Huffpo


  1. Celsius 233

    Ian; It’s you or them, baby, and they’re determined it’s going to be you. So keep acting like slaves, so they can dine off your suffering, misery and death.

    You’re right! That and a buck will buy a cup of coffee.
    Americans have lost their souls and the Egyptians will lose.
    But at least the Egyptians went to the streets and put their lives on the line.
    Americans? Pathetic!

  2. Albatross

    There is so much about the master class/working class division that the working class does not, can not, or will not fathom.

    The working class simply doesn’t seem able or willing to comprehend the truly enormous discrepancy in wealth. I mean, they understand “they’re rich, we’re not,” but they don’t seem to understand in a real way what it means that some scumbag on Wall Street earns two BILLION dollars a year for playing computerized gambling with everyone’s money. The numbers are so big, they defy comprehension, but also there seems to be an unwillingness to try, an emotional resistance to even attempt to understand that one person, someplace, is stealing the wealth generated by hundreds of thousands of other people. Easier, instead, to gripe about welfare queens with Cadillacs, or illegal immigrants ‘stealing’ a $4/hour job – those numbers, at least, are comprehensible.

    I try to communicate this to people who appear to listen, but they don’t seem to be able to get it. I tell them “The wealthy have stolen SO MUCH wealth from America, that EVERYONE IN AMERICA IS BROKE. The reason you earn less than your father did for the same work is because the wealthy have TAKEN it, and they’re keeping it. The reason that we can’t repair roads and can’t pay for schools, and we can’t keep cops on the street and firefighters on the job is because the ultra-wealthy have TAKEN all the money for that and put it in their overseas bank.”

    It falls on deaf ears. It’s like denial is a safer place than facing the fact that we’re being ripped off and doing something about it. Why? I don’t know. Because the work and responsibility necessary to take that wealth back from the ultra-wealthy just seems impossible? Because getting involved, changing the laws back, resisting the lies of propaganda, and demanding economic justice, they all just seem too big or impossible?

    In part, it seems to be simple authoritarianism – Americans simply believe it is wrong to oppose power. You don’t complain about the wealthy stealing billions of dollars because it’s just not your place to do so. They’re wealthy, they must be smart or they wouldn’t BE wealthy, so don’t get out of line and mouth off, because at best you’ll just look stupid and at worst you’ll go to jail. Instead, shut up, work harder, and, well, not THIS year, but maybe NEXT year if the economy improves, maybe you might get a single-digit percent raise.

    And then there’s the unwillingness to believe the whole system could be wrong. Maybe it’s too frightening to believe that the only way that wealthy bankers on Wall Street could steal billions of dollars while workers are having their homes foreclosed out from under them is if the whole system is broken. Maybe the idea that we don’t have a working government, but instead a system of swindle and corruption, is that, again, the job of fixing it is incomprehensibly large.

    I don’t know – I’ve always had a higher risk-tolerance than everyone else, so it seems very natural to me to look at the U.S. and say “this is a collapsing, broken system that will result in gigantic social upheaval when it finally goes.” Other folks, maybe, need to start from the premise of “America will always persevere, smart folks are in charge looking out for us, laws protect us, and the world is basically fair.” Maybe challenging that idea is just too much.

    I look at America and I say “Well, if the U.S. collapses during my lifetime, hopefully the Upper Midwest Federation where I’ll end up living will be a halfway decent little nation.” I don’t think many people feel comfortable considering notions like that, so they start from the premise of ‘everything will work out.’

  3. Pepe

    assuming you live in a non-recourse state, or are a good candidate for a strategic bankruptcy as well

  4. As Swanson, the libertarian who runs a municipal administrative department on the sitcom Parks and Recreation put it, capitalism is a way of determining who is smart and who is poor.

  5. Ian Welsh

    A typical libertarian Swanson — works on the public dime, avoiding capitalism.

    However, it is a category error to say that what we have now is capitalism. It is not. In capitalism bankrupt businesses go out of business.

  6. David H.

    Save your breath, Albatross. The fundamental aspect of it, part & parcel with the inability to understand just what obscene wealth actually means, is that the “poor” truly believe that they could one day become rich themselves, and wouldn’t want to be burdened by all that awful govt regulation & taxes. For some unfathomable reason they identify with the obscenely rich, and applaud them for the hard work they evidently put in to reach their exalted status. The rich had to start at the bottom & work their way up (!) and if you would stop yapping & put your head down & get to work, you might make it to the promised land one day yourself.

    Communists like yourself should shut up & dream the American dream. As Homer Simpson once said, “if you don’t like it, go to Russia!”

    There’s a vanguard party apparatchik in all of us, but surely there’s a better way. Hmmm…I just can’t think of it right now.

  7. S Brennan

    From yesterday on Naked Capitalism,

    “The insurance policy refused to pay…claiming pr-existing condition.

    I appealed to the insurance commissioner of my state.

    I provided a letter from: my doctor, the surgeon who saved my life and a gastroenterologist

    The former insurance executive and now insurance commissioner of my state overruled the judgment of three doctors without justification and concurred with the insurance company.

    Think about that. The insurance company and the state commissioner are so depraved, so whorish, venal that they claimed with a straight face that I had hidden such a condition for 6 months.

    My condition?

    A burst appendix.

    As a child I never understood the anger of crowds that thronged to cheer the royalty being beheaded after the French Revolution, but now, I could calmly watch every US Health Insurance executive being burned alive should we have the fortune to live during such a time.

    Really, I could, Health Insurance executives murder something like 40,000 people a year.”

  8. jomaka

    Albatross, I understand your seething anger. Deep breath. Between 35-70 years the effects of climate change will decimate our (US) population by the tens of millions, relocating approximately 100 million from the coasts to the center of the continent. The most highly sought after real estate will be around the Great Lakes, which due to their elevation above sea level will be relatively unaffected by climate change. I think you’ll do OK living in the Upper Midwest Federation as long as you start purchasing small parcels of land. I am not joking. A parcel of land (50×100) in the City of Detroit goes for $500 in a foreclosure auction. The same goes for Buffalo, Cleveland, and Milwaukee. Chicagoland will be the population center of the country. Don’t dispair…act.

  9. anon2525

    As the sociopaths on Wall Street like to say, they eat what they kill.

    I don’t mean to nitpick, but this metaphor, “they eat what they kill”, is another way of saying that “if you don’t produce, you are not rewarded.” This is actually a compliment to the thieves on wall street. They are rewarded even though they don’t produce. For them, the saying has to be changed to “they eat what you kill” or “they take your lunch money” or “they drink from your milkshake.”

    It’s you or them, baby, and they’re determined it’s going to be you.

    Again, Ian Welsh is being too kind to them. This implies that their survival is at stake, which would make their actions justifiable. But they are putting our lives at stake even though their lives are no where near at risk.

    It is impossible to exaggerate the cunning (short-sighted as it was) by which Wall Street and its social-register patrons sucked wealth from working people through mortgage securitization. Middle- and lower-middle class Americans essentially borrowed their own money at usurious interest rates to buy their own houses at absurdly hyped prices. Once those prices started to deflate, Americans lost both their home equity and the value of their 401(k)s, mutual funds, pension investments, and so on. More accurately, the “recession” revealed that Wall Street had swindled Americans to trade in the real value of their homes and retirement accounts in exchange for counterfeit wealth. Wall Street gave America a phony two-dollar bill for every real dollar America gave to Wall Street. The coup de grace came in the various bailouts – in substance, working Americans bought over a trillion dollars more of the same “AAA”-rated fraudulent bonds they had already purchased at the same bogus prices.

    Nothing-Backed Securities

  10. anon2525

    However, it is a category error to say that what we have now is capitalism. It is not. In capitalism bankrupt businesses go out of business.

    This continues to be debated, but we have passed the point where the debate is worthwhile. We have seven billion people on a planet with a worsening climate and diminishing critical resources. We have passed the point where letting producers and consumers make the decisions about how to allocate the resources can be done peacefully. If we don’t find a way to have a planned power-down then we’ll have an unplanned and violent one.

  11. Ian Welsh

    I know that’s what they mean Anon by eat what they kill, they are, however, full of it.

    And while the debate me be ongoing about ‘capitalism’, I have no time for mealy mouthed BS. Stupid people can debate it, I know it for a fact.

  12. David Kowalski

    Politically, Wall Street is aided and abetted by two groups of people.

    The first, and probably the larger, group are the Wannabes. This group aspires to be reach and thinks they may well get there. Thus they want a large number of rights , privileges, and even freebies and distortions available to the Master class. For most people, the chances of making it to the top are only slightly better than the chances of hitting it in the lottery. In fact, to many of the wannabes, that is their chance under the present deprived system.

    The second group are depraved Calvinists who believe that God damns and blesses who He chooses. The billionaires are selected by God for his favor. Extreme wealth is the Good Housekeeping Seal of (Divine) Approval. This was expressed bluntly 100+ years ago by Baer in why it was his God-given right to exploit and impoverish coal miners. The current heresy frequently cites physical and mental gifts that lift the Wall Street hoodlums atop the pack (I work all day and don’t go the bathroom, I work really hard and “earn” two billion a year, I am the smartest person here and only I know what is really going on). They actually a0believe this tripe and b)believe they should make 100 or 1,000 times what somewhat only slightly less smart, less focussed, less hard working makes.

    Coupled to that is a vicious dog-eat-dog “morality. Nobody is tougher verbally than either a Wall Street type or a CPA-type (sometimes the same) gleefully laying off thousands of workers and consigning millions in one form or another to long-term poverty. Casper Milquetoast? Hardly.. They talk and act rough and tough to an extreme.

    Ironically, one of the earliest robber barons, Daniel Drew made his first fortune in the livestock business before moving on th the stock business, Drew’s first trick was smarts. He bought cattle out in the burbs and drove it to Manhattan for higher prices. Drew realized he could make much more money by buying the cattle in Ohio in the very early 1800s and driving it to Manhattan. Just like John Wayne in Red River.

    Drew, of course, did not stop there. Since cattle were sold by the pound, he developed the trick of feeding lots of salt and watering the cattle just before sale. Buyers literally had their money pissed away after the sale by the cows. Drew used allegedly similar techniques to inflate stock market “value” to another set of customers.

    Drew’s successors have gotten worse and worse. At least Daniel Drew delivered a tangible product of some real value. He had a mild, easily distracted conscience eased by some temporary philanthropy (pledge a large amount after each fleecing, make one or two payments and leave the charity high and dry).

    Jesus drove the moneychangers from the temple. TR regulated food processing, drugs, and some oil and other predators. FDR set up a nifty combination of regulation and safety net and re-distributed the fruits of a a quickly growing economy (+8.5% a year average over 12 years). We can do all of this but not when Obama’s main worry is raising more money than the $750 million he did for the 2008 cycle. Not in a world of “vote fraud”, Wall Street fraud, mortgage fraud, and Citizens United.

    Time to clean house. Drive the money changers from the temple of democracy. Time is a wasting. Do it now,

  13. Morocco Bama

    Guys and gals, quit your pissing and moaning. You can’t stop evolution.

  14. TW Andrews

    I agree with the sentiment, but if a lot of people start doing this, the end result isn’t that banks and/or rich people get hurt here, it’s that laws are changed so that non-recourse loans become recourse loans, and the rich people/banks garnish your wages or sue you for the money they’ve lost.

    Also, credit will become expensive and difficult to access for regular folks.

    Do what’s best for you, but don’t pretend that you’ll actually be sticking it to anyone by doing so.

  15. Formerly T-Bear

    @ MB

    “… . You can’t stop evolution”

    But the Yanks have shown evolution has a reverse gear, whatever may become of it.

  16. John

    Peasants siding with King and Court against the middle has a long, dishonorable history in world affairs. It will only take great catastrophe to get them to do otherwise. Then the slate generally gets cleared.
    The slate is set up to be cleared in oh so many ways.

  17. Hairhead

    The most dangerous thing about the sociopaths at the top is not that they’re mean — because they’re not. They are sociopaths — THEY DON’T CARE. And that is what makes them most dangerous. They aren’t enemies, because enemies can be defeated, can be converted, can become allies, can be assimilated.

    But sociopaths, and the sociopathic system they have created cannot be co-opted in any way, shape or form. They, and the system, are parasites, doomed to destroy utterly the system they live off of. Now most people would think, “That’s irrational!” And they’d be right, it IS irrational. But why do you think we have the “fairy tale” of the Goose that Laid the Golden Egg?

    The clearest indication of their sociopathy is not the destruction they rain down upon people, but the fact that they (the elites) are ALWAYS completely shocked when the masses of the poor and starving and oppressed suddenly rise up and start looting and killing. They never expect it, because they simply don’t see the people beneath them as actual living beings, and neither does the system they work in.

    They aren’t “mean” any more than a tapeworm is “mean”. And neither are they immoral, any more than a tapeworm is immoral. We have to look at them as they are: dangerous, inflexible, uncaring, spoiled, cossetted, amoral children.

  18. anon2525

    We have to look at them as they are: dangerous, inflexible, uncaring, spoiled, cossetted, amoral children.

    If they were only “children” then there wouldn’t be a problem, or it would be quickly resolved. They are part of an organized parasitic socioeconomic and political system. We, on the other hand, are unorganized individuals. Put the unorganized individual up against an organized system, and the system prevails every time, until it collapses from lack of input. Or, the unorganized individuals get organized.

  19. someofparts

    I’ve thanked you before because I’ve taken your advice to heart and it has been a benefit.

    I just finished that same piece on strategic defaults and one detail jumped out at me. Starting in 2012, the amount that is owed the bank after a foreclosure is considered taxable income.

    But not yet. And thanks to this website, I got out under that wire.

    So count me as one person who has been materially helped in a massive way by the truth you speak at this website. If you ever need contributions to keep this website going, you can count on me as one certain contributor.

    Also, in the brief time I’ve been out from under my underwater house, I’ve been able to materially help the friends I rent from who are struggling to open a little coffee shop now that their unemployment has run out. So the good you have done me is helping others.

  20. alyosha

    While I won’t say much about Ian’s post – in general I think it has to do with seeing the bigger picture, that the slaves are operating within a corrupt system, and in that light the slaves had better start thinking like masters – but my point here, is that there’s a financial aspect of this that isn’t widely understood.

    Was reading an article Foreclosure, Millionaire Style over at Dr Housing Bubble: How I Learned to Love SoCal and Forget the Housing Bubble. The idea is, the rich are different than you and me, particularly with foreclosures, and this has a disproportionate impact on the ability of state and municpal goverments to function. I’ll let one of the commenters make the point:

    I am a REO agent in [zip code] 90210, and can vouch for what you are saying, there are literally hundreds of F/C sales postponed in 90210 every month, rolling over each month to the next and no payment made.

    Further, unless you are at least 12 months delinquent the banks have likely not even started the process by filing a NOD [notice of default]. The Shadow [market] lurks in 90210 larger than almost anywhere else. Why? Because the numbers are so great: for every million dollar loan you forclose on you must write it down to what was paid for the property on the courthouse steps so a million dollar loan without $5,000 a month in payments is a $60,000 loss. A writedown of (approx. average equity loss in this area) %30 to $700,000 is a 300k hit overnight so do the math, want to lose 60k this year or 300k today?

    The really ugly story and totally unreported by major media is that the folks not paying a mortgage are also not paying their property taxes either and this is getting on for 3 years here. So we layoff Fireman and teachers, close parks and libraries, have 55 kids in a class and drive over potholes that should each be named like a mountain range so “these folks can stay in their homes” Huh?

    I wish some bright spark in Sacramento would tell the Gov “Er, Jerry, did you know we have to wait 5 years to sell a home for back taxes, what if we like shortened it to, say 3 years”? Got to be a lot of revenue there and no one loses a job, just a house they didn’t have the common decency to honor the mortgage paperwork they signed.

  21. anon2525

    A writedown of (approx. average equity loss in this area) %30 to $700,000 is a 300k hit overnight so do the math, want to lose 60k this year or 300k today?

    Or, would you rather keep it hidden and get a nice, fat bonus this year? Sure, you might have to write it down next year, but that’s next year. So, Bankster, what would you like to do? Decisions, decisions…

  22. Ian Welsh

    Yes, the banks are making sure they don’t foreclose too fast.

  23. anon2525

    …just a house they didn’t have the common decency to honor the mortgage paperwork they signed.

    This would be more of that “slave morality” that Ian Welsh was describing. “[H]onor the mortgage paperwork they signed”? They are honoring the mortgage paperwork. It says that if they don’t make the payments, then the bank gets the house. “OK — here are the keys.” Funny how the bank doesn’t really want the house. They don’t really want the mortgage paperwork honored. They want you to pay no matter what.

    Oh, and about that “honoring” the mortgage paperwork? How can this self-described “REO agent” not know about the foreclosure fraud that the banks and servicers (and lawyers and judges and sheriffs) have been engaging in? Nothing-Backed Securities

  24. David H.

    Got to be a lot of revenue there and no one loses a job, just a house they didn’t have the common decency to honor the mortgage paperwork they signed.

    That’s a bit harsh. It takes two to create a loan. Unless both sides are honest with each other about both the facts pertinent to the loan, and the motivation of lender & borrower, one of them is going to take a hit, and it ain’t gonna be the lender.

    Let’s not mindlessly go blaming the borrower for every foreclosure.

  25. anon2525

    … one of them is going to take a hit, and it ain’t gonna be the lender.

    Why isn’t it both? The borrower loses the house and any equity/principal that they have paid to the lender, and the lender could lose some of the value of the loan, if the house then resells for less than the amount of the previous loan after foreclosure.

    In a falling housing market (or any falling market), both the lender and borrower should lose money — they paid/loaned too much for the purchased asset. If they don’t lose money (that is, if, instead of them, you and I lose money via taxes/a bailout) then you have moral hazard — people are free to pay any price for anything without risk because any amount that they overpay will be reimbursed to them.

    If banks/lenders were not losing money on foreclosures/REO sales, then people would be kicked out of houses faster than you can say “shadow inventory.”

  26. Ian Welsh

    The possibility of default is the lender’s problem as much as the borrower’s. If borrowers can’t be bothered to do your due diligence, expect people to default. Borrowers got greedy and cheap and thus defaults.

  27. anon2525

    Of course, this is where “securitization” comes in — the loan originator had no intention of keeping the loan, so they didn’t do “due diligence.” Instead, they looked for volume and this meant providing loans that they would get a fee on and pass on the risk to suckers, er, uh, “investors.” “Due diligence” took on a new meaning to loan orginators: “due fraudulence.” Add to that the fact that the lenders combined with their Frankenstein creation, MERS, to avoid pesky centuries-old paper trails, and you end up not with “mortgage-backed securities”, but Nothing-Backed Securities.

  28. anon2525

    And we shouldn’t think that bankers are picking on house buyers. The “financial innovators” at goldman sachs went after food, too:

    … [T]he other outrage … is that at the time that Goldman and these other banks are completely messing up the structure of this market, they’ve protected themselves outside the market, through this really almost diabolical idea called “replication”…. Let’s say, … you want me to invest for you in the wheat market. You give me a hundred bucks…. [W]hat I should be doing is putting a hundred bucks in the wheat markets. But I don’t have to do that. All I have to do is put $5 in…. And with that $5, I can hold your hundred-dollar position. Well, now I’ve got ninety-five of your dollars…. [W]hat Goldman did with hundreds of billions of dollars, and what all these banks did with hundreds of billions of dollars, is they put them in the most conservative investments conceivable. They put it in T-bills…. [N]ow that you have hundreds of billions of dollars in T-bills, you can leverage that into trillions of dollars…. And then they take that trillion dollars, they give it to their day traders, and they say, “Go at it, guys. Do whatever is most lucrative today.” And so, as billions of people starve, they use that money to make billions of dollars for themselves.

    Ellen Brown describes the relationship between the revolution in Egypt & Tunisia — caused in no small part by high food prices — and the bankers, including our good buddies at GS: link

  29. Morocco Bama

    Yep, make sure you keep paying those mortgage payments to the fat cat bankers and the “investor” class so they spend it more important things… this.

    Pimps will traffic thousands of under-age prostitutes to Texas for Sunday’s Super Bowl, hoping to do business with men arriving for the big game with money to burn, child rights advocates said.

    As the country’s largest sporting event, the game between the Green Bay Packers and the Pittsburgh Steelers will make the Dallas-Fort Worth area a magnet for business of all kinds.

    That includes the multimillion dollar, under-age sex industry, said activists and law enforcement officials working to combat what they say is an annual spike in trafficking of under-age girls ahead of the Super Bowl.

    “The Super Bowl is one of the biggest human trafficking events in the United States,” Texas Attorney General Greg Abbott told a trafficking prevention meeting in January.

    This is, quite literally, where some of your mortgage payment is ending up. Still feel any moral qualms about making that payment? If you do, may I suggest another lobotomy….because the first one was botched.

  30. tBoy

    someofparts wrote: “I just finished that same piece on strategic defaults and one detail jumped out at me. Starting in 2012, the amount that is owed the bank after a foreclosure is considered taxable income.”


    So if the paper holder decides to postpone foreclosing until January2, 2012 the borrower is on the hook?

    If that is the way the law works expect to see the number of foreclosures decline rapidly. The mortgage holders will use the IRS to pound the borrowers into submission.

    Sweet system.


  31. Morocco Bama

    That law is the craziest thing I’ve ever heard. You lose your job, can’t pay the mortgage, the bank forecloses and sells your house for an amount well below the original mortgage amount and any equity you may have put into it, and you owe tax on the difference between the sale price and the amount owed on the mortgage? And if you can’t, or won’t, pay that tax they will garnish your wages, if you have a job? Do I have that correct? If so, that’s just plain nuts. Not only nuts, but immoral……hell, I would say “evil” as best I understand that term.

    I assume they are taxing it because they consider it some form of income or gain for the borrower? Is that correct? How the hell can that be considered a gain for the borrower. It’s not as if the borrower gets to keep that portion of the home for which he’s being taxed. The borrower is thrown out on the street and has to pay rent somewhere else to put a roof over his/her head. The

    How do they, technically speaking, justify this tax rule? I can’t get my head around this bastardization.

    I will say this, in order to change this System, we’re going to have a revolution here, as well. It can’t be just Egypt…or Tunisia, Yemen and Algeria. This shit’s going to be nasty when it all hits the fan. I hope these wealthy sadists are building a spaceship, or they have elaborate plans to upload themselves into cyberspace via the Singularity, because if not, they’re going to get one hell of a comeuppance.

  32. Morocco Bama

    Well, after posting the above, I did my own research, and it is considered debt relief which is considered taxable income. This is complete bullshit……and evil, as I said above. Wow, this is going to get real interesting, real fast. We all know that we are in a permanently declining economy from here on out, meaning more and more people are going to get kicked out of their houses as they lose there jobs. This law will add insult to injury by requiring them to pay tax out of their wages for the difference in value from which they will never receive any value. Insane……and the god damned builders get off scot-free. Remember, it was the builders who got that original value, and the builders were as responsible for the bubble inflated values as were the bankers and the borrowers.

    The IRS has tax rules for foreclosures or repossessions by lenders of homes of owners who have fallen behind on their mortgage payments. There can be severe and unexpected tax consequences for an owner who simply walks away because he or she has little or no equity and the lender takes over and sells the place.

    In that situation, cancellation or forgiveness by the lender of the debt usually means the debtor has reportable income, though there are some exceptions — for instance, insolvency.

    An example: Brown buys a condo and uses it as a personal residence. He pays $300,000, down payment of $15,000 and takes a mortgage loan of $285,000. He is personally liable for the mortgage. When the remaining balance of the loan is $280,000, Brown defaults and the lender bank accepts his voluntary conveyance of the unit, canceling the loan. Similar condos at the time sell for $230,000.

    The tax code treats the transaction as a sale. Brown incurs a nondeductible loss of $70,000, the amount by which his condo’s adjusted basis of $300,000 exceeds its market value of $230,000. No deduction for the loss because Brown uses the condo as a personal residence.

    Brown also has reportable income of $50,000 when the bank cancels the loan. The $50,000 is the amount by which the debt of $280,000 exceeds market value of $230,000.

    Enter the IRS when the mortgaged property is foreclosed or repossessed, and the bank reacquires it, or the bank knows Brown has abandoned the property. The bank sends a Form 1099-A to Brown and the IRS. Using the numbers in the example, the 1099-A indicates the foreclosure bid price ($230,000), the amount of Brown’s debt ($280,000), and whether he was personally liable. Debt cancellation (here, $50,000) is taxed at the rates for ordinary income, same as for salary.

  33. Pliny the Younger

    All the tax consequence means is that you should only walk away if you really need to. I am somewhat underwater on my mortgage but am employed and having no trouble making my payments. I will continue to do so. If I lost my job I would not expect my kids to miss one meal and wear a pair of old shoes an extra day before I would walk away. I am not discounting moral obligation, but moral obligation is non-transferable. If my mortgage had not been sold half a dozen times and the organization that loaned me the money was owed the payments the moral obligation would still be there, though it would eventually be overridden by other obligations. But after the sale there is nothing but the legal obligation and that is the obligation to either pay or give the mortgage holder the home. I choose the latter, and that is perfectly legal. (I would not even stretch it out. If I know I am not going to pay I would be out in 30 days.)

  34. Bernard

    yes, a perfect capture system where the borrower/little guy pays for everything. when you own Congress, the laws are written for the owners.

    amazing how bankruptcy helps only the bankers, not the borrower.

    what really amazes me is how few people really “get” how the system is front loaded by the bankers/owners. the whole illusion of getting Rich/ the American Dream .

    i like the concept of evolution in “reverse.” that’s the American Dream in reality.

    PR/marketing at its’ finest.

    welcome to the new Dark Ages

  35. Morocco Bama

    Also, Bernard, I don’t think it’s coincidence that bankruptcy laws were changed when they were. The timing of that was not arbitrary. The Plutocratic Oligarchy knew what was coming and they wanted to ensure every last drop was squeezed from the “small people.”

    The Plutocratic Oligarchy has made it clear. There’s only one way out…….and they’re daring you. It’s kind of like Robert Conrad’s dare to knock the battery off of his shoulder.

  36. Formerly T-Bear

    With the collapse in the value (purchasing power) of the dollar, commonly referred to as price inflation, it is urgently becoming necessary to construct an alternative narrative about value. The market collapse of housing requires another look at value and how value is derived in order to come to rational decisions about retaining or surrendering one’s home. This is made difficult because of a growing incongruity between utilitarian value (the shelter utility provided by the home and the economic investment involved in building that home) and its nominal value as represented by contract (mortgage) in fluctuating units, particularly now that QE, QEII and projected QEIII (and beyond) are being played out. It is entirely possible that the nominal value condition may be well under water but the return as a shelter is still considerable enough to maintain possession, that future repayment will be made with vastly cheaper units amortizing the locked in debt.
    Some questions needing answers are: What is the current cost of replacement of the home (land, materials, labour and etc.)? What “non-quantifiable income” does the home generate (location, schools, civic amenities) and what would those replacement costs be? What civil conditions pertain (stable integrated and safe neighborhoods, diverse representation of social and economic groups) and what would the equal cost be? Again, the utilitarian value is likely rapidly diverging from a nominal value (locked in time) measured in (the current) rapidly changing (declining value) units of exchange. There is nothing more advantageous than paying debts in cheap money, the byproduct of insane national policies. Some home owners will gain from this depression even though the measure in nominal dollars may indicate otherwise but the gain is measured in utility, not nominal values. Those having a substantial equity nominally can preserve their utilitarian interests the easiest and have the most to loose by succumbing to nominal valuation and economic illusions. The dollar’s position internationally may be at an end, and for better or for worse, it still is the national currency for all internal usage, that will not change foreseeably. With a collapsing economy, the difficulty will be maintaining the income to service the debts, the challenge is to solve that one …

  37. Aaron

    De-monetize your life in every way you can. The more monetized we become the greater the gap between wealthy and poor and the stronger the master-slave dichotomy becomes.

  38. Formerly T-Bear

    @ Aaron

    I suspect de-monetizing one’s life is probably too simplistic an answer although it could be a stand-in for achieving a debt-free life. It is debt that becomes the great adversity unless the debt was incurred as a means to further income; debt is a vital tool when used for economic purpose. When debt is used for frivolous purpose to satisfy some ephemeral economic desire, it can become a self-made prison for which escape is hardly possible without discharging that debt.

    Do not make the mistake of blaming the wealthy for that self-made prison, wealth in economic terms is nothing more than not consumed income that is conserved. If you have consumed all your income, then you have nothing to save and the likelihood is that you are poor as well, it really does not have anything to do with money per se, it has everything to do with income and how it is used.

    You will find there are two types of people: one has month left at the end of the money; the other has money left at the end of the month. This is a lesson of basic Scottish thrift. It is your decision which type you will become. Try to educate yourself about economic processes and their meaning, it will further your understanding a lot more than repeating threadbare rhetoric relying on jealousy of those that have.

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