Yes We Can ... Walk Away from Bad Mortgages: Roger Lowenstein Blames the Banks

As cracks emerge in the housing recovery and roughly a quarter of U.S. homeowners with a mortgage are "under water," the rhetoric surrounding voluntary, or "strategic", mortgage defaults is heating up again. 

"If American corporations and banks are walking away, why can't your neighbor or individual homeowners?," asks our guest Roger Lowenstein, a financial journalist and author of a new book, The End of Wall Street. "Why should the average homeowner make anything other than a cold, calculated business decision about whether it's worth it?"

Tech Ticker has addressed this question on several occasions n recent months, including:

• Yes, It's Okay To Walk Away From Your Mortgage
• No Worries About "Morality" in Biggest Real-Estate Default in History
• Walking Away From Your Mortgage Is Morally Wrong And Financially Stupid

Lowenstein, who helped spur a national debate about this issue with a NY Times Magazine article in January, asks a provocative question in the accompanying video: In a free market system, why should there be different rules for corporations vs. individual homeowners when it comes to walking away from bad debts?

So-called bankers. Lowenstein lays the bulk of the voluntary-default phenomenon squarely at the feet of so-called bankers, who rubber stamped the mortgages for Americans who clearly could not afford a home. "That's what 'banker' used to mean. Someone who made an economic decision about to what extent this credit was worth it, and how much credit could this person support," he tells Aaron. 

Americans' changing attitude about mortgages isn't that shocking, Lowenstein adds, considering how the banking industry became just as short-sighted during the boom, habitually offloading mortgages to other investors by packaging them into complex financial instruments.

"It can't be that millions of people (Americans) suddenly turned evil or malevolent," Lowenstein says. "It had to be that something was wrong with the system. If you lend people money, they're going to take it."

Lowenstein's new book, The End of Wall Street, in fact chronicles the roots of the mortgage bubble, with sharp profiles of the major players including Dick Fuld, Alan Greenspan and Ben Bernanke. 

Earlier:

• It's the leverage stupid: Lowenstein's Rx to reform Wall Street