Bottom-up

I love it when people comment who know more about the subject at hand than I do. Commenter Mike explains the differences among loans (and states):

Debts are categorized as either “recourse” or “non-recourse”. Under a “non-recourse” debt, the lender may look no further than the collateral at hand. These are rare in personal loans, but common for businesses. Under “recourse” debt, after seizing and selling the collateral, the lender may still pursue other avenues of collection to make themselves whole. A car loan is typically “recourse” as are your credit cards.

States fall into 3 categories with regards to statutes governing residential mortgage:

• All residential mortgages are non-recourse. That is, when the banks take the house, there is no longer an enforceable legal debt.
• Banks may choose either: (a) An expedited and cheaper foreclosure process (usually called non-judicial foreclosure), but in so doing they forgo the enforceability of the balance, or (b) A lengthy and expensive process (called judicial foreclosure) under which they eventually get the house and a judgment for the balance. As a practical matter, the bank almost always picks (a).
• States that are silent on the matter, in which case the mortgage contract is generally full recourse – that is, after taking the house they may pursue a judgment for the shortfall and enforce the judgment.

Because of this difference in statute, mortgage rates vary from state to state. One can argue that part of what the Arizona resident (case 2) is buying when their mortgage costs 0.25% more than the New York resident (case 3) is the fact that the borrower’s losses are limited to loss of property in Arizona, but not in New York.

In retrospect, the lenders grossly underpriced this risk premium from state to state, but as much as walking away feels wrong, there is an actual statutory difference (at least in Type 1 and maybe Type 2) states between that and stealing.

A quick follow-up on the mortgage default issue: people left some great comments on my last post. The key question, I think, is the nature of the agreement between a bank and a borrower. Luis characterizes it as follows:

The ‘deposit’ of the collateral is carefully analyzed to make sure that it matches the value of the loan, with the bank taking on not some random risk ($600, $10, whatever) but the very specific and known risk that the house is worth less than the appraiser appraised it for; in exchange for the profit of your interest payments the bank takes on the risk that (1) you’ll default and (2) if you default, the house will be worth less than they appraised it for. That is the essence of the commercial transaction which is going on, and the banks are very well prepared (and have strong commercial incentives) to appraise both the borrower and the house during the mortgage process.

I don’t actually have a strong objection to this view, although I’m not totally persuaded by it. Interestingly, this is precisely the Robert Lowenstein view Matt was objecting in his post: that defaulting on a mortgage isn’t morally objectionable because the terms of the mortgage contract allows for it. Matt advanced the alternative argument that you don’t need to pay your mortgage because one has weaker moral obligations to “publicly traded for-profit corporations” than to other kinds of entities. I think this is clearly wrong, which was the main point of my shoplifting hypothetical.

One reason I’m somewhat conflicted about this issue is that I’m a big fan of Megan McArdle’s work on America’s generous bankruptcy system. One of the key properties of a dynamic economic system is a tolerance for fast failure. People make mistakes, and I don’t love the idea that someone who takes on a mortgage he can’t afford at 25 will be financially crippled until he’s 55.

But I also agree with Megan that social pressures and law work as complements. Remove the former and you probably need more of the latter if you want access to credit. The stigma against defaults and bankruptcies is (in Megan’s phrase) part of the cultural infrastructure of a capitalist society. We shouldn’t discard it too casually.

Matt Yglesias makes the case for guilt-free mortgage defaults:

My mortgage is an agreement I’ve made with Bank of America which is a publicly traded for-profit corporation. Companies like that, unlike people or people agencies or other kinds of institutions, don’t recognize any kind of goals other than monetary ones. Under the circumstances, any relationship you might have with Bank of America is a purely transactional, purely commercial one and if you treat it as anything other than that you’re being a sucker.

My local Wal-Mart has a number of consumer electronics items that I’d enjoy owning. And I’m a pretty smart guy; I’m pretty confident I could figure out how to sneak them out of the store without paying for them. Moreover, Wal-mart is among the nation’s worst abusers of eminent domain for private profit, which I regard as little better than legally-sanctioned theft. So in a sense, shoplifting gives Wal-Mart a taste of its own medicine.

Yet I’m not planning to shoplift from Wal-Mart. And the reason I won’t isn’t only, or even primarily, the relatively small risk that I’d get caught. Partly I don’t shoplift because that’s not how I was raised. And partly I don’t shoplift because I understand that a culture in which shoplifting was condoned by most people would be a poorer society. If shoplifting were widely condoned, retail establishments would spend more resources on security, and they would be forced to treat their customers with greater suspicion. I don’t want to live in that world, so I respect Wal-Mart’s property even when it’s not in my interest to do so, and even though I don’t personally like Wal-Mart very much.

In college, I had a friend who occasionally shoplifted. I wasn’t shy about voicing my disapproval of this practice, and I would have cut off friendship with him if he kept doing it. This anti-shoplifting norm benefits everyone. The stigma against shoplifting is a much more powerful, and less costly, check on the behavior than anything that happens in the formal legal system.

I think the same basic analysis applies to defaulting on a mortgage. Personally, I wouldn’t do it (unless I had no choice) because that’s not how I was raised. And I think it’s a good thing that defaulting on a mortgage carries a stigma. The existence of social pressures to pay mortgages has the same salutary effect on the mortgage market that the stigma of shoplifting has on the retail market: it relieves pressure on the formal legal system and allows businesses to be more trusting of their customers. I suspect that if everyone adopted Matt’s attitude toward mortgage defaults, interest rates would be higher and there would be more people who wouldn’t be able to get a mortgage at all, because they couldn’t scrape together a down payment.

Now maybe stealing is in a different moral category than promise-breaking. But if so, then advocates of guilt-free default need to articulate exactly what the difference is. I don’t see how it could turn on whether the harmed party is a “publicly traded for-profit corporation.” The long-run costs from both shoplifting and mortgage defaults are borne not just to shareholders but also to the broader society in the form of reduced public trust. I plan to pay my debts and pay for my purchases. If that makes me a “sucker,” so be it.

Catching up on my RSS feeds, Tom Lee has two posts on Avatar that strike me as so obviously correct that they leave me with very little original to say. Go read them. Especially this part in response to this widely-linked post on Avatar and white guilt:

The self-congratulatory white guilt narrative discussed emerges from narrative necessity as least as much as it arises from an incoherent, subconscious and pervasive sense of racial culpability. Put another way: it’s not just liberal guilt! It’s professional laziness, too!

Consider an alternate explanation for the movie’s setup. We’re writing a script! We’ve gotten an impressive rendering farm online and built these neat cameras and the crew jackets are all printed up, but there are still a few nagging details to work out before we start rolling. For instance, we need a protagonist around which the action will revolve. He or she needs to have an arc. And the opposing sides of the central conflict need to be drawn in stark Manichaean terms — the innocents need to seem super-innocent — because we’re not trying to make That Kind of Movie. When things blow up at the end, we want to audience to be happy!

All of this can lead us directly to a colonial narrative, and it can do so without anyone trying to atone for white privilege at all. It also explains Romeo Must Die perfectly well, for example. And The Transporter. And Total Recall (though admittedly that movie added some pleasantly confusing recursion). And The Professional. And really just about every other action movie, where a protagonist recognizes his complicity in an evil enterprise and then assumes an unrealistically prominent (and violent!) role in resolving the central injustice.

Update: Brad Templeton says that the Na’Vi are obviously the descendants of an advanced civilization that decided to live more harmoniously with nature. He compares it to Star Trek’s “Errand of Mercy”, although I think The Apple is a better parallel.

This is clever, but I do have one nit to pick with his argument. He lists the floating mountains as an example of a phenomenon that couldn’t have emerged naturally. But I think there’s actually a (vaguely) plausible explanation for this: the mountains are made of unobtainium, which is a high-temperature superconductor, and so they exhibit magnetic levitation.

I hope everyone had a great end to the naughties! Regular blogging will resume later this month as promised. In the meantime, here’s some reading material:

The New York Times was kind enough to invite me to contribute a post to its “Room for Debate” blog about employee privacy while using employer-owned equipment. You can read the result here.

If I weren’t on hiatus, I’d write a blog post about this generally sensible column and its incoherent tenth paragraph:

What makes these voters potential Republicans is that, lifestyle choices aside, they view big government with great suspicion. There’s no law that someone who enjoys organic food, rides his bike to work, or wants a diverse school for his kids must also believe that the federal government should take over the health-care system or waste money on thousands of social programs with no evidence of effectiveness. Nor do highly educated people have to agree that a strong national defense is harmful to the cause of peace and international cooperation.

Question for discussion: When the US military builds a children’s hospital in Basra, is that a “social program?” And if so, is there “evidence of effectiveness?”

I’m still on hiatus, but here are two quick notes that might interest Bottom-Up readers. First, over at Ars Technica, I have a new article on mesh networking:

Multi-hop mesh networks, confined to university labs at the start of this decade, are now widely available from commercial vendors. These vendors tout a number of advantages for mesh technologies: lower costs of deployment, easier administration, better coverage, and lower power consumption. Mesh networking is now being used in an impressive range of applications, from large-scale institutional deployments to networks of tiny sensors.

Mesh networking is sometimes mentioned as a solution to the much-discussed “last mile” problem in US telecommunications policy. Unfortunately, the inherent capacity limits of the wireless medium means that mesh networks are unlikely to provide a serious alternative to fiber or coax broadband connections in this market. Mesh is a reasonable way to provide broadband to consumers in developing countries who might not otherwise be able to afford access at all. But in the developed world, mesh technologies are best viewed as a supplement to wired Internet connections and traditional single-hop access points.

Second, if you live in Philadelphia, please come to my talk to the Temple Libertarians next Wednesday! It’s titled “Copyright and the War on Innovation,” and it will be on December 9 at 6 PM in room 200a of the Temple University Student Center.

It turns out that if you enroll in grad school in computer science, they expect you to do computer science work. And apparently writing a blog doesn’t qualify. So this blog is going on a holiday hiatus. I’ll be back in January.

In the meantime, for bottom-up-friendly blogging I recommend reading Mike, Spencer, Will, Reihan, Daniel, Radley, Matt, and the Technology Liberation Front gang.

Last week, Mike Masnick posted this funny tweet:

PR people keep sending me names of people who can “comment” on stories. If they want to comment, we have comments enabled on the site.

It’s a funny statement, but Mike was serious. He elaborated on what he meant in a Monday post at Techdirt: Mike isn’t a reporter in the ordinary sense, and he almost never interviews people for his blog posts. He certainly isn’t going to interview some random stranger because a PR person sent him an email.

This practice of hiring PR firms to lobby to be quoted in news stories is an artifact of the attention monopoly I wrote about yesterday. When everyone was reading the same handful of publications, getting interviewed by a reporter for one of those publications was a rare and valuable opportunity to get your opinions out to a large audience. Your ability to participate in public debates was determined by the whims of a relatively small number of reporters and editors, and so you could raise your profile by hiring people who were good at sucking up to those people on behalf of clients.

Now the playing field is more level. Anyone can participate in the public debate, and the prominence of any given voice is determined much more by reader demand rather than editorial fiat. Of course it’s still valuable to be quoted by a prominent source, but there are vastly more sources than there used to be, and a lot more ways to reach an audience without the help of the top tier of publications.

PR people seem to be floundering in this new environment. If the PR pitches Mike gets are anything like the ones I get (and I’m sure he gets several orders of magnitude more than me) they’re universally useless. I’ve gotten dozens of pitches and I don’t think a single one has led to me writing a story. This is partly because I don’t write about most of the topics they’re promoting, but I think it’s also because the act of hiring a PR person is a pretty clear signal that the client doesn’t “get” the web. As the web decentralizes the news business, it’s also making it more meritocratic. To have a big influence, you have to say things that people find interesting. If you do that, your message will spread without the help of PR people. If you’re not saying things that people find interesting, it won’t get much attention no matter how much money you give a PR firm.

And the way to have an interesting message is to have an appealing product. The most successful companies on the web—Google, Facebook, Twitter—spent little or no money on advertising or PR in their early years. Their products sold themselves, becoming more popular by word of mouth. The fact that you’re paying someone to send me cookie-cutter PR pitches is a sign that your product isn’t good enough to sell itself.

The same principle applies to people who are “selling” themselves as experts. I’ll occasionally get pitches from patent lawyers wanting to “comment” on an upcoming patent law decision. Presumably, being a recognized expert in patent law is good for business if you’re a patent lawyer. But the lawyers doing this should fire their PR person and instead start a blog. If your blog is any good—that is, if you have interesting things to say about patent law—people like me are likely to read it. We might link to and quote from it. This will raise your profile much quicker than an occasional quote in some second-tier web publication would. And more to the point, a successful blog will lead to other types of publicity, because people are much more likely to seek you out as an expert if you’ve demonstrated a track record of saying interesting things about patent law.