Bailouts, Federal Debt, and the End of Responsibility

The main impediment to changing this rule has been the big banks. The very banks that have gotten handouts from the government have refused and even lobbied aggressively against any change like this to the bankruptcy laws. On two or three different occasions, this rule change, that would allow homeowners to restructure their mortgages in bankruptcy, has come before Congress. It has been debated. Lobbying by the banks has defeated it on each occasion. I cannot imagine a more apt illustration of the servant about not showing mercy when you've been given mercy.

I have friends who would pull out their hair if they heard that story. Right now they're wrestling with whether or not they should walk away from their underwater mortgages. Even though they have the resources to keep paying their mortgages, it financially does not make any sense to do so. The only reason they're not walking away from their mortgages is because they feel an ethical obligation to pay off their debt—but even that sense of ethical responsibility is really being eroded. Do you think the bailout economy is shaping individual people's willingness or sense of obligation to pay off their debts?

I do. I wish I had actual numbers that I could present. But anecdotally, there appears to be a greater willingness today on the part of people, like your friends, to walk away from obligations—obligations that, if they really tightened their belts, they probably could meet. That is not something we would have seen 10, 20, or 50 years ago.

Harry Truman had a hat and clothing store that failed. He could have walked away from that, but he was of the view that he had an obligation to pay off those debts. He finally did pay all of them off. That's the kind of behavior that would have seemed fairly normal 40 or 50 years ago. It seems less and less normal today. What we are seeing on Wall Street, the way the banks have behaved in this crisis, is reinforcing that change. I think it is natural, although unfortunate, for an individual homeowner to think, Well, if the big banks are not bearing responsibility, why should I bear responsibility?

I am really struck by the moral dimension to a lot of your comments. Would you be willing to share with us the source of your moral sensitivity on these issues?

The short answer is that my subject matter completely resonates with my faith. I became a Christian relatively late in life, at the end of my college career. One of the things that drew me to Christianity was the sense that no matter how bad your problems are, how sinful you are, how troubled your life has become, how difficult your relationships have been, there is hope. There is a fresh start. There is a passing through the Red Sea, or a crossing of the Jordan into a Promised Land. I've always found that message in Christianity lights all of my fires.

One of the things that I love about bankruptcy is it has a little bit of that in it. I wouldn't want to say that bankruptcy is Christianity, of course. But the idea that there is a second chance resonates with my faith. An individual or a company overwhelmed by debt does have a way out. There is a release. We see this quite literally in the Old Testament idea of a Jubilee, a release from your enslavement to debt. So, what I study and talk about and argue about has that same pattern of a fresh start, of mercy, of forgiveness for those who need forgiveness. This is really powerful for me, and it drew me to bankruptcy from the very first time I learned about bankruptcy in law school. I have never had second thoughts about it since.

You have got to lead the nation in being the most theologically-oriented bankruptcy expert!

Some would also say I am the most besotted-with-bankruptcy scholar in the country. But you have to go with what you believe.

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