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BrookSuttonSecondPaper 3 - 07 Apr 2010 - Main.BrookSutton
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It is strongly recommended that you include your outline in the body of your essay by using the outline as section titles. The headings below are there to remind you how section and subsection titles are formatted. | | | The moral ambivalence characteristic of the public debate over strategic defaults may reflect the above concern. On first glance, criticism of homeowners who walk out on their underwater mortgages tends to invoke principles of caveat emptor and resists the authors’ conclusion that members of large, market-based societies are conditioned to seek and enforce equitable outcomes in commercial transactions. Critics of strategic default frequently argue that a homeowner has an obligation to continue payments on a mortgage regardless of the financial burdens that doing so would impose. While moral objections often exculpate homebuyers who were victims of facially abusive industry practices, critics otherwise affirm the disparity of wealth that would result where homeowners who bought or refinanced near the market peak continue to make payments. This judgment holds even though many homebuyers paid considerably more for their homes than they were worth; analysts predict properties in states like California and Florida may not reach their 2006 peaks for another twenty years. By implication, moral arguments against strategic default validate the substantial profits that the mortgage industry reaped by encouraging borrowers to overextend themselves in an overheated market. Additionally, they reject the premise that both parties to a mortgage assume the risk of declining home values, thereby diminishing the sense that a home purchase is a cooperative enterprise. As a result, critics of strategic default advocate asymmetrical outcomes that appear to contradict predictions based on the themes discussed above.
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< | However, the researchers’ work in “Markets” points to an alternative framework for understanding objections to strategic default. In order to warrant punishment it follows that a transaction must appear unfair to observers. In their experiments the researchers facilitated moral judgments by abstracting from real-world exchanges, which typically introduce variable relational coefficients into the fairness equation--information involving, for instance, the motives of contracting parties or the type of transaction. Relational information has the potential to cloud assessments of fairness by operating on an observer’s perception of the terms of an exchange. This effect seems particularly likely where interactions involve complex or ambiguous relational factors. For example, an underwater homeowner might be a speculator seeking a quick profit or a young family looking to buy into the American dream. Likewise, a voluntary default will often punish a relatively innocent third-party investor, such as a pension fund, not the party that got the better of the deal. Where ambiguity persists regarding a family of commercial interactions, the underlying presumption of fairness may lead to a general moral judgment that the exchanges are fair, even if the resulting disparity is substantial. Under this analysis, inequity is the product of imperfect supervision rather than a commitment to principles of freedom of contract. | >
> | However, the researchers’ work in “Markets” points to an alternative framework for understanding objections to strategic default. In order to warrant punishment it follows that a transaction must appear unfair to observers. In their experiments the researchers facilitated moral judgments by abstracting from real-world exchanges, which typically introduce variable relational coefficients into the fairness equation--information involving, for instance, the motives of contracting parties or the type of transaction. Relational information has the potential to cloud assessments of fairness by operating on an observer’s perception of the terms of an exchange. This effect seems particularly likely where interactions involve complex or ambiguous relational factors. For example, an underwater homeowner might be a speculator seeking a quick profit or a young family looking to buy into the American dream. Likewise, a voluntary default will often punish a relatively innocent third-party investor, such as a pension fund, not the party that got the better of the deal. Where ambiguity persists regarding a family of commercial interactions, the underlying presumption of fairness may lead to a general moral judgment that the exchanges are fair, even if the resulting disparity is substantial. Under this analysis, inequity is the product of deficient supervision rather than an ideological commitment to freedom of contract. | | |
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< | Accordingly, in transactions involving especially complex relational factors, the confusion created could systematically negate the moral instinct to penalize unfairness. This proposition leads to the ironic conclusion that large, market-based societies will tolerate grossly inequitable outcomes, at least in relatively complicated interactions, precisely because they value fairness. On the other hand, the research reported in “Markets” suggests that the moral impulse to favor fairness over self-interest is deeply rooted in those societies and can serve as a powerful force for justice when capably marshaled. | >
> | Accordingly, in transactions involving especially complex relational factors, the confusion created could systematically negate the moral instinct to penalize unfairness. This proposition leads to the ironic conclusion that large, market-based societies will tolerate grossly inequitable outcomes, at least in relatively complicated interactions, precisely because they value fairness. On the other hand, the research reported in “Markets” suggests that the moral impulse to favor fairness over profit is deeply rooted in those societies, presenting a powerful instrument for achieving justice. | | |
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