I saw the above in the New York Times and figured this would be a good place to discuss it, especially since it brings up quite a few of the themes we've discussed recently. Specifically, it discusses the disconnect between the actions of the big banks and their advice and the effect that it has on the way people consider their situation. One of the issues that it discusses repeatedly is that one of the reasons that people won't walk away is the fear that they have about their credit scores being ruined.

This might be a bit of a stretch, but I thought it would be interesting to compare the obsession with credit scores with the widespread concern about 1L grades. I'd like to argue that in both cases, fear causes individuals to become so concerned with means that they forget about ends. A key goal of consumer credit (mortgages, car loans, credit cars, etc.) is to allow a person to purchase an item in the present and pay for it in the future. In effect, it lets the consumer own something now that they would otherwise not be able to, and thus better their standard of living.

This is more important in housing than in other fields - housing is expensive in the United States (especially in the NY Metro Area) and few people can afford to purchase a place to lead comfortably without using credit to purchase it. Credit (in the form of mortgages) allows for people to better their standard of living by purchasing a place to live in and enjoying it in the present while paying for it over time. The same can be said for any big purchase on credit - a car, a big screen TV, etc. So the overall "end" in using credit is bettering one's standard of living now.

Obtaining credit, however, is based on a credit score. Creditors want to have a measure of one's creditworthiness, and thus use a complex, bewildering set of formulas to develop a measure. Having a good credit score enables one to obtain loans to make purchases they want and to obtain lower rates of credit. That said, having a good credit score does not lead to a better standard of living in and of itself. It is merely a number on a piece of paper; an influential number, but one that does not do anything direct - it is a "means" to obtain the end of bettering one's standard of living.

The people mentioned in the article who are concerned about credit scores (specifically, Mr. Koellmann) are so focused on the means (having a good credit score) that they lose sight of the end (bettering their standard of living through credit). They are foregoing chances to better their standard of living (for example, walking away from an underwater mortgage and living in a rented apartment that is nicer and less expensive) to maintain a means. This seems irrational.

Law school has many similarities. We all discussed what we hoped to get out of law school, and of all the introductions that I read, not a single person stated that they were hoping for "a stellar transcript" or "a great GPA" or "lots of As". People instead seem to want fulfilling jobs that will allow them to live comfortably. This is the end. Despite this, people (including me, unfortunately) have foregone learning experiences that might actually lead to this end because we are more concerned about the means, our grades, than the ends. This seems to be motivated by fear, similar to concern over credit scores.

I know this argument is a bit of a stretch. That said, in reading this article and others on the topic, the fact that people were foregoing a chance to raise their standard of living to preserve credit scores seemed a bit irrational and I noticed a parallel with decisions people are making in law school. Please feel free to comment/tear me apart/etc. - I'd love to know what other people think about this.

-- DavidGoldin - 05 Feb 2010

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