Tag Archives: economic sociology

Facing Default, Some Walk Out on New Homes

This NYT article caught my attention as a nice example of economic sociology.  The gist of it, captured in the quotation below, is about the shift in attitudes and practices around home buying and ownership in the US.   Traditionally home ownership is promoted by government policy and cultural norms because it is a means of encouraging personal savings, it boosts household credit ratings, and it improves neighborhoods by creating more local buy-in.  However, When those laudable goals merged with the world of financial innovation, deregulation, and a rise in a particular portfolio thinking world view, we end up with a new set of attitudes and behaviors about home ownership.  less than a Jimmy Stewart, feel-good, iron clad agreement between bank and homeowner, home ownership is a more fluid, transient financial deal that can be done or undone depending on the individual valuations of the players involved.  Home-ownership is one more liquid and negotiable financial arrangement, like owning stock, buying futures, or being paid in stock options.

Facing Default, Some Walk Out on New Homes – New York Times
You Walk Away is a small sign of broad changes in the way many Americans look at housing. In an era in which new types of loans allowed many home buyers to move in with little or no down payment, and to cash out any equity by refinancing, the meaning of   and foreclosure have changed, economists and housing experts say.

As the article points out, this change is made clearer by the foreclosure bulge (upswing?  crisis?  not sure which term is the most objective).  As Todd Sinai, a professor at Wharton, points out, the very loans that made the housing market balloon set the stage for people to walk away.  many marginal home buyers shifted from being renters to nominally owners.  What actually happened is that they started renting from the bank with the chance to won if the value of the home increased faster than their repayment obligations.  If it doesn’t, quite rationally, they walk away from a mortgage that costs more than the underlying value of the house.  For the purchaser, he says, its a Heads-I-win-tails-you-lose situation.

Of  course, banks could sue in some states, but what bank is going to sue someone who can’t afford the mortgage?  Seems like a bit of poetic justice to me.

The article also focuses on You Walk Away, a company that somehow (I don’t get the business model) makes a profit on people walking out.  There seems to be  another interesting tension over the knitting  together of economic and moral realities.  Traditional auxiliaries to the home buying process don’t want to encourage people to walk away due to the embedded assumption that home ownership is indisputable social good.  Jon Maddux, one of the owners of You Walk Away responds:

“It’s not a moral decision,” Mr. Maddux said of foreclosure. “The moral decision is, ‘I need to pay my kids’ health insurance or my car payment so I can get to work.’ They made a bad decision, but they shouldn’t make more bad ones just because they have this loan.”

Mr. Zulueta said he felt he had let down the lender, himself, and his family.

“But you got to move on,” he said. “I know in a few years my credit’s going to be fine. If I want to get another house, it’s going to be there. I’m not the only one who went through this. I know I’m working the system, but you got to do what you got to do. There’s always loopholes.”

Zulueta is one of the homeowners who Walks Away (is that trade-marked?  haha).

His line of reasoning seems good to me.  The financial and home buying industries ravaged the marginal home buyers and waved their magic wands of financial innovation to off load the debt to other financial players.  The unraveling of a social compact around home buying started among the banks and mortgage companies.  Seeing the writing on the wall, the home owners are following suit and treating a mortgage as one more financial arrangement and not a “marriage contract.”

My interest  in this was piqued by some work Jerry Davis is doing on “The Portfolio Society.”  So keep an eye peeled for that.

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Filed under Banking, economic sociology, innovation, macroeconomics, Political Economy

Market contagion

This will make economic sociologists of all of us.   Expand later…

A Crisis of Faith – New York Times
Today, we’re witnessing another kind of contagion, not so much across countries as across markets. Troubles that began a little over a year ago in an obscure corner of the financial system, BBB-minus subprime-mortgage-backed securities, have spread to corporate bonds, auto loans, credit cards and now — the latest casualty — student loans.

Indeed, this week the state of Michigan suspended a major student-loan program because of the sudden collapse of another $300 billion market you’ve never heard of, the market for auction-rate securities.

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Filed under Banking, economic sociology, Political Economy

Serious Play… A Title for Paper on Second Life

Here is the abstract Ted and I are working from. I am not sure whether to go for the Organization and Management Theory division or the Organization and Communication Information Systems division of AOM.

Titles?

The Influence of Economic and Social Incentive on the Evolution of Virtual Worlds

OR

Serious Play in Synthetic Worlds: Theorizing the Sustainability of
Second Life

Jordi Comas, Bucknell University

Ted Tschang, Singapore Management University

Abstract

The hype and dashed expectations over Second Life simply highlights the
need for a better understanding of the nature of SW. SL is an important
case because it highlights how the dynamics between individual play and
collective socioeconomics drive the evolution of a SW. Early attempts
to comprehensively understand SW have privileged either a view of SWs as
games or as marketing channels. We attempt to correct this view by
proposing a comprehensive framework for theorizing the evolution and
sustainability of a SW using SL as one example of this process. Our
framework is a “bathtub” model to explain joint processes at individual
and collective levels. The motivations of users to participate are
broadly described as play, although work done on video games and
role-playing offer important types of play. However, due to the
persistence and open-endedness of SL, the motives of users are only part
of the picture. The evolution of social and economic systems (a system
of roles, exchanges, and even institutions) continually alters the world
that playful or role-playing users interact with even as their actions
affect the evolution at a higher level. Once we develop a framework to
identify user motivations and forms of economic and social organization,
we validate it with a series of illustrations. We conclude by
developing a research agenda derived from the framework that will guide
researchers and inform discussions about the keys to success in SWs.

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Filed under digital culture, economic sociology, higher education, Research, Second Life, social theory