God and Game Theory (Part I)

Every few hundred years in Western history there occurs a sharp transformation.... Within a few short decades, society rearranges itself -- it's worldview; its basic values: its social and political structures; its arts; its key institutions. Fifty years later, there is a new world. And the people born then cannot even imagine the world in which their grandparents lived.... We are currently living through just such a transformation.
Peter Drucker

As with many such trends, it started in California. People who bought a $500,000 house they couldn’t possibly afford, suddenly found their property worth $250,000. They couldn’t sell the house and cover their mortgage. They couldn’t refinance. Even if they could continue to pay the mortgage, it made no sense to throw good money after bad, so they just walked away. They put their house keys in an envelope with a letter informing the bank, the house was no longer their problem. These envelopes containing the keys to abandoned houses were called jingle letters. An article in Forbes observed, “In California and Arizona, the law restricts deficiency judgments--a court's ability to collect on the remaining value of a foreclosed home once it has been sold. In these states, homeowners with negative equity can walk away from the property.” The banks were shocked. Nothing like this had ever happened. Customers (victims?) were no longer playing by the bank’s rules. In the most recent issue of the Harvard Business Review an article entitled “The End of Rational Economics” expresses shock and dismay at these changes in customer and employee behavior and proposes a new field of study, behavioral economic, to better understand why people might act in their own rational self interest, rather than adhering to a strict moral code that would benefit a bank. A series of psychological experiments undertaken by these researchers conclude that, “Most individuals, operating on their own and given the opportunity, will cheat – but just a little.” Over the past 30 + years American corporations systematically destroyed social covenant after social covenant with their customers, shareholders, and employees. Now they are shocked as the public acts in their own rational self interest rather than obeying the Golden Rule.

Like the unjust steward discussed in an earlier post, the credit card companies are attempting to get ahead of the curve on this problem. They are actively soliciting cardholders and offering to settle their account for as little as 50 cents on the dollar. These rational businessmen would rather get something today than nothing after the law changes in February. It isn’t just the new law. Unemployment is rapidly approaching the magic 10% threshold. Customers with no property can not have a lien placed on their home. The unemployed can not have their wages garnished. Of course the customers the banks and credit card companies want to shed are the customers least able to take advantage of these generous offers. If they could pay off half their credit card balance in cash, they probably would have already done so. Experts predict that in the near future, the credit card companies might expect to recover 5% from an average past due account. The banks will cheerfully accept as little as 35% cash on the barrel, today. Not surprisingly, the IRS is interested in these transactions. They view such forgiven debt as earned income and will be demanding their share of the loot.

Various organizations, both for profit and not for profit, are making money doing for the debtor what the debtor could do for him or herself. Just listen to the advertisements on Christian radio stations; this is happening in the church. It is happening today. A line has been crossed. There is no going back.

Luke 6 (NIV)

31Do to others as you would have them do to you.