What I don’t see in the pity pieces about the struggling borrowers and home equity locusts is the other side of the story. The losses that are being realized are not funny money - they are someone’s income-producing investment that has suddenly gone up in a puff of smoke. Maybe they are made anonymous by layers of slicing and dicing, but make no mistake, the losses are real and they are coming out of people’s savings one way or another. As far as I am concerned, the savers of this world are being worked over quite thoroughly by these borrowers and any sympathy for them is sadly misplaced.

It is no different than, when walking down the street, you see a wallet on the ground. You pick it up and it is full of money. Do you spend the money or do you return it to whoever’s ID is in the wallet? That is the moral equation. These people who say “I didn’t understand” or “the lender fooled me” or whatever, they took the money, didn’t they? Sure, the lenders were careless with their money. But that is no different than thinking it is OK to help yourself to the money out of the wallet, because the owner was careless. They picked up the wallet. They made a promise to repay the money, didn’t they? The collateral is irrelevant. They are welching on their promise. Thieves.

And from an economic point of view, there is a double whammy. Not only is the thief no longer able to consume, the disappearing asset is removed from the savings pool, limiting someone else’s ability to consume in the future. Consumption in the economy gets a double whack, as does the saver who put off consumption in the past to make an investment, and now isn’t going to be able to consume in the future because his savings have gone up in smoke.

Well, you may ask, didn’t you just discuss how much of this credit was created by banks, making money out of thin air? Yes, I did. And now, when the loan defaults, the asset disappears. But the liability - the money in the house seller’s bank account, for example, is still there and must be offset by a transfer from shareholder’s equity - the capital of the bank’s shareholders. That is when the investor, the saver, the shareholder, pays the price for the borrower’s profligacy.