Kent Pitman

Kent Pitman
New England, USA
Philosopher, Technologist, Writer
I've been using the net in various roles—technical, social, and political—for the last 30 years. I'm disappointed that most forums don't pay for good writing and I'm ever in search of forums that do. (I've not seen any Tippem money, that's for sure.) And I worry some that our posting here for free could one day put paid writers in Closed Salon out of work. See my personal home page for more about me.


NOVEMBER 28, 2009 11:51AM

Teetering on the Brink of Moral Bankruptcy

Rate: 15 Flag

Recently, in my article Over-the-top Overdraft Fees, I addressed the matter of how banks are engaging in blatant predation through the specific practice of attaching rampant overdraft fees. This article is really the continuation of that one, so I hope you'll read that one as well. But here I want to step up a level to what I perceive as the meta-problem that creates situations like this.

The matter takes me back to earlier this year when I wrote my article Fiduciary Duty vs The Three Laws of Robotics. In it, I made the allegation that it is reasonable and appropriate to model some corporate behavior as sociopathic. I am here again today struck by the usefulness of this metaphor.

The World Health Organization maintains a formal description of dissocial personality disorder, and I would refer you there if you're looking for a properly accurate medical description. But while browsing the web researching this article, I found a more informal description that I thought was interesting because of how well it overlapped with the discussion of overdraft fees above. It begins:

Profile of a Sociopath

• Glibness and Superficial Charm.
• Manipulative and Conning.
• Grandiose Sense of Self.
• Pathological Lying.
• Lack of Remorse, Shame, or Guilt.

The list goes on. Later elements include items that one might think are more peculiar to people than organizations—“Early Behavior Problems,” for example. However, even these have some analog in the financial industry. Problems such as the recent surge of predatory practices in banking start with smaller indiscretions. Rather than call companies out on them, we look the other way and say, “well, it's not that egregious.” This in turn leaves companies to engage in a kind of variation of the Peter Principle, where every time they do something that isn't quite bad enough, they get promoted, and eventually they rise not to a level of incompetence but instead to a level of ultimate insufferability, at which point we finally find ourselves, like Captain Renault in the classic movie Casa Blanca, “shocked, shocked to find” that something untoward has been afoot. Shame on us as a society for tolerating such things.

In Over-the-top Overdraft Fees, I pointed out The FAIR Overdraft Coverage Act (S.1799) as pending legislation which shows promise in this area. But at the same time, it's highly specific to this one situation. Going beyond the mere isolated Whac-A-Mole approach to Congressional oversight, I find myself in the sad position of saying that what we really need is some good old-fashioned morality.

Mishima666 summed this up aptly in this way:

This may sound quaint, but I believe it is really a spiritual matter.

The Old Testament says " If a man be found stealing any of his brethren of the children of Israel, and maketh merchandise of him, or selleth him; then that thief shall die; and thou shalt put evil away from among you."

But really, that's what has happened. We have allowed a system to develop in which our fellow citizens have been made into merchandise, in effect sold into a kind of financial slavery, exploited as much as possible, treated most unjustly, and ultimately turned into a commodity rather than persons, by evildoers (another quaint term) who seek to suck the very last dime out of them.

  —Mishima666, in a comment on “Over-the-top Overdraft Fees”

I'm not religious, but I don't have to be in order to agree he has a very decent point here. No matter what the source of our respective morality, which itself is a highly personal choice, the point is that we need to acknowledge that having some degree of morality and decency in the world should matter. The precise nature of our respective notions of morality and decency may even differ, but I would hope we can all agree that no matter what compass we use, we've drifted way off course in this particular matter. When we give up that belief and come to think instead that issues of morality and simple human decency have no place in the commercial world, we make a mess of things.

Sadly, Republican party leaders have turned religion into a partisan issue, veritably trying to position itself as the party of morality. And, ironically, it's that party's Laissez-faire policies, not those of the Democrats, that have brought us this kind of ridiculous unregulated world in which we are asked to believe the fiction that anything that isn't outright definitively illegal is perfectly okay. So perhaps that means we either need to seriously rethink what morality even means in the modern world, or at least to rethink who we allow to claim the moral high ground in our political discussions.

Morality is not a matter of party positioning. It is, as Mishima suggests, something that must really underly the fabric of what we do as a people. This issue comes through in the health care debate as well, where those opposing a “public option” for health insurance, again many who would happily publicly pronounce their moral superiority, seem unusually comfortable saying that it's inappropriate to take care of their fellow man.

And so, yes, legislation like S.1799 has its place. But what I sometimes think I'd really like might be legislation that hit closer to the root problem, that of intent. I'd like to see less time spent at cleverness in product design and more time spent on coming up with products that really do serve the public. And so I'd like people who want to design products that push the edge to have just a little fear that it might not end well for them. This that follows probably isn't precisely what I'd like to see, but it might give you an idea:

Kent’s Suggested Legislation

Be it resolved that anyone operating a business that takes any non-contractual action that affects the financial standing of a customer in any way shall be guilty of felony larceny if, upon being notified that the action was unwelcome, they are unprepared to take the cost of the action back onto themselves or they are unprepared to agree not to take such actions in the future. All actions by financial institutions that affect a person's financial standing (bank balances, asset ownership, and financial liability) must be agreed to, in advance and by affirmative consent of the customer on an opt-in, per-practice basis, never by a blanket agreement about general practices. Appropriate disclosures about the financial impact of the practice and the rules governing the use of the practice must be offered. For the purpose of allowing unspecified general discretion, instruments such as powers of attorney already exist. Commercial contracts are the wrong instrument for any discretionary administration of funds by a bank or lending institution.

Be it resolved, further, that in any such situation, exercising the unmitigated gall of using a word such as “courtesy” or “favor” in any contract, advertising, customer relations statement, or customer service telephone call to describe such an action held later to be felony larceny shall create the special circumstances needed to justify an additional charge of felony fraud.

Be it resolved, finally, that both of these penalties shall apply both to the company and to all officers of the company individually whether or not they had affirmative knowledge of the practice. It is their affirmative duty as officers to have knowledge of the practices their institutions use and to be held accountable for those practices.

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This is brilliant. I agree with mishima. It is centrally a spiritual (or moral) matter and therefore open to subjective opinion. But I believe your idea of offering some remedy of “moral consequence” is needed.

Personally I believe that institutions which capitalize on the public trust (such as: income, investment, health and safety) who operate in any way that leaves their clients vulnerable to various harms should face the same civil and criminal charges that those who inflict or intend to inflict personal injury are liable to.

The cavalier and reckless manner in which public trust institutions have operated in order to amass wealth has directly or indirectly caused the financial and personal ruin of too many citizens to be dismissed without consequence.

Rated and appreciated
Thanks for the strong show of support, Dennis. I think you're right to pick out that group, and it's not coincidental that the phrase “the public trust” has evolved to span that set. I've made some notes on this important point to expand on in a future post. Thanks for that as well. :)
are you now, or have you ever been, a legislator? planning to run for office?

there's never any shortage of 'we shoulds,' just a lack of 'here's hows.'

i came across a book recently that addressed this problem. the author argued that america's history had produced a people so alienated and socially atomized that concerted political action was theoretically possible, but psychologically impossible. the national character was that of serfs, incapable of imagining self-determination because of a life-time of school and media conditioning.

it's "dark ages america" by milton berman. chomsky-lite, at your local library perhaps. it'll tell you why you gossip about politics, but don't act.
Al, some day I would like to understand not just what you don't like about what we have but what you'd like to see instead. :) But thanks for the feedback.

very interesting couple of posts.

I agree very much that it is an issue of acting morally. Every corporation should have the golden rule as a qualifier in their mission statement.

I also fully believe that the rest of us, as consumers and as shareholders (anyone with a 401K or an RRSP here in Canada) take a portion of the blame for lack of morality as well. We all want our retirement plans to have extraordinary gains. Not many of us take the time to investigate the kinds of companies that make up our portfolio (especially the mix in many mutual funds).

I think you hit on this too partially when you said "Rather than call companies out on them, we look the other way and say, “well, it's not that egregious.” ", but I don't think you went quite far enough in spreading the culpability. Sure we need to incent ‘good’ companies by supporting them with our business and punish the ‘bad’ ones by boycotting them but that’s the tip of our responsibility iceberg, in my opinion.
Kent: I suspect the overdraft fees actually are mentioned in the fine print on bank account contracts ... only, hardly anybody ever reads the fine print. I bet your "non-contractual" loophole would be big enough to maintain all the current behavior. Because the real trick is that people agree to contracts that they don't understand. That's how they get taken advantage of.
Kent writes: "I'm not religious, but I don't have to be in order to agree he has a very decent point here. No matter what the source of our respective morality, which itself is a highly personal choice, the point is that we need to acknowledge that having some degree of morality and decency in the world should matter. "

I think what has happened is that a particular view of economics has been turned into what could almost be called an alternative religion. The idea is that the "free market" is self-regulating, to the point that little or no outside intervention is needed, and the such intervention almost always makes things worse.

For example, in a recent Frontline program it was revealed that Alan Greenspan even disagreed with prosecuting investment fraud, the idea being that the market itself would eventually correct the "problem" --

"When I went to work with [Brooksley Born] and she was telling me, "This is what you're up against," she told me that she had had this lunch with Alan Greenspan, and he had said to her probably that she and he were going to have a disagreement about something, and the subject was fraud. And he didn't believe that fraud was something that needed to be enforced or was something that regulators should worry about, and he assumed she probably did. And of course she did. I've never met a financial regulator who didn't feel that fraud was part of their mission, but that was her introduction to Alan Greenspan."

Interestingly, Greenspan was very influenced by Ayn Rand. Rand was an opponent of traditional religion, and especially of the idea that there was any virtue in engaging in personal charity or self-sacrifice. In fact, she wrote a book on "The Virtue of Selfishness," with "selfishness" defined as looking out for your own interests. While few people would describe themselves as "followers" of Rand, millions in effect are, especially when it comes to economic issues, even people who are supposedly "religious."

I don't want to turn your post into a discussion about religion. But I'll note that when traditional religious values are lost, there is a vacuum waiting to be filled by ideologies such as Rand's, and the culture itself, largely lacking a traditional religious foundation, is unable to resist the new thinking.

And so today "making merchandise" out of people is such a part of business thinking that many people in business don't even think about it. It's like at every turn they look for ways of extracting money from people, justified or not.

My own credit union isn't too bad to work with. But I remember a few years ago I put some remodeling expenses on a line of credit with them at 8 percent interest. Then, overnight, 8 percent turned into 15 percent. I was told that the credit union's "consultants" had recommended it. I paid off the line of credit and never used it again.

When I got a cell phone I discontinued the long distance service on my home phone, since I didn't need it any more. And so then I had to pay a monthly "long distance access fee" because I wasn't making any long distance calls. So you get charged for the service if you use it, and you get charged for not using it. The same thing happens with many credit cards. It has gotten to the point now that you expect to be screwed by a company, and when you aren't, it's a pleasant surprise.

These things are all the result of a morally defective worldview that I fear won't be corrected short of a major reformation in how people think. And I don't know where that will come from.
Mishima, you wrote: “when traditional religious values are lost, there is a vacuum waiting to be filled by ideologies such as Rand's”

I think you're both over-favorable in this assessment toward religion and a bit to cynical about non-religion. That is, I think for non-religion there's certainly the issue that there's nothing that requires morality, but I think you're wrong to say all morality of a non-religious kind leads toward Rand. I myself am not religious and don't agree with Rand on this. I have enjoyed her books, but I don't subscribe to her “religion” (which I agree is an apt term if you talk about the full space of philosophies she promoted).

But on the religion part (anticipating Rick Lucke's entrance at some point), many (not all) people who seek out organized religion are looking for prefab sets of things to think and at least some people (Rick will probably say many or most, but I'll be more vague, lacking good stats) who are offering religious views are playing as fast and loose with the rules as anything you're wishing came from religion. In fact, anyone who would adhere literally to every word of what's in the religious texts is scary not just to me but even to many practicing religious folks. And once you open the door to any modernization, you're as much subject to the whims of man through that avenue as are the people who are trying to construct non-religious morality.

I think it's safer and more fair to simply say that there's a middle ground to be achieved in society, and it must begin with the notion that we won't all converge on identical principles, but yet we should seek out common ground and things that are in the public interest.

But I'm within you on most of the rest of what you said, and I don't begrudge you the remarks about religion. I knew that was going to be one useful source of ideas when I opened this thread and as long as you're not ruling out ideas that come from non-religious sources, I'm willing to meet you halfway.
Mark, the complexity about your suggestion of putting the Golden Rule in the mission statement is explained in my article Fiduciary Duty vs. The Three Laws of Robotics, which means that we've legally bound ourselves into a corner in how we've constructed our society. The solution is probably to get rid of the legal fiction of non-human persons to at least some degree, but I'll let that article explain it if you want more detail because it would really expand out of control if I went into it here.
Kent writes: "I think you're both over-favorable in this assessment toward religion and a bit too cynical about non-religion."

Just to clarify, the loss of what I call traditional religious values has occurred even among many so-called religious people. What Christians call the "Old Testament" has many prohibitions against "usury." In addition there are countless passages dealing with care for the poor, the widow, and the stranger. There are passages that deal with fair treatment of workers.

And there is the fascinating Psalm 82. In that psalm the setting is a kind of "committee meeting" (for lack of a better term), a meeting of "the gods," in which the Hebrew god Yahweh presides. He condemns the other gods because of how they have treated people:

"How long will ye judge unjustly, and accept the persons of the wicked? Defend the poor and fatherless: do justice to the afflicted and needy. Deliver the poor and needy: rid them out of the hand of the wicked.

"They [the other gods] know not, neither will they understand; they walk on in darkness: all the foundations of the earth are out of course."

The foundations of the earth "being out of course" is literally a kind of destructive earthquake, and a failure to care for needy is seen as a great spiritual darkness, and even other gods do not escape condemnation.

In the gospel there are many references to "the poor," and even Jesus is described as being one who "hath not where to lay his head." Talk about "illegal immigrants," even the Holy Family had to flee to Egypt at one point. Greed and covetousness are denounced throughout the New Testament.

But during the last three decades, when conservative Christians got in bed with the Republican party, that whole religious emphasis on economic justice has all but disappeared for many.

There's nothing about religion that makes it automatically good, and religion certainly has the potential to become an evil force in the world.

Kent: " . . . but I think you're wrong to say all morality of a non-religious kind leads toward Rand."

Well no, it doesn't, especially at the level of the individual. But I'm talking about trends in the larger culture, at the level of the collective worldview, and what happens when there is no religious consensus to resist the inclination to greed.
Mishima, thanks for clarifying. I don't have any immediate response, though I took notes for a possible future post. (Nonetheless, we're not in substantial disagreement... Except, did you mean "non-religious" in the last sentence there?)
Hi, Robin. Thanks for the support. :)
Recently, Macy's jacked up the interest on our card, which we had used for a furniture purchase. I called them and they told me it was an across the board increase and that I had not done anything wrong. The woman on the phone was very polite, actually a nice person in a 'no win' job. I told her that if they didn't reduce the rate to what it had been I would pay off the card and never shop at Macy's again.

There is nothing that they are selling that I cannot find an equivalent for somewhere else. When I send in my last payment in February I am going to send them a letter and tell them how they lost me as a customer. What customer who pays their account down to zero a few times a year deserves a 27.99% interest rate? I checked today and the rate they show for a new account now is 24.50%. That's usurious.

I have some thoughts about the conversation between you and Mishima. When I was a teenager I went to Methodist church. That's where I learned about inner city poverty and social justice when I was sixteen. We talked about the opportunity of expressing generosity and the moral consequences of doing nothing when we could see that others were suffering, seeing such failure to act as a poverty of the soul. Those sermons and lessons stayed with me even if Christianity did not.

I read Ayn Rand during that time. I rejected her ideas as greedy and selfish in the old-fashioned sense of those words. I haven't changed my mind.

Maybe it is because of older friends who enrolled in the Peace Corps that I got the feeling that we ought to dedicate some portion or our lives to educating, feeding and sheltering those who cannot seem to do it for themselves.

It is the tremendous greed of corporations that has become the source of suffering for the least prosperous of our own citizens. That they would prey upon them points to an absence of moral strength in our culture. Unbridled capitalism has been presented as virtuous by the Right.

I believe that there have always been a certain portion of the population that does not require legislation or religious influence to do the right thing, but I also don't think that there are many of those people. It takes a certain idealism that is not natural to a lot of people. Morality is imposed externally by laws, social groups and religious institutions for a large portion of humanity because that is what seems to work best. Most people are too busy to think about their own moral condition, even while they may be trying to act morally.

Who ask themselves "What causes moral behavior?" No wonder people are followers of moral belief rather than creators of moral behavior. And yet, though it may be an easy way to maintain morality, it's possible that religious and theistic belief may be dangerous for moral behavior, if that behavior is merely following a leader because, for instance, that leader may fail in some way and completely challenge the basis for the moral behavior of an entire congregation or organization.

The powerful are able to subvert the universal application of laws that are supposed to be universally binding, the same happens with morality. It is my feeling that it is our individual duty to develop ourselves morally so that the laws are not necessary to our doing the morally right thing, but I also believe that we cannot trust that those with more power and more money will not prey on those with less. In the last 30 years it has been demonstrated that those with power and money would move the bar and prey on the middle class as well, and that is truly why we must have this conversation and why we have to stop them through legislation and develop enforcement that actually does its job rather than sits idly by. For that reason I believe that your proposed legislation requires clearly stated penalties for infractions.
I actually thought about that Susanne, and I left that out because it made it more wordy. But I actually agree with you. “with a minimum sentence of 5 years of actual real calendar time in a real prison, the kind that thieves, murderers, and rapists are in” (and it should use those words, not some abstraction that can be gradually redefined) might be a nice addition at some point or another, just to avoid sentence deflation, white collar prisons, etc. Good suggestion.
White collar prisons really piss me off.

I have so much to say about the issues raised in both posts involved in this discussion that I can’t begin to put them into a comment here. I think the issue of morality is somewhat misplaced here since capitalism, and especially in the current form of corporatism that commands our society, is essentially an immoral system by its nature. The idea of profit is, in essence, based on taking advantage of others; selling something for more than it is worth in reality. I’m also not so sure that the concept of “spirituality” is well-placed in this discussion, and certainly religion has nothing to do with it whatsoever, as religion and morality are not truly synonymous.

But one thing I thought I would suggest is an amendment to your “suggested legislation”.

Your write, “…penalties shall apply both to the company and to all officers of the company individually whether or not they had affirmative knowledge of the practice. It is their affirmative duty as officers to have knowledge of the practices their institutions use and to be held accountable for those practices.”

In a culture such as ours, asking individuals to forfeit their livelihoods in the interest of doing “the right thing” is completely unrealistic, as well as “wrong”. We have a government that is so corrupt it allows criminals who have served within it to walk around making speaking engagements, taking teaching positions at prestigious colleges, going on tours to promote their books, and profiting through the corporate world where the issues you raise originate.

I think making people who are not in a position of power responsible for decisions made by those who are in power is somewhat counterintuitive. I would suggest creating some sort of delineation, a point at which we might draw a line where such responsibility begins and ends, thus protecting those who are victimized by their employers rather than victimizing them further; perhaps at the edges of the power to hire and fire or to direct policy. I don’t know.
Rick, I assume the “officers” of a company do have that ability to hire and fire, and that's why I worded it thus. If you can think of a better wording, I'm open. But my intent was to draw exactly the line you say, where the people in a company who actually have the control of what the company does are the ones on the line, certainly not those who are merely told what to do.

You're right. I wasn't very clear in my comment. I guess what I'm looking at is the differing levels of operation. The lower down you get in the chain of command, the less authority there is. I've worked in middle-management positions where saying what you really think about policy gets you fired. That's it. So, there are officers who are involved in instituting policy, and there are those who simply make policy.

I guess the most commonly understood use of the phrase "corporate officers" is that it applies only the those at the very top, but that is not its only meaning. Not all officers are involved in making policy. Maybe one way to clarify things would be to reference the specific duties of the officers affected by your legislation. ???
Rick, I'll take note of the issue and if it gets as far as getting used, I'll suggest repairing it. But I'm not disagreeing with your point.
While I'd love to jump into the philosophical side of the discussion, I'll instead give an anecdote that happened to me. The exact amounts involved are rounded and fuzzy from age, but fairly accurate.

I have three bank accounts at Citizens Bank, a normally pretty decent bank. One business checking account and two personal checking accounts. I use personal account 1 for all my online bill paying, debit card transactions, and moving money to/from PayPal. I use personal account 2 for many purposes, including receiving foreign wire transfers from dubious overseas customers, so as not to put my main business and personal bill-paying accounts at risk of overseas fraud. I really should have a third account that I use for nothing but securely holding money, but I use #2 for that when I haven't dealt with a foreign wire in several months, and feed #1 from it as needed.

Well, sure enough, one day in that mode I transferred $100 from #2 into the near-empty ($15?) bill-paying account #1 because a $600 PayPal transfer had not arrived to #1 yet. In goes the $100 so I can generate 6 Flat-Rate Priority Mail postage labels online, costing $4.80 each, pay for a small ($20?) PayPal purchase, and have $50 or so left in #1 in case more orders came in that day requiring postage. Then the PayPal money will arrive later, but who knows when.

I generate the postage labels and pay for the $20 purchase, no problem. A couple days later, the $600 arrives from PayPal to #1, covering my $300 car payment which I expect to be taken out automatically in a few days.

On the day the car payment normally hits, I log in to check whether the car payment had come out yet. I see that it has, but instead of seeing $300ish in the account, there is more like $-30. It's that the $100 transfer never happened, they immediately overdrafted the near-empty account by doing the $20 payment first, then the 6 postage purchases each caused overdrafts also. They had some bizarre formula for calculating overdraft charges as a function of how many overdrafts were outstanding when a new one hit, and how many days it was before you covered it. That latter part sounds a lot more like interest than a courtesy fee, to me. So they took 7 "overdraft protection courtesy" fees out the account. I don't remember the exact amounts, but I think it was $29 for the first one, $39 for the 2nd, and $54 each for the other 5 in my case. "Because it was my first overdraft" they removed the first one. Aargh, still a $300+ hit for not noticing that the $100 transfer had failed (not sure why, but if I were paranoid I'd suspect a website transfer-confirmation deception/bug on their part) which then caused a string of $4.80 transactions to be overdrafts, most of which ended up costing me $43.80 or $58.80 each! Then to add insult to injury, the fees exceeded the amount of my car payment, so even though I'd put in enough for about 2 car payments, it overdrafted also. Crazy! I never got more than the single $29 back, despite having 3 accounts and a sterling record there, several times having $50K or $100K sitting in a checking account.

They wouldn't let me remove this "courtesy overdraft protection" from my account and they wouldn't just cover it from the linked account. I wouldn't be surprised if they monkeyed with the timing and ordering of transactions to make sure the maximum number of overdraft charges were generated.

They really should go to jail for not just declining the debit, which would have told me that the transfer had failed. Yes, I technically could have double-checked the balance, but they know that humans and websites interact in ways that let them magnify small human errors and generate them huge profits. I have no evidence that there is a spot where they should have flashed me a "HEY DUMMY, DON'T YOU WANT TO FINISH THIS TRANFER?" message, but maybe that or a temporarily hung browser session cost me $300. I'm still not sure EXACTLY what happened, other than it cost me a pile of money for nothing of value, because they maliciously targeted me to pay them a pile of money for nothing of value the first time I made a keystroke mistake on their website.
JHopper, thanks very much for the example. (I hope you saw there was a companion piece to this that had other such examples. More is always better in cases like this. It helps people to understand how common and how ridiculous these things are.)

I love the Sociopath and Legislation boxes, they are both seriously applicable to the banks in particular nowadays.

To show you the level of malice by some banks, I'll describe a scheme which doesn't even benefit the banks, but real estate professionals have begun reporting as a new trend by the nastier banks.

Some banks have gotten very reluctant to do short sales, despite it often being the way they net the most money on a house headed for foreclosure. Their reluctance is somewhat understandable as a deterrrent against giving an easier out than foreclosure to people who can afford to stay and pay. They don't want others to play follow the leader if a neighbor walks away cheaply from their negative equity.

But now, there are even cases where they're reluctant to foreclose, if they can figure out a way they can do even greater harm to the consumer. Here's how it generally works. Someone with both a 1st and 2nd mortgage tries to get a short sale. The bank with the 1st refuses unless the 2nd cuts them a really sweet deal releasing the 2nd cheaply, or unless it's a state where the 2nd just disappears if an auction by the 1st comes up short of paying off the 2nd also. So the 1st banks starts foreclosure to see if the person can come up with the money under threat of actually losing the home and getting their credit seriously trashed. Still pretty standard procedure, nothing horrific or unethical, just enforcing the mortgage terms.

But here's the twist. If the consumer fights the bank in court or otherwise tries enforcing the terms of the note, mortgage, or law in a way that ticks the bank off, the bank takes revenge in a way which I don't feel is necessarily legal. They stop and don't foreclose. They stop paying the real estate taxes on the property. Eventually the town forecloses via tax sale, knowing that the taxes get paid from the proceeds even before the 1st mortgage does. Business sense says the 1st bank at this point should of course let the town auction it off, and get paid whatever is left after the taxes are paid. But instead, the day before the town sells it, they forgive the entire amount of the 1st mortgage and report it to the IRS. It becomes a writeoff to the bank and income to the person.

At first, I scratched my head and asked myself why the person didn't just pay off the taxes at that point and own the house with no 1st mortgage debt. The answer is that they only have a day to do so, plus are typically looking at a 2nd they can't afford to pay off either, especially considering the huge income tax bill they are facing.

In fact they could have paid off the taxes to stop the tax sale at any point earlier in the process, albeit with the remaining threat that the bank could have restarted foreclosure on the 1st mortgage.

Depending upon the amounts involved, I'd bet that the banks are shooting themselves in the foot pretty badly on this one, as the person will probably also get cash out of the auction after the taxes and 2nd are paid off from auction proceeds.

So maybe the banks in fact should (or do) forgive less than the full amount according to what game theory says hurts the consumer the most. But even that they would apply game theory in ways designed to maximize the hurt to consumers, rather than "just" maximizing their own financial result like the debit-card-fee-scamming banks do, is a sign that they are being especially nasty.

I'm still looking for hard evidence of examples of this. The best I have so far is that the stories are being told by pros (appraisers, title searchers, agents, etc) rather than just disgruntled consumers.

The unilateralism of using "debt forgiveness" as a weapon to unleash the IRS on someone, bothers me. It certainly violates "your" legislation, and probably most mortgage terms as well.

Imagine you just bought a $4 million dollar home on October 1, made your first monthly $20,000 payment on November 1, and then on November 30 were told the debt was forgiven but you owe the IRS $1.5M of taxes on $3.99M of income the unilateral forgiveness generated this year for you. So instead of owing $20,000 to the bank on December 1, you owe $1.5 million in estimated taxes. Oops, I can't come up with the extra $1.48M this month, so now I'm in trouble with the IRS???? What did I sign in my loan note and mortgage document giving the bank the power to unilaterally forgive the debt and throw a monkey wrench in my nice $20K/month housing budget?

Personally I'd rush to another bank to get a $1.5M mortgage to pay the IRS bill and send a thank you note for my $2.5M savings rather than sue the forgiving bank. But I believe the bank should not be able to force me into that spot, and could be successfully sued for breaching the original mortgage by forgiving it unilaterally!
I still think you should be running for office, dude. I'd vote for you.

Be it resolved, finally, that both of these penalties shall apply both to the company and to all officers of the company individually whether or not they had affirmative knowledge of the practice. It is their affirmative duty as officers to have knowledge of the practices their institutions use and to be held accountable for those practices.

That is (to me, anyway) so self-evident it is almost a tautology.

Rated. I'd also like to see financial institutions forced to pay interest on money deposited at the same rate that they charge others to borrow said monies. Giving me 5.25% interest on my savings while charging my 9.6% interest on my loan is not right. Not even close.

Thanks for the heads-up. A post that was well worth the read, one that in fact asks to be read more than once.
We have already fallen into moral bankruptcy. Furthermore, from a moral point of view, one has not addressed the issue if one does not look back before going forward. It requires public admission of wrongdoing, restitution, and only then, after one has repented is one prepared to move forward. Of course I have no expectation that any of this will come to pass. The law in Congress was limited and crippled through the success of the Banking lobby.
David, I think the issue of restitution is quite important. Some banks seem to be rushing to pay things off so they can get back to their old ways, as if somehow as soon as the money is dealt with they have no responsibility beyond what is forced on them. Ethics and manners are in a middle ground that is not forced but still matters. And I do think there's not enough of that middle ground getting attended to. It leads one to believe the same problems will likely recur...