“Brent T. White, a University of Arizona law school professor, says that it’s in the homeowners’ best financial interest to stiff their lenders and that it’s not immoral to do so.”

— http://www.latimes.com/classified/realestate/news/la-fi-harney29-2009nov29,0,3801270.story

This story, suggests that mortgage holders politely flip the bird to their debtors when they come to collect on underwater mortgages.  The argument provided is that when times were good, the banks were negligent and irresponsible in handing out loans.  As such, now that times are bad, it’s fine to simply walk away, and you should do so with a clear conscience.  I agree with the message but not with the reasoning.

The real reason is that you may think the bank has offered real money to the previous seller of your home; not so.  The bank instead paid the former seller of your house with money it conjured into existence from another mortgage.  The fractional reserve banking system allows the bank to ‘leverage’ 90% of its deposits, reserving only 10% for those who make periodic withdrawals.  So the money that the bank put up for the house is actually someone else’s deposits which theoretically could be called in on a moment’s notice?

Confused?  Good, you should be.  Suppose your neighbour lent you 5 DVD’s on condition that he might ask for then to be returned at any time.  You then turn around and rent out those 5 DVD’s for a dollar each for 1 week.  If your neighbour doesn’t ask for his DVD’s back during that week, you just made 5 bucks.  But suppose your neighbour comes back 2 days later to reclaim his DVD’s – what then?  Legally, in either case, the DVD’s weren’t yours to rent; the agreement between you and the people you rented the DVD’s to is null and void.  The only difference in the two scenarios was whether you got caught or not in the fraudulent activity.

Believe it or not, the banking system, worldwide, is currently this fraudulent.  The loans a bank issued are from the unwitting depositors funds’.  Only due to the Federal Reserve Act (and similar acts worldwide) is this fraud considered ‘legal’.  Even so, the bank never puts up its own assets for a loan.  As such a successful, yet rarely mentioned case, makes the argument that having failed to put up legal ‘consideration’ (hard assets) for a mortgage, the mortgage is null and void.

Here an article about this decision including links to the actual decision on file.
http://www.martincwiner.com/a-fast-way-out-of-the-mortgage-crisis/