For ten years I've worked out personal finances with families and singles in trouble. The numbers usually scream "walk away!" Most people don't -- until they're financially ruined. This is why you keep paying -- and why you are not morally obliged to pay.
Bear with me for three paragraphs.
I never even tried the lawyers' strategic default argument, "It's in the contract that you can walk away! The bank gets the house! It's part of the deal!" People have been hearing lawyers argue both sides of a question for so long that they just tune it out. After all, who knows which lawyer is right?
The "Wall Street ripped you off, so it's OK to rip them off!" angle doesn't work much better. Joe Average isn't buying it. Americans are thinking "OK, I accept that big bank CEOs are complete sleazos ... but why do I have to be a sleazo?" Unfortunately, that's a somewhat reasonable attitude. People are reluctant to be sleazos, even "just this once."
Yet many of the debts were clearly fraudulent and unjust. I was puzzled. And after years of interviewing people in debt, I finally figured out why people are so reluctant to walk away from debts that they were clearly tricked into. It's because morality and duty have gotten mixed up, or -- much to the delight of the rich -- we working stiffs have come to consider them the same thing.
Dictionaries' first definition of both duty and morality are usually "what's right." If you dig deeper into the roots (etymology) of the words, they are quite different.
Duty describes deep obligations that transcend time and cultures: rescuing a drowning child, carrying an injured friend off a mountain, or dragging a wounded buddy out of battle. These values are the same in the mountains of Tibet, ancient Rome, or the USA today. They are obligations so deep that you don't think about obligation; you just do it.
When you do think about duty, the obligations are usually still quite clear. World War II was about saving half the planet from totalitarian rule, and most Americans considered it their duty to put their shoulder to the wheel, or even put their lives on the line.
Duty doesn't enter into business much. It never did. As recently as a couple of hundred years ago in the U.S. it meant to "hold up your end of the log" (literally, if you were building a barn), or keep your end of the bargain. In bargains, as with logs, the other person was expected to hold up their end.
Morality is a quite different word. From Latin, through French, to Middle English, it has been defined as "proper behavior in society." (In Medieval French it didn't even mean that, it just meant "customary.")
Because societies change, morality is not a near-constant value like duty. Today, for example, we consider it immoral to steal from our employers. But as recently as 1870 in the U.S., if an employer was miserly, then "dipping the till" was considered a standard part of a clerk's income, necessary to feed their family. Then cash registers were invented, the clerks couldn't steal anymore -- or feed their families -- and miserly employers had to pay them higher wages so they wouldn't quit. In just 30 years, stealing from the cash drawer went from moral (or at least customary) to immoral. Society had changed, and proper behavior had changed with it.
The morality that average Americans are trying to work under today was, in my opinion, created by Henry Ford in 1914, when he raised worker's salaries from $2.34/day to $5 a day, in part to reduce turnover, but also "so they can afford to buy my cars."
The rich called him a traitor, then realized that Ford was making even more money, and got on the bandwagon with a new social covenant: "The rich shall not excessively rip off the workers." Our part of the deal, we the non-rich, was to pay our bills on time and be good boys and girls (at first by working on factory lines, then in cubicles), and buy more stuff.
We did our part, the rich did their part, and in the 1920s there was a growing middle class in America. The covenant was working well. After the little speedbump of the Great Depression, the deal started working beautifully in the 1950s. The rich were getting richer, and we were getting cars and TVs and steak twice a week.
Starting in 1978, when a U.S. Supreme Court decision allowed national banks to charge the maximum allowable interest in their headquarters state to the residents of all 50 states, on through the savings & loan scandals of the 1980s, to the last 10 years of massive mortgage fraud by investment and mortgage banks, that social covenant collapsed. The American taxpayer had simply bailed out the rich too many times, in too many ways.
So paying big banks was (almost) always moral -- or proper behavior in society -- in 1977. It was proper behavior because it kept the economy working smoothly, for the benefit of both rich and middle-class (and with some benefits for the poor).
Thirty-four years later, it's no longer always proper behavior, because paying off underwater homes or 29.9% interest on credit cards is wrecking families, communities -- and in the long run, wrecking America.
It was a man who'd grown up in Wisconsin farm country who brought home the difference between duty and morality for me: "A farmer can't survive a hard winter without the help of the community. You take care of your own, because they're the only ones who will take care of you."
Then I realized why on radio interviews I always work in "I've never endorsed stiffing family, friends, or local merchants; you pay them back when you can." That's because I consider paying them a duty.
Paying big banks 29.9% credit card interest or twice what your house is worth, on the other hand, is a matter of morality -- and the last 33 years have changed those rules. Now it is proper behavior to walk away from big bank debt in order to preserve yourself, your family, and your community.
In fact, in 2011 walking away from an underwater home or usuriously high credit card interest is not only moral -- it's good citizenship.