A few days ago, Newsweek, published the article Default Nation: If billionaires don't feel guilty about walking away from their debts, should homeowners?.
Essentially, the writer notes that strategic defaults are rising which is causing serious concern with mortgage bankers and business professors. The CEO of the Mortgage Banking Association is concerned about the message parents are sending to their kids. A business ethics professor firmly states that "borrowers who can afford to stay current are morally required to do so".
The writer correctly points out that corporations have been using strategic defaults since the dawn of time, so why shouldn't individuals. Hmmm. Let's think here. When a corporation decides not to pay its debts, even though it can afford to make payments, it is a wise business. When a citizen attempts to strategically default then it's Un-American; its destructive to the fabric of our society. By the way, do you know the definition of a Corporation? Just check Wikipedia's A corporation is an institution that is granted a charter...having its own rights, privileges, and liabilities...[and] are recognized by the law to have rights and responsibilities like actual people...[and] can exercise human rights against real individuals and the state..and...may be responsible for human rights violations". Seems that corporations are citizens too.
What's good for the goose....And by the way this brings up the strategic default principle of definition :Maximize Cash Flow, Protect Wealth and Minimize Losses. Always remember, when deciding to strategically default, you must always maximize your cash flow, protect what wealth you all ready possess, and always minimize your losses. More on this principle in future posts.
So why the double standard. Why can corporations use strategic default to maximize profits and minimize losses and ordinary people cannot. In an excellent analysis of this double standard, University of Arizona, law professor, Brent T. White, analyzes the moral and social reasons why people do not strategically default even though its in their best interest to do so. In my opinion the most important text from his article states
"most underwater homeowners don’t default as a result of two emotional forces: 1) the desire to avoid the shame or guilt associated with foreclosure; and 2) fear over the perceived consequences of foreclosure - consequences that are in actuality much less severe than most homeowners have been led to believe...Moreover, fear, shame, and guilt are...actively cultivated by the government, the financial industry, and other social control agents in order to induce individual homeowners to act in ways that are against their own self interest...[u]nlike lenders who follow market norms, individual homeowners are encouraged to behave in accordance with social norms of 'personal responsibility' and 'promise-keeping.'"
This is good news for ordinary people. It's time to right side up the upside down notion that it's morally and ethically proper to commit to a financial plan of action, which is completely against your financial interest. It's time to right side up the upside down idea that you have a societal responsibility to pay debts that continue to bleed you dry.
The main stream media will continue to beat the strategic default drum because it raises issues beyond just the principles of a strategic default. It puts into focus individual responsibility and collective responsibility, especially in the age of multi-trillion tax payer, printed dollar bailouts for corporations that strategically default.