I have written about “strategic defaults” many times in The Ticker, with the most recent being right here:
Therefore, until the law is changed to prohibit the use of said “Strategic” legal containers and the resulting option of business interests – including the banks that are complaining now – to practice selective default when it suits them I stand by my original view:
Strategic Default, in today’s economic, legal and ethical environment, is perfectly within the rights of consumers and they should exercise that right when it makes economic sense, after consultation with both legal and accounting professionals.
This is now showing up in the “mainstream media” – specifically Newsweek:
Um, do any of these people read the Wall Street Journal? Strategic defaults are the American way, and I’m not talking about strapped middle-class borrowers who prefer spending money on vacations to staying current on their payments. Deep-pocketed companies, billionaires, and institutions that can afford to stay current on payments strategically default all the time.
Ding ding ding ding ding. Give Daniel Gross a cigar!
Let’s cut the crap – again – this Christmas, and restate the obvious:
Your legal obligations are within the four corners of the document(s) you sign. No more, no less.
If you, after consulting with legal and accounting advisors, determine that it is in your best interest all in to strategically default on your debts, whether that default be on your mortgage, your credit cards, your HELOC or anything else, YOU SHOULD DO SO.
You have exactly ZERO ethical or moral obligation to NOT exercise each and every legal option available to you, including bankruptcy, suits for quiet title where “lenders” improperly transacted in some fashion or the exploitation of the very fact that lending was done “unsecured” either in fact or in the letter of the agreement.
Yes, there may be consequences. In some states wages can be garnished to varying degrees, as just one example. Lenders do have recourse to one degree or another when you make this decision. It is not so simple as to say “walk away, there’s no risk and no cost”, because there is both risk and cost.
But the argument that one has a moral or ethical obligation – that there is some “stigma” associated with default – it absolute baloney.
Years ago there was stigma – a man’s word was his bond. But that is gone now, and it is not you, the consumer who made it thus. It is in fact the very people who lent you that money who made it so – who proffered documents to you written in 4 point type that were impossible for anyone with less than a PhD to understand (and sometimes even then), that contained intentional tricks and less-than-honest inducements, and who themselves were in fact stuffing bogus loans into securities that they then peddled out to the masses!
Janet Tavakoli has once again opined on this in relationship to Goldman Sachs, which was, as you’re no doubt aware, one of the firms that packaged up HELOC and other “household debt” to be sold off. Here is what she said in that column:
The answer is that they sold a lot of “hot air” disguised as valuable securities. Goldman claims this was prudent risk management. In reality, Goldman created products that it knew or should have known were overrated and overpriced.
If Wall Street had not manufactured value-destroying securities and related credit derivatives, the money supply for bad loans would have been choked off years earlier. Instead, Wall Street was chiefly responsible for the “financial innovation” that did massive damage to the U.S. economy.
You got that “loan” because these institutions provided it to you knowing full well that you could not pay.
That is, they didn’t loan you money expecting you to pay them back, they lent you money knowing you couldn’t pay, sold off loans they knew were bad to other people AND THEN BET AGAINST YOU PAYING!
I will counsel in these pages that you should pay your debts if and only if and when:
Those who made intentionally unsound loans are indicted, prosecuted and imprisoned for their willfully-fraudulent lending.
Those who packaged up these loans by stuffing bad loans into paper then sold and resold by others in an orgy of intentional misdirection and fraud are all forced to eat their own cooking, instead of the taxpayer bailing them out.
The laws are changed so that the practice of both intentionally-unsound lending and strategic default is handled identically for both “big corporations and rich folks” as well as for the ordinary working stiff who is trying to hold his head above water.
In other words I will change my tune if and only if and when those who destroyed the social contract of a man’s word being good on its face change THEIR tune. Until that time it is my assertion that you are not only within your rights to deal with them as they deal with you BUT YOU HAVE A MORAL AND ETHICAL OBLIGATION TO DO SO AS IT IS THE ONLY MEANS AVAILABLE TO THE COMMON MAN SHORT OF UNLAWFUL VIOLENCE TO STOP THE SCAMS!
Let me be clear: There is no argument to be made whatsoever in the current environment for a “moral or ethical obligation” to pay your debts. Those debts were incurred in an environment where asset prices (which you used that debt to finance) were fraudulently inflated in “value” through the intentional concealment and bogus “underwriting” and packaging noted above.
This bogus underwriting as I and others have noted was not an accident, it was a means of looting the public both explicitly at the time and then later via taxpayer bailouts – these so-called “profits” were bonused and paid out via dividends and rising stock prices when in fact the “earnings” that led to same were a phantom, an artifice and a fraud!
You and I – ordinary Americans – did not make it thus. We did not create these value-destroying “assets”, we did not pollute allegedly good paper with loans we knew could not be paid, and we did not glibly sell assets to people in one part of our personal financial operations, claiming they were “money good”, while shorting them in another.
The ENTIRETY of the fraud-laced economy is holding together by one and only one singular thread at the present time: the fraudulently-peddled LIE that you have an obligation to deal at some sort of ethically or morally superior level with a band of brigands, scam artists and fraudsters.
YOUR fleecing will end ONLY when you, the ordinary American, decided you will NOT deal “honorably” with a den of vipers, but instead deal with them exactly as they have dealt with you, and your attitude will change ONLY when theirs does and they make recompense for their past sins.
YOU, America, decide how long you want these firms to screw you on a literal daily basis.
YOU can stop it tomorrow. If every American decided to default – on purpose – on their credit cards and mortgages, each and every one of these institutions who has screwed you for the last two decades would be rendered insolvent in less than one month’s time.
YOU have the power America.
Will you use it or continue to cower in the corner before those who, as I have written about for the last two and a half years, have exploited your gullibility and “ethics” to force you into near-literal slavery?
THAT is the question facing you this Christmas.