Food for Thought: Strategic Defaults

This weekend, two writers in national papers discussed "strategic defaults" -- when a homeowner choses to walk away from a house underwater, rather than continuing to pay their mortgage.

 
 

This weekend, two writers in national papers discussed "strategic defaults" -- when a homeowner choses to walk away from a house underwater, rather than continuing to pay their mortgage.

Roger Lowenstein, writing for the NYTimes Magazine, points out that JPMorgan chose to walk away from their commitments on five San Francisco office buildings...so why should consumers be held to a higher standards than the banks we are bailing out? He focuses on the ethical argument, saying "There are two reasons why so-called strategic defaults have been considered antisocial and perhaps amoral. One is that foreclosures depress the neighborhood and drive down prices...The other reason is that default (supposedly) debases the character of the borrower." If you prefer podcasts, you can also catch Roger discussing his article on NPR's Marketplace with Kai Ryssdal.

Kevin Huffman, the winner of the Washington Post's "America's Next Great Pundit" contest, focuses on the potential response by the banks if thousands of American's start chosing strategic defaults. His argument is that banks will start writing down principal much faster if more people walk away leaving them with nothing. He concludes: Geithner's assessment of the options was right: Bailing out underwater mortgages could be unpopular and unfair. But the administration ultimately faces a choice: Maintain the policy of fairness and failure, or embrace a policy that, while unfair, could help end the crisis.

Both articles provided food for thought during our morning writers meeting here at Callahan's.

 
 

Jan. 11, 2010


Comments

 
 
 

No comments have been posted yet. Be the first one.