Strategic Default

Former Treasury Secretary Henry M. Paulson Jr. on strategic defaults: "Any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.”

When I read that quote, I thought it was one of the most audacious things I had ever read. The entire world banking system was on the verge of collapse two years ago until it was rescued by the Obama administration. And the reason it almost happened was because bankers on Wall St. were recklessly speculating with the savings of American citizens. Who wasn't honoring an obligation? Regular citizens are held to a higher standard than banks?

Meanwhile, here are the Republicans going after strategic defaulters. Again, these are the regular citizens who have made a business decision that their home is no longer a smart investment. These citizens decide to cut their losses and walk away - and suffer the consequences in the contract, which state that they must surrender the property.

There may be an economic explanation for widespread strategic defaults should be discouraged, although I don't really see it at the moment. It is certainly bad for the housing market *now* but it wouldn't be bad for a housing market *in general*, since the threat of strategic default would serve as a powerful incentive for banks to not feed housing bubbles or try to profit off of them. At any rate, its pretty heinous to see the Republicans go gung-ho about pursuing regular Americans and forcing them to stick with bad business decisions when Mitch McConnell and the Republicans have been defending Wall Street from any regulation whatsoever.

If anyone remembers, Jim Cramer (of Mad Money) went on the Daily Show a couple years ago and got a beat down by Jon Stewart that was so complete that it was actually awkward to watch the show and Cramer looked like he was going to cry. Well the reason that Cramer caught Stewart's attention in the first place is that on Mad Money, Cramer referred to Americans who were walking away from their mortgages as "losers".

I'm just trying to figure out how in our culture, corporations and banks who f*ck up beyond belief deserve to be preserved, bailed out, and protected from any regulation. But average Americans, who don't do finance for a living, when they decide that they can no longer afford a mortgage and walk...what are they? They're "losers", who "aren't honoring their obligations". It is just too ironic that the only reason many of these citizen defaulters were in those mortgages in the first place is because banks were giving home loans people with bad credit for zero money down.