Why people are defaulting. My theory.

[KINGOFSHORTS]

I think the primary reason people are choosing to walk away from debt is pretty simple. They saw that the financial institute was bailed out with taxpayer money.

People who would never have defaulted are choosing to default primarily because they figure if financial institutes are getting bailed with tax payer money (which is used for bonuses) Then they can bail themselves out by not paying.

They figure the morality of not paying is no longer a problem.

Once you remove the moral hazard of defaulting on your loans that is where the problem is.

And now I think you will see people defaulting and thinking it is okay since they are going to pay more taxes in the future that is going to be used for bonuses etc..

The whole "If its good enough for trump and financial folks, good enough for me as well."

 

[IanMacQuaide]

"I think the primary reason people are choosing to walk away from debt is pretty simple. They saw that the financial institute was bailed out with taxpayer money."

KOS, I think it's more simple than that.
Quaint moral dilemmas get thrown out the window when there's no money.
And, I'd wager that at least 40% of those in default don't know about banks getting tax dollars in bailouts. Hell, some can't even speak English.

 

[morganist]

Quote from KINGOFSHORTS:

I think the primary reason people are choosing to walk away from debt is pretty simple. They saw that the financial institute was bailed out with taxpayer money.

People who would never have defaulted are choosing to default primarily because they figure if financial institutes are getting bailed with tax payer money (which is used for bonuses) Then they can bail themselves out by not paying.

They figure the morality of not paying is no longer a problem.

Once you remove the moral hazard of defaulting on your loans that is where the problem is.

And now I think you will see people defaulting and thinking it is okay since they are going to pay more taxes in the future that is going to be used for bonuses etc..

The whole "If its good enough for trump and financial folks, good enough for me as well."

i would disagree. it is actually not that easy to default. when it happens you lose everything. if you have a house they will take it away along with anything else.

the point being people don't chose to default they have no choice. incidentally you do not just drop debt with bankruptcy this is a misconception. the official receiver can take up to sixty percent of your income for three years after insolvency among other things.

people are defaulting because they have little choice. if they are chosing to do it for other reasons they are not informed or unsound thinking.

it has little to do with morality. what little morality they had went when they decided to spend money they did not earn in the first place.

 

[the1]

The reason people are defaulting is because they either got in over their head or they have lost their jobs and don't have the ability to pay. Sure, there are some who have willfully walked away but I'd think that is the major minority. Not paying your bills has a huge negative impact on your life, including your ability to get a new job. It's not a place where people want to be.

 

[KINGOFSHORTS]

BAC,C,etc would have defaulted on their covenants if they would not have been bailed out.

Don't you think Joe the plumber sees the talking heads on fox telling people how banks did not go out of business because they were provided with free money. Which was then used for bonuses etc..

Joe the plumber's etc.. see this an figure they can join the crowd and not pay the credit cards.


Morality goes out the window when you make it okay not to pay your bills. Which the US did when they bailed out the banks who would not have been able to pay its bills otherwise.

 

[GTS]

Quote from morganist:

i would disagree. it is actually not that easy to default. when it happens you lose everything. if you have a house they will take it away along with anything else.

That is not universally true.

In states with nonrecourse mortgages (like California) you can walk away from your primary mortgage and that's it - the lender cannot come after you for the difference between the mortgage balance and what it fetches when its auctioned off. (Interestingly this is only true in CA if you did not refinance your mortgage)

In general I agree with the OP's premise but its more than just the moral hazard is gone - the stigma is gone.

In fact the pendulum has probably swung the other way - some people probably brag about defaulting since it means they "stuck it" to the big lenders which we collectively have grown to hate.

 

[KINGOFSHORTS]

Quote from GTS:

That is not universally true.

In states with nonrecourse mortgages (like California) you can walk away from your primary mortgage and that's it - the lender cannot come after you for the difference between the mortgage balance and what it fetches when its auctioned off. (Interestingly this is only true in CA if you did not refinance your mortgage)

In general I agree with the OP's premise but its more than just the moral hazard is gone - the stigma is gone.

In fact the pendulum has probably swung the other way - some people probably brag about defaulting since it means they "stuck it" to the big lenders which we collectively have grown to hate.

Exactly. That is the word I was trying to look for. The stigma is gone and its cool to stick it to the man.

On an interesting note, record imports. So it means we are back to consuming more and producing little.

 

[Pa(b)st Prime]

This isn't which came first, the chicken or the egg. Delinquencies and then defaults were the cause of banks taking hits.

I agree that walking away has been destigmatized by the bailouts but w/o folks burning the banks first then bailouts wouldn't have been needed.

Quote from KINGOFSHORTS:

BAC,C,etc would have defaulted on their covenants if they would not have been bailed out.

Don't you think Joe the plumber sees the talking heads on fox telling people how banks did not go out of business because they were provided with free money. Which was then used for bonuses etc..

Joe the plumber's etc.. see this an figure they can join the crowd and not pay the credit cards.


Morality goes out the window when you make it okay not to pay your bills. Which the US did when they bailed out the banks who would not have been able to pay its bills otherwise.

 

[risktaker]

People will do anything when survival is necessary. Pride, stigma, whatever goes out the window. People will resort to cannibalism in some dire circumstances. Not paying your bill??? Ha! Pfffttt.

 

[ashatet]

No, we are back to record production of unionized jobs, doctors, nurses, dentists, ball players, movies, more movies, american idols, singers, dancers, execs, sports writers (I mean what kind of society pays a sports writer to live in luxury), personal trainers, self help gurus, financial advisers and the list goes on.

Too bad, we are not producing goods or engineers, or scientists at the same rate that we used to.

In my town, almost every empty building is being taken over by dentists and doctor's office. What the heck is that. Is our main job is to just get health care. I thought our main work was to work and get medical attention if needed so that we can continue to work.

Quote from KINGOFSHORTS:

Exactly. That is the word I was trying to look for. The stigma is gone and its cool to stick it to the man.

On an interesting note, record imports. So it means we are back to consuming more and producing little.