Nouriel Roubini: 'A tsunami of voluntary defaults'

Interesting piece from the Beeb: rising numbers of financially solvent homeowners in negative equity now choosing to walk away, take the hit and start again. However, numbers are such that Nouriel Roubini is quoted as saying that

news.bbc.co.uk/2/hi/business/7529277.stm

A couple of random thoughts:

  1. Individuals should be obliged to bear a burden freely undertaken. The banks may be venal, usurious and culpable in many ways, but personal responsibility is just that. Professionals welshing on their debts is a cop-out. Moral hazard, how are you?

  2. A trillion dollar default will never happen. This is Chicken Licken economics. And the sky will not fall in for precisely this reason: the relevant Depression-era law would be repealed long before it could happen.

See:
thepropertypin.com/viewtopic.php?t=12135

If the money was loaned with the knowledge that the borrower could simply hand in his keys and not pay any more, then the lender has to accept that.

The banks freely undertook to take that risk.

Besides, many of the banks led the way at the start of the credit crunch by welshing on merger and acquisition loan deals by saying the business environment had changed and the contract they had written no longer made sense. The householder is simply following the example of the banks and concluding that the contract they have doesn’t make sense any more so they are going to hand over the asset the contract is secured on.

Besides, part of the reason the Americans signed up to their housing boom was precisely because there was a de facto get-out clause.

Remember, Americans pay very significant property taxes on top of their mortgages. So when you bear that in mind, it shows that the American boom was as crazy as the Irish one. The nominal price of US houses would have mushroomed as much as Irish gaffs, if they had the Irish property tax system.

IMO this type of behaviour is just a natural consequence of the culture of the day.

People, being the spongelike creatures that they are, have been socialised by and have accumulated knowledge from their surroundings since the day they were born. All they have learnt has taught them to weigh up the pros and the cons and make the sensible decision to walk away from their “responsibilities”. Ironically, its quite likely that, in their capacity as taxpayers, they’ll still end up paying for the banks when the bailouts begin anyway.

It seems that there is very little holding any of this together anymore. Wasnt it Thatcher who said “theres no such thing as society”. Well if there isnt why the hell should people feel that they should bear responsibility for anything they do, unless it affects me, myself or I?

Yup, the inevitable outworkings of the neo-liberal Counter Revolution since the 70s. As I’ve been saying for years, it’s fast-forward to the 19th century kids…

I would have agreed with you a few years ago. People who walk away push up the cost for everyone. Don’t get into a deal you don’t intent to honour etc etc.

I don’t agree anymore.

The behaviour of the debt industry in the US was apalling, truly deeply worringly apalling. The drove people to suicide, they preyed on college students, they used strategies like universal default.

Credit card companies would “lose” your payment only to “find” it again the day after your payment due date, and then they would slap you with higher APRs late fees etc.

Neg Am mortages were sold with no attempt to explain what they were, infact you were more likely to face an attempt to hide what they were.

All of this happened against a backdrop of 1930’s legislation that allows people to walk away from home loans when they get upside on their mortgage.

Some borrowers were stupid, no question about that, but some lenders were positively evil (and I don’t use that word lightly).

The one little bit of justice in all of this is the the stupid people get punished by having a default on their credit record for a few years, and the evil lenders get to hold the upside down mortgages, and if we’re lucky some of them will go out of business, and the rest might just learn a lesson.

The behaviour of all sides of the debt explosion was unsustainable. we should be greatful it has finally collapsed.

-Rd

Yeah, this very morning I paid three figures to my credit card on online banking.

The account was debited instantly. It’ll possibly be monday before the credit card account gets credited.

Anybody who feels they owe these cur a ‘‘debt of honour’’ is being a gullible schmuck.

Ok, the money is debited from your account immediately but will not be accredited until monday probably as you say. In the meantime it will spend tomorrw in a suspense account where the bank gets the benefit of having your moneys interest for a day and then they will have it over the weekend because obviously you cant do bank transfers at the weekend. But then can charge interest tomorrow and probably at the weekend too.
I mean like how dare you expect to be treatewd fairly in this arrangement FFS. :wink: