Good Business Decisions

I spent some time this week discussing the subject of  "Good Business Decisions" on the internet.  A more accurate description would be, "How to Justify Running Out on Your Debts".  In reality, well-run businesses don't do this, but that's not the point.

Three years ago, the U. S. created a housing "bubble", through speculation, lack of regulation, and easy credit.  When the  economic downturn occurred, many found that they could no longer afford their mortgage payments, and their lenders foreclosed. The surplus of houses on the market and the changed outlook drove  prices down.  Many others found that the market value of their home had fallen below the amount still owing on their mortgage.  Their home equity had disappeared or gone "negative".

While many were forced out of their homes, others adopted a plan of  "strategic default", by which they walked away from their home and mortgage obligations, because they no longer saw it as a good investment. This practice they suggested was a "Good Business Decision".

Maybe yes and maybe no.  If you default on your mortgage, you may it difficult to get financing in the future.  If you leave at the bottom of the market, you may not be participating in an eventual market recovery.  Housing markets have corrected in the past (notably in the 1980's), and then recovered substantially.

More than a response to market conditions, I wonder about the attitude being expressed.  If it serves my interest, regardless of the impact on others, then it is a "Good Business Decision".  That I entered into an agreement to pay is unimportant, if the agreement is no longer beneficial to me.  After all, I had expected the property to increase in value, not decline.

One woman was particularly incensed that her friend had purchased property in 1996, sold it in 2005, "tripling" his investment, and was later able to pay cash for a new home, while her home had fallen in value, leaving her "underwater".  Considering how unfair all this was, she was contemplating a default.  However,  I imagine her attitude would have been different, if she had followed her friend's course and enriched herself.   

What I heard from others was that the banks had caused the problem (forget that the buyers had sought the financing), were responsible for their loss, and therefore they were morally justified to default.  And wise to be making "A Good Business Decision".  On the other hand, I was branded one of  "you people", "brainwashed by bank propaganda", for saying that I  "give credit" to those who honor their agreements.

The reality is that we live in a market economy, not always well-regulated, where prices are determined by supply and demand, psychology, fear, and greed.  A lot of people participate in creating the fluctuations.  A lot feel that they are just swept along by them.  The rationale that we use to justify our response is frequently self-serving.  Regardless of our original motivation, it may become, "the bad guys have done this to me".