Strategic Default — The Personal and the Social

A couple doors down from the condo we rent, there’s another condo that’s probably exactly like ours. Except that there’s a lockbox on the door. We don’t know who put it there. There is no “for sale” sign and no sign of anyone coming in and out. A couple weeks ago, there was a letter from the city about unpaid water and/or sewer bills. Does the city have the right to do that? Today, the mailman came around to ask if we knew who lived in that apartment. Mail hasn’t been picked up for weeks. After we were unable to tell him anything useful, we overheard one of the neighbors saying he also didn’t really know the people who lived there. . .or where they went.

This is our first “in the flesh” taste of the mortgage crisis since returning to the US, but there are other signs. Since getting a pay-as-you-go SIM card for her phone, Carrie will occasionally get telemarketed by companies offering to help her pay off debts she can’t manage. Ads for debt consolidations and bail bondsmen appear during prime-time cable programming. There is, of course, the standard talk of new institutional and personal austerities in the air — both at Stanford and at McGill.

“Strategic default” is a term used to describe the practice of borrowers walking away from debts they can’t afford to pay. It’s usually used in the context of investors, and wealthy people who bought extra properties with ridiculous loan arrangements. Of course it could apply to anyone who walks away from a debt figuring it will cost too much to collect and hit to the credit record is less of a concern than actually paying out the money.

I wonder whether the term couldn’t also be ironically turned back on institutions in the United States charged with maintaining the public trust, especially in the finance sector. As in the government has “strategically defaulted” on its responsibility to regulate financial institutions upon whom it has showered all sorts of favors, and politicians have strategically abandoned the people they are supposed to represent in the service of raising money to get or stay elected. The sense of a shrinking middle class is palpable, and one can only wonder about the poor in such wealthy surroundings as ours (Palo Alto has some of the richest ZIP codes in the US, so it is not really a cross-section; Mountain View isn’t as rich). But we can read daily about the incoherent anger of the tea partiers, or that matter, of the Obama voters whether left or center who feel betrayed. Hope is a state of mind and works well for getting elected. It is not, however, a very successful social program.