Strategic Defaults of the Rich and Famous

[10 July 2010]

By Rob Horning

Here is what class warfare and ideology are all about: this NYT article by David Streitfeld looks at the strategic-defaulting practices of the rich, after data the paper commissioned revealed that “the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.” I know you must be shocked that the wealthy would do something so heinous as dishonor a financial contract that is not in their best interests to uphold. No one ever got wealthy by not following the rules, which is why the wealthy are always as fastidious about paying their taxes as the little people are.

What caught my attention in particular in the article was this:

The rapper Chamillionaire is a plain-talking exception. He recently walked away from a $2 million house he bought in Houston in 2006.

“I just decided to let it go, give it back to the bank,” he told the celebrity gossip TV show “TMZ.” “I just didn’t feel like it was a good investment.”

The rich and successful often come naturally to this sort of attitude, said Brent T. White, a law professor at the University of Arizona who has studied strategic defaults.

“They may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest,” Mr. White said.

Apparently being vulnerable to shame and fear-mongering is for the little people too. The middle classes are obliged to think of the social fabric when trying to puzzle out what their best interests are—as the broad base of society they are expected to take into concern ethics, and what others think, and what is morally considerate and will contribute to the general good. We are expected to worry about what’s “right.” Rich people are under no such obligation. They are in position to in effect dictate what is right. Our moral concern is the opposite of practical power and is possibly the empty consolation for our lacking power.

UPDATE: For some reason I can’t add a comment, but Anton: I know. It’s enough to make one a nihilist. What is best in life, to feel proud of oneself for having done the “right thing” or to feel like one has been the victor for convincing others to do the “right thing” you thought of?

Published at: http://www.popmatters.com/pm/post/128090-strategic-defaults-of-the-rich-and-famous/