What’s A Strategic Default Anyway?

As strong advocates of default (strategic, non-strategic, for political reasons, for political economy reasons, or just for the hell of it), we took it as a good sign that a PR push against strategic default has been launched.  It means our message is getting through (or people are wising up, but either way).  But over here at AFEP, we’ve always wondered just what a strategic default is.

I mean, hell, when I burned my bills and stopped sending those jackals any money, I had 20k in fully accessible credit to play with – I could have kept the game going for another 4-6 months if I’d thought it would make a difference.  Did I strategically default?  I had, and still have, substantial assets in my retirement account that I could have drained to continue making my payments.  Strategic default?  I might even be able to go get a full-time job that would pay me enough to make some payments, but would rather work on some business opportunities.  Am I strategically defaulting?

Beats the shit out of me.  But what about these people:

Scenario A: A very attractive, intelligent, and well-spoken 27-year old woman stops paying on her 250k in college and grad school debt, but she could almost certainly earn 5k a week as a call girl.  She defaults on her student loans and moves to Chile.

Strategic default?

Scenario B: A couple, both aged 58 bought a $900,000 house on a 300k combined salary in 2006.  The house is now worth 450k, and one of them lost their job, so the income is cut in half.  They have approximately 750k in retirement savings.  They struggle to make the payments on the remaining 800k of the mortgage while beefing up their somewhat inadequate retirement savings.  They default.

Strategic default?

Scenario C: A family with two young children and a combined 120k income, cannot pay the mortgage, save for retirement, put money in a college saving account, unless they cut down everything else to the bone – no cable, few decent meals (think ramen and peanut butter), and no safe car (think 1998 Civic).  The house is worth half the balance on the mortgage.  They default.

Strategic default?

Scenario D: A company buys 5 commercial properties for 8 billion in 2006.  They are now worth 4 billion, so they return the buildings to the lender in exchange for cancellation of loan under threat of default.

Strategic default?

In a sense, all of these are strategic defaults.  But any rational person reading these facts would have to agree that in each case, the defaulter made a reasonable choice based on their own financial and non-financial circumstances.  The idea that there is this army of people with a million dollars in spare money in the bank  stiffing their credit unions and cell-phone companies for a few hundred bucks is almost laughably stupid, but that’s what you need to believe to think that there is appropriately some moral component to the “decision” to default.

Another one of my buddy Pete Peterson’s flunkies seems to think that the best way to deal with this is to turn the United States into Dubai:

He’s criticizing the use of bankruptcy as an “exit option.”  That’s what bankruptcy is, and that’s what it is for, asshole.  Disabling people from moving on from their mistakes – no matter how stupid – is the single most inconsistent position you can take with allowing people to search out and find their comparative advantage.  If people don’t have the room to fail, move on, and find what they are (relatively) best at, you don’t have a well-functioning economy.  That’s why Dubai is a cesspool (literally and figuratively) and why the United States with its secondary and tertiary collection markets, and various bankruptcy “reforms,” isn’t far behind.

Yves Smith (as always) says it well:

There is a wee problem with the “blame the ruthless borrower” narrative. Banks who acted in a ruthless manner have trained their customers to behave the same way. This shift in prevailing attitudes is the logical and inevitable result of financial firms taking an increasingly predatory posture toward their customers. Borrowers are responding in kind, by taking a cold-blooded and legalistic look at their agreements with lenders.

Or to translate this into AFEP-speak: You fucked us for 30 years straight banksters, and now you’re going to try to lay a guilt trip on us?  Go fuck yourselves!

World’s Biggest Assholes Watch

Welcome back for this week’s edition of the World’s Biggest Assholes Watch, where we keep tabs on the comings and goings of the World’s Biggest Assholes™.  In this week’s edition we answer the questions that have kept you on the edge of your seat for the last week:  Has hack Charlie Gasparino become an even bigger hack?  Is Goldman Sachs developing a vampire squid edition of the Aristocrats?  Is it possible that Jamie Dimon is one the 50 biggest anythings other than assholes?  No way to know without reading further – so without further adieu…

Capital One and its shitbag CEO Richard Fairbank are offering customers advice on how they should use their tax refund to further their financial goals.  That’s funny, just last week I got a letter from Capital One suggesting that I sign my tax refund over to their collections department, and that’s utterly inconsistent with my financial goals.  Ironic.  My advice: find a credit union, stiff Capital One, and move out of the U.S. – or perhaps I’m projecting.

Jamie Dimon is not only an asshole, he’s also one of Businessweek’s 50 most important people in real estate.  Way to go Jamie!  I trust it’s just a coincidence that new home sales hit a record low last month.  I was not surprised to find out that Jamie Dimon is a fan of mountain top removal mining – and for that you really have to be an asshole – and some people from West Virginia aren’t to happy about his company’s role.  They’re erecting mud mountains in Manhattan with a letter to Jamie on top asking him to withdraw JP Morgan’s support for MTR mining.

Might work if Jamie Dimon had a soul, but since he doesn’t, I’ll just say good luck guys.   Paul Krugman, who I often like, claims that Jamie Dimon was right about there being a financial crisis every 5-7 years (Krugman “examines” 1870-1933 and claims no crisis again until 2007).  I remember at least the Latin American debt crisis of the 80s, the S&L crisis, the Mexican meltdown of 1994, and the Long-Term Capital Management fiasco in 1998.  For defending, even if only tongue-in-cheek, a huge asshole, and especially for doing it with erroneous data, Paul Krugman is an honorary World’s Biggest Asshole™ this week.  Lastly, JP Morgan’s “research” arm issued a report blaming unemployment insurance for high and prolonged unemployment.  Jamie, not sure if you greenlighted this nonsense, but it still proves you are an asshole.

Goldman Sachs is not only the poster child for evil, but it also stands as a pro-nepotism bulwark against meritocracy.  Turns out that both of the junior Blankfein boys have worked at daddy’s shop.  One of them, a recent college grad, made$155,000 last year – real money for a kid that doesn’t have to tithe any of it to Sallie Mae.  The other junior Blankfein is writing  his Harvard senior thesis on the pre-FDIC insurance system.  Hey, you need to know the history of bailouts to engineer them successfully.

Looks like Goldman execs like to keep their families around, which leads us to conclude that Goldman Sachs executives are trying to perfect the Aristocrats routine (Vampire Squid Edition):

Or maybe we’re just cynical.  But Goldman Sachs cares about mentioned its public perception, designating adverse publicity as a “major risk factor” in an SEC filing – of course if they weren’t so dependent on suckling at the public teat, adverse publicity among the rubes wouldn’t really be a problem would it?  Me?  I think they’re just assholes.  But hack Charlie Gasparino who was out ginning up sympathy about Lloyd Blankfein’s hate mail last week, now claims Lloyd was not due $9,000,000.00 in 2009, but rather $100,000,000.00 – pretty hacky Charlie.  Kind of an asshole move by Blankfein to send Charlie out to say it, but Charlie works for Fox Business now, so he doesn’t have to worry about little things like “accuracy” or “credibility.”

Asshole Timmeh Geithner had a busy week chatting up the AEI, Congress, and just about everyone else.  But Timmeh, I’m going to leave you out of this week’s edition, because you’re such an asshole you’ve already said something retarded enough that I could write an entire post about it.  So, give it up for Timmeh who will, no doubt, make a triumphant return as one of the World’s Biggest Assholes™ next week.

I haven’t been able to find out much about Stephen Schwarzman recently which I find irritating since I’m sure that if he’s breathing he’s acting like an asshole.  If anyone has the scoop on what’s up with Steve-o, drop me a line or post it in the comments.

A special shout out this week to President Obama, who managed to push through his health bill which requires just about everyone, without regard to debt service or other payment  obligations, to spend somewhere between 8 and 15%+ of their income on health insurance and out of pocket expenses.  The bill simultaneously imposes minimal limitations on health insurers, lets them keep their antitrust exemption, and includes no public plan to keep them honest.  Only a true asshole could come up with something that was that big a clusterfuck, so President Obama we are awarding you our Asshole of the Week Trophy™.  Congratulations Mr. President!

Until next week.

World’s Biggest Assholes Watch

I’m rolling out something new today that I’m hoping will become a weekly feature.  Of course, since it’s just me, I can’t promise anything.  In it I’ll try to keep tabs on the comings and goings of the world’s biggest assholes.  Well. just in case you are wondering who the world’s biggest assholes are, they are our business and political betters that have distinguished themselves through cluelessness, self-absorption, and just general dickishness.  They have little regard for the prosperity of main street and instead either loot or facilitate the looting of the treasury by Wall Street.  Some examples:

• Timmeh Geithner
• Larry Summers
• Jamie Dimon
• Lloyd Blankfein
• Stephen Schwarzman

But really, anyone can qualify as one of the world’s biggest assholes.  By all means, if I miss something important, you should feel free to send me an email, or leave a comment.  Let’s get to it.

Timmeh is turning on the charm with a profile in both the Atlantic and the New Yorker.  I read the New Yorker piece and particularly enjoyed Timmeh’s comment that ““we saved the economy but kind of lost the public doing it,” uh huh.  Or perhaps, you saved the big banks and kind of lost the economy doing it, and yet here he is taking a victory lap.  Not satisfied with media handjobs, Timmeh was also trying to do for Europe what he did for the U.S. by meeting with Greek officials and pushing the European Commission to limit financial regulations.  Timmeh, you’ve definitely earned the title of one of the world’s biggest assholes.

Stephen Schwarzman, of Blackrock and pity the poor banksters fame, is getting sued!  In truth, he was sued a while ago, but at least it looks like he’s going to be grilled in a deposition.  According to SS, the good news for private equity is that the worst is behind us, wish the same were true for the broader economy.  On a lighter note, Zibby Schwarzman (Steve-o’s daughter) made the list of Wall Street’s hottest offspring.  Not sure that I agree, but, hey, I’d marry her just for the trust fund.

Blankfein seems to have stayed below the radar this week-though Manchester United is considering breaking off its relationship with Goldman Sachs.  Also, the IBEW pension fund is pissed and has filed suit trying to recoup excessive compensation on behalf of itself and other Goldman shareholders. Good luck guys.

Richard Fairbank, CEO of Capital One and all around shitbag, received 6.1 Million in total compensation for 2009.

A special nod this week to Larry Summers, who is always an asshole, but he deserves the special recognition for providing intellectual cover to another huge asshole Jon Kyl.  Kyl asserted that extending unemployment benefits in an era of chronic un and underemployment suppresses the willingness to work of those receiving benefits.  Way to go Larry!  And Kyl, you’re a dipshit.

World’s Biggest Assholes Decide to Buy Mall, Defend Sallie Mae

Asshole Stephen Schwarzman of “pity the poor banksters fame” has decided to engineer his own bailout of Tom “just another six months” Friedman’s wife’s company General Growth Properties.

The Simon Property Group is in preliminary talks with the Blackstone Group and sovereign wealth funds about making a potential joint bid for General Growth Properties after the bankrupt mall operator rejected Simon’s unsolicited $10 billion offer, people briefed on the matter told DealBook on Thursday.

The talks are continuing but in early stages, and may not lead to a joint bid, these people cautioned. Under the terms of the negotiations, Simon would remain the lead bidder, while the others could provide additional capital to help finance a higher offer.

Blackstone could also acquire some assets that Simon decides to sell after closing the deal, these people said.

Have no illusions about what is going on here.  This is a bailout of the rich, by the rich, for the rich.  In the real world, if you get overleveraged, you’re fucked, harassed for life by creditors, and ruined forever.  But if you’re “one of the club,” then other rich people will come riding to your rescue.  Perhaps the best lesson is that if you are going to fuck up, fuck up spectacularly, that way, you’ll be rescued.  See, e.g. bankster bailouts and record profits.

On a related note, the Senate’s biggest asshole, Evan Bayh has decided that the skimmers at Sallie Mae need to keep the government subsidy that allows them to add no value:

Two days after he announced he wouldn’t seek reelection,Sen. Evan Bayh is throwing a wrench in the works of a signature administration initiative,  expressing reservations about the plan for the government to eliminate private-sector middlemen and make student loans directly.

“I … have concerns about the short-term impact reform efforts could have on employment in Indiana,” Bayh wrote in a letter to Senate Health, Education, Labor and Pensions Committee Chairman Tom Harkin and ranking Republican Mike Enzi today. “I will not support any proposal that does not strike the right balance.”

Since Bayh is retiring it’s critical that he keep his lobbying options open, and from what I hear, Sallie Mae pays its lobbyists well.