Strategic Default | Millions Talk as Billionaires Walk

Strategic Default

As a corporation, Morgan Stanley can only be termed as gigantic because at the end of the second quarter, they had assets in the area of $ 213.2 billion. This was a company easily capable to meet their obligations made by their various components. Morgan Stanley, however, defied logic by announcing earlier this month that they would turn over their five buildings located in San Francisco to their lenders, rather than pay off the debt on them, which is also known as a Strategic Default. If a homeowner, that had borrowed money against their home and done the same thing, they would have been counseled to meet the obligations on their debt rather than walking away. Does this sound fishy? If fish could go on land, even they would point out that there are two sets of laws - those for the super rich, and one for everyone else.

Why Did They Do This?

Morgan Stanley had paid top dollar for these commercial properties during the huge real estate boom in 2007. Two years later, the market imploded and Morgan Stanley couldn't afford to keep the buildings. The prices of the properties had gone with the wind and tenants were hard to come by, yet they had not faced any foreclosure or defaulted on any repayments. They had the money to make payments, but chose instead to walk away, and give them back to the lenders. They used a slang especially created for the situation called a Strategic Default. The moral obligation that applies to millions of Americans did not apply to Morgan Stanley, who just walked away from their obligations. What they left in their wake were millions of Americans talking.

Uneasy Future

Millions of Americans took out secured loans or borrowed money on the equity of their homes, and have done so on new homes as well as previously owned homes. They are perfectly capable of meeting all their obligations, and have not foreclosed or defaulted on their loans. However, if these people chose the strategic default option and returned the properties to their lenders, a tsunami of disasters would soon follow. People borrowed money when property prices were high. They would be defaulting on a debt when prices are under the floor, and treating the money they already put up as a loss. However, this would probably be lower than facing a foreclosure.

Can the average person have the same option? This cannot be an option, as they just do not have the financial backing to get the same privileges as the filthy rich have. They are, after all, part of the millions that are only supposed to talk. They don't have the authority of billionaires and have to meet their obligations. Lenders and banks might be shaking in their Italian loafers, wondering what they could do in a similar situation. It will be the specially anointed billionaires who will have to listen.

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