A double standard on default

James Surowiecki

The New Yorker

Why don’t corporations get stigmatized for walking away from their debts, the way U.S. homeowners do? asked James Surowiecki. When American Airlines declared bankruptcy this month, it still had $4 billion to pay its debts. But the money-losing airline “decided that it was foolish to keep throwing good money after bad.” The market considered bankruptcy a “very smart” way for American to trim its debts and break union contracts.

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So what about the millions of homeowners who are underwater on their mortgages? They too can still pay their debts, “but doing so is like setting a pile of money on fire every month.” While corporations get praised for staging strategic defaults, these homeowners are painted as “dishonorable deadbeats” if they walk away from their mortgages.

“The double standard here is obvious and offensive.” Mortgage-holders are constantly admonished to be morally upright and “to think of more than the bottom line.” Banks and corporations, meanwhile, conduct their business in “coldly rational terms.” Their hypocritical message: “Do as I say, not as I do.”