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American Deadbeats

Is the current economic crisis creating a generation of American deadbeats?  Once upon a time in America, we were taught that no matter how much financial trouble we get in we pay our debts – no matter what.  But now that has fundamentally changed.  Today, record numbers of Americans are filing for bankruptcy and a new term had to be invented (“strategic defaults”) to describe the large number of people who are making “business decisions” to walk away from underwater mortgages.  Meanwhile, many of these same individuals who are walking away from their debts are spending big money on cruises, vacations and new cars – as if they were still entitled to all of the good things that come with living the American Dream.  Below you will read some incredibly disgusting examples of this.  It is as if a whole generation of Americans has decided that “financial responsibility” is a problem that they don’t care to be bothered with.  But what is it going to do to the U.S. financial system if we can no longer count on people to honor their debts?

What we have got is a big mess on our hands.  Most Americans were never taught how to responsibly handle their finances.  Decades of easy credit cards and easy mortgages is starting to catch up with us.  We created the biggest credit bubble in the history of the world, and now that things are coming apart we don’t know quite what to do.

The reality is that the American people know that the U.S. economy is in really bad shape and that things are not going to get significantly better any time soon.  According to a recently released AP poll, just 25 percent of Americans believe that the economy is getting better.  The same poll found that 76 percent of Americans rate the economy as “poor”, compared to just 21 percent who said that the economy is “good” overall.

But it doesn’t take a genius to figure out that the economy is a mess.  For example, in Clark County, Nevada (home to Las Vegas) the unemployment rate has increased from 10.1 percent to 13.9 percent in just the past year. In California’s Central Valley, 1 out of every 16 homes is in some phase of foreclosure.

An increasing number of Americans are responding to this economic mess by running off to bankruptcy court.  Federal courts reported over 158,000 bankruptcy filings in March, which represented a 35 percent rise from February.  In fact, more Americans filed for bankruptcy protection in March than during any month since the federal personal bankruptcy law was tightened back in October 2005.

Foreclosures also continue to explode.  According to RealtyTrac, foreclosure filings were reported on 367,056 properties in March.  This represented an increase of nearly 19 percent from February, and it was also the highest monthly total since RealtyTrac began issuing its report in January 2005.

But foreclosures are soaring not just because people can’t pay their mortgages.  One of the biggest reasons why the number of foreclosures is flying into the stratosphere is the huge number of Americans that are opting for “strategic defaults”.  Many Americans are simply deciding that it is just not worth it to pay a $500,000 mortgage on a home that is only worth $300,000.

“People who have prime jumbo loans, people with good jobs, with assets and nice cars are talking a hard look at this investment and making a decision, a conscious decision, to strategically default on their loans.” Bankruptcy attorney Chip Parker told CBS News from his Jacksonville, Florida office. “These are professionals making business decisions about their homes. Subprime is over — these are Alt-a and option arms loans….people with 700 and above credit scores. They are treating their homes like a business deal.”

But shouldn’t these people honor their financial commitments?  Well, yes.  But what is even sadder is that many of these Americans who are walking away from their debts are turning right around and are spending big money on cruises, vacations and new cars.  Just check out the following anecdotes from The Market Oracle website….

*My 25 year old niece had $10,000 of outstanding credit card debt. Recently, she told the bank she couldn’t pay. She is not unemployed so the ‘hardship’ is all relative. Nevertheless, the bank offered her a concession which she refused. They offered another concession, she refused again. Finally, they told her if she paid $150/month for 2 years (total of only $3600 with no interest), they would call it paid in full! She accepted in a heartbeat. It is less than a month later, and she celebrated her good fortune by going on a cruise to Hawaii.

*A friend owns a small manufacturing co. He tells me of one of his female employees who was saddled with a $450,000 home she purchased almost five years ago with no down pmt. One year after her purchase she pulled $75,000 home equity and purchased ‘fun stuff’ including a boat. She recently walked away from the house (now saddled with $525K mortgage), purchased a new house for $200,000 (in her sister’s name) and kept all the goodies purchased from the home equity withdrawal. With the much lower mortgage payment she just bought a new car.

*My sister is a nurse with 25+ years on the job. She told me of a young couple that she is good friends with that both work at her hospital making a decent joint income. They didn’t like the fact that they grossly overpaid for their 3000 sq ft home in 2006. They stopped making hefty monthly payments six months ago and haven’t yet been contacted by the bank. They have decided to wait until contacted and then walk away. In the meantime, they just returned from NYC from a week vacation in the Big Apple.

*My brother-in-law wanted to know if he should stop making payments on everything. He lives in Virginia and his carpentry skills are not as marketable as they were in the height of the boom. He and his wife’s best friend have lived close-by for many years. For the past 13 months since they strategically decided to stop paying their mortgage, they had yet to be contacted by their bank. Not even one letter! My brother-in-law doesn’t understand how they get to pocket the mortgage and spend carefree, including a 10-day Caribbean vacation.

Do the above stories bother you?

They should.

If Americans are going to file for bankruptcy or walk away from their mortgages they should at least start showing some signs that they have learned something.  They should at least start tightening their belts and begin acting like responsible members of society.

But this is 2010.  Today most Americans feel like they are entitled to live the American Dream.  Most Americans feel like we all owe them something.

The end result of this is going to be the breakdown of the system of credit in this nation as we get to the point where we can’t really count on anyone to fulfill their financial obligations.

And once that happens we will have one gigantic mess on our hands.

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  • Roger

    you bet its creating deadbeats. This is a joke, and look at the goldman saga, they are crying home to mummy because they are getting caught out. Seriously how long do they think they can get away with it. All those idiot analysts on Gloomberg, and cnbc. The only guy I listen to is the ozzy guying on http://www.forecastfortomorrow.com he called the crash before it happend and has been spot on with everything.

  • Gary

    Wall Street got bailed out. No one bailed me out so I am bailing myself out! I think its great the people are defaulting to the greedy banks and credit card companies. After all we bailed them out and now we are going to get ours. The rich have been getting our productivity increases and our wages are stagnating or going down. I say get what you can and screw the rich banks! Its our productivity increases they stole so its just our money anyway!

  • RD NYC

    Gary you are totally correct. I have seen so many people (including myself) work hard and long hours without extra compensation when the boss should have hired additional people or paid overtime to those who should be receiving overtime pay. We have entire industries in NYC using “freelancers” paid a day rate working twelve or more hours for one fee. Does it even amount to minimum wage after all of the hours? Film is notorious for doing this and the industry receives tax breaks and profits are outstanding for those at the top, but at the bottom not so good. Recently, NY State has been cracking down on the use of freelancers since the state needs additional tax revenue so it’s not really out of the goodness of their heart they are doing this. I just hope since the cost of living is so high in places like NYC wages will be forced to rise to keep up with expenses. The rich can only profit as long as the masses can pay the fees.

  • Craig

    LOL…I guess we have to hold the peons responsible while we allow the banksters to continue the American dream using our tax money as bonuses. All them with few exceptions should be unemployed, much less getting bonuses. Then lets add the fact that companies and banks strategically default all the time when it is in their interest. But if the peons object to being debt slaves lets bad mouth them but ignore the example from the “movers, & shakers” of our society.

    On a side note the “mainstream economist” deny that this is happening, as they do not want to recognize that the jump in consumer spending is a temporary phenomena that will end once these “deadbeats” have to pay rent again. It would end their cries of nascent recovery.

  • Carol

    I have to disagree with Gary and RD. The taxpayers have helped to subsidize the people who want to ‘screw the man’, as it were. Not to mention the loss of capital from shareholders in the companies that are getting hurt by voluntary defaults (and believe it or not, this includes small mom and pop shareholders, and includes anyone who owns a large stock mutual fund, which is a lot of Americans). I think it is dangerous that there is a growing us-versus-them mentality when it comes to who is getting bailed out and who isn’t, and its going to tear this country apart. How is it fair that those people walked away with a home-equity purchased boat or vacation? How can anyone defend that?

  • Jim Stevens

    Everyone ignores what the Bible has to say. According to God’s book every 7 years all unsecured debts are to be forgiven in full. This type of system would have prevented reckless lending. The banks have a fail-safe gimmick – they lend as much as possible via federal reserve “thin air” dollars and hope to make billions. If they were reckless, they don’t personally suffer, they just fold up the corporation and all those bad loans become “inflation” we all pay for. So now that we have all gotten used to inflation, and expect dollars to be worthless, we borrow recklessly, knowing inflation will subsidize our borrowing. So once they turn off the inflation, everyone is stuck with loans they can’t repay, and the biggest vultures scoop up all the road kill. In the Bible usury was forbidden – when will people realize that this “simplistic” and “unsophisticated” and “backward” rule was actually light-years ahead of the lard-brains at the Federal Reserve? Our entire money system is based on debt, every dollar was created by borrowing and every dollar must be repaid with usury to the banks. Time for a jubilee, cancel all the debts, and implement a better money system. The Bible prophesies the Antichrist will set up the “mark of the beast” instead – in the hand or forehead with a “666” monetary biometric transaction system where we are all tagged cattle. Well, you ignored the book, got what you deserved, and so that’s now exactly where you are headed.

  • http://www.liars Christine Baker

    Carol wrote:

    “How is it fair that those people walked away with a home-equity purchased boat or vacation? How can anyone defend that?”

    How can you NOT defend it?

    I defaulted on over $90,000 in unsecured debt and I encourage all (near) judgment-proof Americans to STOP paying theirs debts to national banks. My open letter to WaMU:

    http://mylitigation.net/pr/news/release/open_letter_to_wamu_my_refusal_to_pay_my_8000_wamu_providian_visa_card/

    Vote with your money (it’s the only vote that counts!), start growing your own food, turn of the TV and leave this corrupt system.

    Just say NO to the BS and corruption.

  • Daytonion

    Well in a way I can’t blame these folks more so then ones who default based on medical expenses or decision’s between food and housing. I think the chicken’s are coming home to roost when no attention was being paid to the massive Moral Hazard imposed when taxpayer money in TARP was handed over to the mega banks and their owners (not to mention the FED transferring them money out the back door, cheapening the whole idea of “save for tomorrow” and practicing any thrift in dollars). From that example the actions were copycatted, just in a less grand scale as one descends down the socio-economic ladder…

  • JS

    Strategic defaulters are not immoral. The defaulters and the banks made a deal – pay so much money and they get to own their home. The contract, written by the bank or mortgage company, spelled out their remedy if the borrower failed to pay. The borrowers are merely exercising that option. Nothing immoral about it. So the bank doesn’t want the houses? Well, they’re getting them–just a little reward for being so greedy and irresponsibly making loans they shouldn’t have made in the first place. No one should be guilted into keeping Big Business’s profits coming at the expense of their own financial ruin.

  • Mark

    My bank pays me .5 percent on my account balance, then charges me 27 percent for the use of their MasterCard. My job gets outsourced to the communist Chinese, and when I apply for a mortgage modification to help temporarily ease the resulting crunch, the bank is less than forthright with me. They first require me to send in the same paperwork over a dozen times, because they can’t find it, didn’t get it, need something other than what they told me, etc. Then they tell me to stop paying the mortgage while they work out the modification “because we’re not sure what the exact payment will be”. When I stop paying, they tell me I’m ineligible for the modification because I was laid off, and then foreclose on me because I’m not paying. And I’m supposed to be in some sort of moral quandary about stiffing Wells Fargo? After this? I did all the right things, played by the rules, paid every dime of my student loans and any and all other debts my entire 30+ year working life, and now I’m supposed to go sit on the curb with my dog and my sofa so some greedy scumbag banker can get his $6 million dollar bonus? I think not…