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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, on the other hand, defied everything by announcing they would turn over their five buildings in San Francisco to the lenders, rather than pay off their debt, called 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 put a lot of money up for these commercial properties during the real estate boom of 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 enough money to meet all necessary payments, but they just chose to walk away from the properties, returning them to their 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 well within means to pay their debts, and haven’t foreclosed or defaulted on loans. That said, if these people had chosen strategic default and gave the properties back, disaster would have ensued. 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. That said, this would be less than facing foreclosure.

Does the average man have the same options? This can’t be an option, as they don’t have the backing to secure the same privileges as the upper 1%. They are, remember, part of the many that are only meant to talk. They do not have the authority to walk like the billionaires and are obliged to meet their moral 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.