What Is the Function of Wall St.?
The global financial meltdown of 2008 – 2009 with its ongoing sequelae seems not to have definitively demonstrated the dangers of our continuing belief in the religion of “free markets” nor shaken, especially it seems in the Obama administration, our thrall with Wall St. and all things financial. We are seeing the combined effects of Wall St.’s funding of the Democrats and Republicans, the primacy of Wall St-ers in positions in government, and the tendency of the rest of us to want to beat the table and make wonderfully large profits (winnings). A deeper question here is what is the function and usefulness of gambling in the financial markets for our overall economy and society?
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Return to Creditor
There is an interesting headline in today’s (1/25/10) New York Times, “Huge Housing Complex in N.Y. Returned to Creditors”. This article reports that Tishman Speyer Properties and BlackRock Realty defaulted (welched?) on their debt obligations of $3 billion for their 2006 purchase of the Stuyvesant Town/Peter Cooper Village in Manhattan for $5.4 billion. This is another example of how we think that is it merely a business decision for a corporation to shed unsupportable debt while homeowners faced with the same situation face it as a moral and social disaster. The phrase “returned to creditors” elegantly captures corporate America’s relationship to debt. Its just business.
Default on your home mortgage? What will the friend’s think? The neighbors? Seems to me that what is appropriate for business must be appropriate for individuals. After all, we have been barraged in recent years with call for every person to act as an entrepreneur, a business of one. Any business person looking at continuing to fund a business whose value has shrunk by 30% to 50% while operating costs (mortgage payments) remain fixed would immediately decide to walk away (default) from the debt.
Return Your Sunk House to the Creditors
Time for all those mortgage holders out there to return their underwater houses to their creditors and move on with their lives. This is what these two big real estate firms are doing.
For more on the arguments about mortgage defaults see this article in the Sunday New York Times, “Underwater, but wil they leave the pool“, by Richard H. Thaler and the 1/7/10 article, also in the NYTs, “Walk Away From Your Mortgage!” by Roger Lowenstein.