Thursday, April 01, 2010

Deadbeats Debtors vs. Doing Business? Double Standard? Depends.

What's wrong with this picture?

A homeowner who walks away from an impossible mortgage which is double what his property is worth is a deadbeat who will suffer for years, credit-wise, for his decision.

But for the big boys? Not so much.

The rules are different, though, for the walkaway of all walkaways.

That title is reserved for what happened to one of New York's trophy properties, the 56-building Stuyvesant Town and Peter Cooper Village complex. Spanning 80 acres on Manhattan's east side, it's the largest single-owned residential area in the city. Its red brick buildings, built by Metropolitan Life in the 1940s for World War II veterans, are still a haven for the city's middle class.

Commercial real-estate firm Tishman and its partner, investment firm BlackRock, paid $5.4 billion to buy the property from MetLife in late 2006 -- right at the market's peak. They hoped to make money by converting rent-regulated apartments into luxury condos and raising rents.

Then the housing crash hit. The value now: $1.8 billion.

And you thought you overpaid for your house.

Tishman said last week that it was turning the property back over to creditors to avoid filing for bankruptcy protection. In recent weeks, Tishman failed to restructure $4.4 billion in debt, and couldn't find another buyer, according to a statement from the company.

Tishman exits the deal with a ding to its reputation, but it will be fine. It still has Rockefeller Center and the Chrysler Center in New York, and dozens of properties in cities worldwide. The company has about $33 billion in assets.

Helping homeowners stay in their homes is rewarding irresponsible and reckless behavior. After all, no one 'deserves' to own a home. Just because for 60 or 70 years the mantra of home ownership has been touted as the American Dream, and the tax structure ridiculously favors owning over renting, and just because people were told that buying a home is the best investment you can make, and that there was no better time than now to buy - in fact, not to buy would be the height of stupidity - doesn't mean you shouldn't have known better. Even though every financial pundit and economic expert was shouting it to the rooftops, somehow Joe and Jane Worker, with their in-depth knowledge of the intricacies of speculation, derivatives and credit swaps, should have known more than all of the Wall Street Masters of the Universes put together.

Yes, and they must be punished.

Do you have cable TV? Do you have a cell phone? Do you buy name-brands at the grocery store? Why, you irreponsible, greedy lout! Do you have a gym membership? Do you ever go to the movies instead of watching (non-cable) TV? Do you ever go out to lunch instead of brown-bagging it? Do you ever buy a latte at Starbucks? Why, you profligate spendthrift, you! No wonder you're in trouble, the way you just throw money around. That's the problem with you people. You just want everything, without ever thinking about whether or not you can afford it.

It's called moral hazard, and you deadbeats will continue to take advantage of those of us who are industrious and thrifty if you are allowed to get away with it.

Unless, of course, you are the CEO of the banks or investment firms who got rich off of stealing from homeowners. Then, the idea of being penalized in any way - by not getting your multi-million-dollar bonuses, by a salary cut, by getting your ass booted out into the street (or into jail) - is not to be considered. Why should you be punished, just because you caused the collapse of the American economy? You were just being a savvy businessman. That's the beauty of the Free Market™! We can't go around stifling initiative and discouraging entrepreneurship, can we? What are we, Russia?

Moral hazard? Don't be ridiculous. That's only for the little people.

So, how to make it better? Vilify the victims, pamper the perpetrators.

Carrot-and-stick? Sure! Here's how that works: beat the homeowners to a bloody pulp with the stick, and offer the golden carrot to the banks. If you have the temerity to offer any criticisms to the banksters whatsoever, be very sure that they are covered in 'pretty pleases' and are the mildest of suggestions only, which the banks are free to disregard - in fact, just forget anything was said, and please accept the abject apologies for implying that their behavior was anything less than honorable.

Putting the blame on homeowners for taking the advice of the experts, who are paid handsomely for their expertise, is like blaming the patient for following the advice of their doctors - not just one doctor, but the entire AMA - for prescribing an expensive medication that makes them sick. Maybe the doctors didn't know - or care - how dangerous the drug was, but they sure as hell all made a fortune from the pharmaceutical companies who gave them huge amounts of money to prescribe it, so it's no skin off their back.

And, let me tell you, this makes me sick.

Double standard? Depends.

Yes, I'm wearing them. I'm that pissed off.

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