Strategic IT Contract Default – Smart Decision or Dirty Business?
Monday, October 18th, 2010
One of the hottest topics in the wake of the meltdown of the real estate market is the ethics of walking away from an underwater mortgage – which now accounts for 12% of all foreclosures according to Morgan Stanley.
Banks and realtors tend to opine that it’s a barbarian practice, only acceptable to those that are rich and ruthless, with Fannie Mae and Congress taking specific punitive steps based on whether a default was voluntary and bloggers calling for life-long branding of defaulters.
Consumer advocates and academics reply that a strategic default is not a moral decision, but simply repairs a long-standing asymmetry between personal social norms (“honor your financial obligations”) and business norms (“maximize returns”) that allows banks to play by a different set of rules and take advantage of their customers. (more…)
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