Legal Commentary

Walking Away

By Big Tent Democrat

Via Atrios, rortybomb writes:

[W]e already have this great system for writing down and managing burdensome debt, and it’s this marvelous thing called our bankruptcy laws. [. . .] We could easily pass a streamlined, modified version of bankruptcy just for this crisis. [. . .] We can make this fair on the backend. [. . .] It can have clawback mechanisms to address potential future appreciation.

[. . .]Why doesn’t this happen?

It doesn't happen because it requires banks to recognize huge losses. The reality is that given the choices made by the Obama Administration, the most effective way to get past our balance sheet recession is for underwater homeowners to walk away from their houses. More . . .

Rortybomb cited a Newsweek article that stated that:

Some 23 percent of homeowners owe more than their home is worth on the market, and their demand for goods is restrained by the need to pay down debt. This is the essence of a balance-sheet recession, and is what underlies the so-called Keynesian liquidity trap….

I have many clients who are in this situation. Their reluctance to even consider walking away from their homes is amazing. But rational thought is required now.

Walking away should become a viable option.

Speaking for me only

Full post as published by TalkLeft on January 31, 2011 (boomark / email).