Strategic Default: Is It Immoral?

There was a very interesting piece in Sunday’s Seattle Times regarding “strategic defaults” (intentional abandonment of the debt, and eventually of the property, by the debtor/owner).  The article was authored by Brent White, a law professor. I agree with the opinons of Mr. White: Any decision regarding such a default should be based only on the legal consequences of the action.

I further agree that “morality” should play no role in the decision. It seems clear to me that corporations are not bound by these same morals, so its unfair for the rules to differ between the parties to the transaction. Corporations have a duty to their shareholders, period. Any action that is not in the shareholders’ best interests is not appropriate. So if it makes financial sense for a business to default, you better believe that the business will default. The corporation will not take into account other factors, such as the impact of the decision on the other party or even on society itself. Hey, that’s why they call it “business.” Shouldn’t the same rules should apply to debtors?

There is a debate right now in this country about the legal rights we afford corporations. Regardless of your viewpoint on this issue, it seems only fair that if we treat people and business entities identically before the law, we should also hold them to a similar moral code. Otherwise, people are placed at a distinct disadvantage when dealing with businesses. And if that’s the case, we will have placed corporations above people, which would seem to subvert the purpose of corporations in the first place.

Posted by Marc

One Response to “Strategic Default: Is It Immoral?”

  1. […] some moral obligations to their creditors above and beyond the obvious legal duties — see my post on one of my own […]

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