I've noticed a rather distressing and childish attitude among people who are commenting on the current debt crisis in the U.S. - and in much of the First World. Whether it's from some local acquaintance, a usenet poster, a Youtube vlogger, or a talking head on TV, the typical comment expresses some negative emotion ranging from disbelief, to dismay, and perhaps to outright disgust, triggered by the fact that debtors are choosing to default on their loans. Even some people who could continue making their debt repayments are refusing to do so, regardless of their financial capabilities. One would think such a course of action represents an attack on morality, justice, honor, and Western Civilization itself. Nonsense; it's just economics: human nature as applied to business and money.
Of course debtors are defaulting on their loans. Try to understand this: when it comes to debts, default is always an option. That's why lenders need to be very careful about how they lend out their money, and to whom. They just might not get it back. You may not think this is an acceptable fact, but it's a fact anyway. Mortgage lenders, credit card lenders, consumer lenders, and the whole darned "lending community" lost sight of the most simple and obvious aspects of lending. They acted as if getting the money back was a given, and that the only difficulty they faced was that of getting those loans out to people who would agree to take them and be able to repay them. And towards the end of the mortgage mania, they stopped worrying about the ability to repay, since the loans were being repackaged and sold on to other investors. But that's another story.
*Very Important Concept Immediately Ahead* When a person (or entity of any kind) owes a debt, he faces the loss of something valuable if he fails to repay the debt. The value may be in the collateral supporting the loan, such as a house or a pickup truck. But whatever the collateral is, it will be lost. Another value that will be lost is the person's credit rating and reputation - which aren't necessarily the same thing. Anyway, those values will be lost, whether or not the loan encumbers any physical collateral.
Now the thing to understand is that a debtor will make a determination of whether the values that will be lost because of default are worth the value of the resources used to complete the debt repayment. He can't keep both. He must choose between the value he can keep by not repaying his debts and the value he receives by repaying his debts, or, to put it in the equally accurate negative phrasing, between the value he'll lose by defaulting and the value he'll lose by repayment. He probably won't think of it that way, but still, that's what will be going on. If the burden of repaying the debt becomes greater than the value of whatever will be lost by not repaying the debt, the economically rational course of action is to not repay the debt.
Some people are simply not able, under any circumstances, to voluntarily default on a debt. Or at least so they suppose. But given a severe enough situation: debts that are too high to repay without crushing burdens on the resources available to the debtor and/or collateral that is obviously not worth anywhere near the debt it secures, every person in such a situation will eventually, inevitably, choose default. And if the value to be lost is his credit rating and/or reputation, the very same calculation will dictate his actions. People really will not choose to let their children go without dinner so they can make their credit card payments and maintain their credit scores. They won't. And the sooner you get over the idea that they will, that they should, and that there's something you can say or do that will change the reality, the better off you'll be. Life is too short to waste any of it ranting and raving about the no-good rotters who default on their debts. Given the right (well, wrong) circumstances, anyone will default on his debts. Even you.
