Walkng Away

06/29/2010 05:12 am 05:12:01 | Updated Nov 17, 2011

Americans cut their credit card indebtedness by over $93 billion between the end of 2008 and the end of 2009. At first glance a hopeful statistic, this decrease turns out not to be as promising as it seems. Ninety percent of it resulted not from consumers paying their bills but from banks writing the bad debts off as uncollectable. In short, rather than find a way to pay, consumers walked away.

Walking away is not confined to credit card debt. Ten million homeowners owe more than their homes are worth, and some of them are also walking away. Some people walk away from their car loans and some from paying their taxes. Of course, more devastating to the economy are the cases of walking away by investment banks, other financial firms and some private corporations who, collectively, left hundreds of billions of dollars in bad business decisions behind. Even more serious, in the long run, is the way that the federal government has thus far walked away from its responsibility to begin paying down over $11 trillion in debt racked up before it had to bail out the economy in the recent recession.

Admittedly, there are often excellent reasons why individuals walk away. Illness, lost jobs and thus depleted savings sometimes seem to leave no other choice. This is a compelling explanation, and such cases deserve our empathy and assistance. Yet there are also cases when walking away, whether by individuals or organizations, seems more convenient than unavoidable.

Walking away may lift a burden, yet it hurts those who do it by undermining their self-confidence and sense of responsibility. People don't usually enjoy walking away, even when they feel they have no choice. In a parallel way, institutions and governments who walk away damage their sense of responsibility and destroy the trust essential to their success.

Walking away also harms those who are left behind - and someone is always left behind to assume the burden. Credit card defaulters leave banks behind, giving them a convenient rationale to raise the rates on those who do pay their bills. Mortgage defaulters leave behind abandoned homes whose depressed prices lower the home values of the residents still paying their way and, if foreclosed houses cannot be sold, can leave crime and blight in their wake as well. And of course banks, businesses and governments who walk away will - through taxpayer bailouts or higher interest rates - leave a bill for the average American for every obligation they do not pay.

Clearly, most people do not walk away. They meet their responsibilities and pick up the abandoned responsibilities of others. As a nation, we should not take these Americans for granted, for they will not let others take from them indefinitely. They are getting angrier, and they will seek ways to force people (and business and governments) to assume their responsibilities - or they too will walk away. We may not like the laws they pass to do the former. We may not survive as a prosperous, unified people if they do the latter.

Walking away thus weakens the community as well as sapping the sense of selfhood of those who do so. If we start from the premise that no one wants to walk away, perhaps we can find more ways to support each other in meeting our personal obligations. Our search should focus on incentives, not just penalties since the latter often worsen the conditions that lead people to walk away in the first place. Reasonable interest rates, for example, rather than steep fees and penalties, are more likely to enable people to pay off their debts - and give them hope that they can. Our search should focus on helping people make responsible choices in the first instance and rewarding responsible behavior when demonstrated.

Finding approaches to keep institutions and governments from walking away will be harder. Making the obligations they incur and their proposals for meeting them more transparent and subject to greater oversight may support more responsible borrowing. Changing tax, fiscal and other policies that now encourage private institutions to socialize their risk will also help. For government, altering approaches that they use to hide their debts off-budget are essential as are social insurance policies that equitably fund the reserve accounts needed to pay for future generations.

Walking away has become too common and in many cases too easy. Fixing the problem thus has become much harder. Nevertheless, we can craft ways to support individuals, organizations, and governments in acting responsibly. But we can only do so if we do not walk away.