Morgan Stanley made a business decision to walk away from  5 office buildings in San Francisco they bought at the height of the market in 2007. It’s estimated their value dropped by almost 50%. They were not in foreclosure and were making the payments. It’s called a ‘strategic default‘ – a purely business decision. If Morgan Stanley can walk away, why not you?

The answer, according to Univ. of Arizona professor Brent White, for many is fear, shame and social stigma. In an article titled “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis“, White explores why individuals, unlike business, aren’t walking away from hopeless situations, when financially it would be in their best interest to do so.

He states “that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences”.

Not only that, he states that “these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations – and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision”.

Intrigued by this reasoning? Read:

Part 3 of the article titled “The Financial Logic of Walking Away”:

Part 4 is “Explaining Homeowner Choices”;

Part 5 is “The Social Control of the Housing Crisis”;

Part 6 is “The Asymmetry of Homeowner and Lender Norms” and

Part 7 is “Leveling the Playing Field”.

You might be indignant about his arguments, but if Morgan Stanley can do it, why not you?