We’ve had another spate of articles recently about strategic defaults, a sign that banksters are worried that people are are going to strategically default. But this time, there’s a difference. At first, the news media told us that it was an offense against God and man to walk away from an underwater mortgage, and far too many people bought that foolishness, spending their retirement savings and beggaring their families to try to pay their debts. Banksters professed moral outrage at the idea that the little people would think about the possibility of not spending their lives paying off their masters. I saw it as part of the scheme to stick all the losses from the Great Crash on average people, and taxpayers.

Now the media are starting to figure out that maybe those early defaulters had a point; that there were good reasons to justify walking away; and that default is a realistic option. A recent article in the LA Times says that the houses with the greatest risk of strategic default are those with jumbo mortgages, mortgages securing loans in excess of $417, 000 prior to the Great Crash. In many areas, this is a reasonable amount for a nice, but not splashy house, meaning that the middle class is wising up.

Ultimately, strategic default for many owners boils down to a calculation: Are the costs, financial and otherwise, worth the relief from an albatross house and mortgage? If the Moody’s study is accurate, thousands of jumbo borrowers are struggling with that calculation right now, and a lot of them are likely to bail out.

That calculated “rational choice” stuff is pushed by the economics professors, all of whom teach about homo economicus, the oddball idea that people are rational decision makers. They tell their students and anyone who will pay attention that people make decisions just like banksters. That implies that the rational choice is strategic default: what is good for the Mortgage Bankers Association is good for underwater homeowners.

The news articles demonstrate my view that people are driven more by feelings and emotions than by rational calculations. This one says that the possibility of strategic default goes up when people know others who have done it. As more people walk away, more people learn that it can be done, and that they can live with the consequences. The article also says that people are more likely to default if their lender has been accused of predatory lending, if they do not know their lender, or if their lender has refused to cut a deal with them. That fits well with the views of University of Arizona law Professor Brent T. White, who wrote a paper, Take this House and Shove It: The Emotional Drivers of Strategic Default in 2010, based on the personal accounts of 356 individuals who wrote unsolicited notes to him after he published a discussion of defaults. White argues that if the rational calculation were the only important factor, people would walk away a lot sooner than they do. Instead, he sees

… the incipient strategic defaulter as deeply underwater, terribly anxious, hopeless, and frequently angry – subject, of course, to individual variation in intensity and sequence. This picture stands in contrast to the popular image of strategic defaulters as greedy, dismissive of the consequences of their actions to others, calculating and cold.

That picture of the greedy jerk, calculating and cold, indifferent to the consequences of their actions? That sounds like one of those Corporate Persons, like Bain & Co., or the quintessential homo economicus, Mitt Romney.

White’s paper includes a large number of stories about people who defaulted or were seriously considering it. White did an on-line interview with the Wall Street Journal, answering a lot of questions about defaulting. You can read that here. If you are underwater, I encourage you to take a look at these to see how other people are dealing with their problems.

White offers several policy prescriptions which have been comprehensively ignored by politicians. I have one myself: quit kissing the asses of your Wall Street contributors and deal with the problems you and they created. If you don’t, it’s going to get ugly.