I have to say that if you borrow money you should be obliged to make the best effort you can to repay it, whatever the circumstances. You should certainly have to sell your assets to maximise this total — though you should then stand discharged of further obligations, allowing you to make a fresh start, albeit with few material possessions as the price of your improvidence.
After all, you voluntarily entered into a contract to that effect; but then, so did the lender, so he, too, has to take whatever lumps are left over once you’ve done your best to negotiate, possibly under the oversight of an honest legal system (sadly, a Utopian premise, I fully realize). That might encourage him to think twice, next time, about just why he is extending loans and to whom and — ideally absent the FDIC and Fed, who only serve to introduce collectivist moral hazard — your lenders’ lenders (whether depositors or security holders) might want him to exercise a little judicious restraint, too.
I would also hasten to add that this should apply rigorously and without exception to everyone from the unlucky Little Man to the largest, rent-seeking, mega-corporation entering Ch11 for the umpteenth time and grabbing for taxpayers’ money as it does.
If debt carried a few real penalties, it might not be so enticing a temptation and so avoidable hardship, the misallocation of resources, and — ultimately — moral degradation might all be lessened as a result (not that a Keynesian would be able to grasp this line of argument).
It might also lead people to reexamine the whole corrupted monetary and political system in which they live, instead of consoling themselves, amid their economic and political impotence, by anticipating the paper gains in their plasterboard palaces and thus running up even more potentially crippling liabilities, for no more useful purpose than to maintain their otherwise unaffordable, Sunday-supplement lifestyles.
If, instead, we allow the bleeding hearts to make excuses for — and dole out goodies to — everyone who abandons thrift and then loses a bet with Dame Fortune, we are effectively taking the make-up from the prudent and giving it to the prodigals, whether through taxation, higher lending/insurance costs, or monetary inflation.
We are also rewarding the foolish via their prior, credit-financed enjoyment of goods and services which were subsequently left uncompensated but which were thus initially bid higher in price, to the detriment of those who could have paid, cash on the nail, out of principal or income.
It should be obvious that the adoption of such perverse incentives — however ostensibly compassionate the motives — would lead to even more debt peonage, not less!
I should have thought a man of such eminence in the field as you would have recognised this basic economic verity, whatever his political sensibilities might be.
Sean Corrigan [send him mail] is an investment analyst in Switzerland.