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I was in Aspen last week when this New York Times article on strategic defaults among the wealthy went up. I wanted to respond to it then, but I was too busy running from panel to panel. Meanwhile, I see that Ross Douthat has used it for the opening of a column, this seems like a good opening to ignore Ross’s larger point entirely, and write the critique I wanted to write last week.
It’s not that I think that it is necessarily untrue that the wealthy are more likely to default on mortgages that they could pay. Indeed, I think it is probably almost definitionally true, at least the way I think of strategic default. To me, a strategic default is refusing to pay a mortgage that you could pay without severely limiting necessary life activities. A lot less of the income of the wealthy is directed towards those things–and no, I do not consider private schooling, or summer enrichment programs, to be “necessary life activities”. So the wealthy always have more room to cut back than less affluent people. Saying that someone in the bottom two income quintiles has “strategically defaulted” on their mortgage is an oxymoron, unless that mortgage is for something like $10,000
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