Shame for You but Not for Me

 

The large banks, financial firms, and large landlords use shame as a social force to pressure us to always pay our debts and forgo the use of bankruptcy.  But, but, but the large banks and even non-bank financial firms use bankruptcy when it is good for them.

In late 2009 Morgan Stanley “jingle mailed” five San Francisco office building back to it’s lender, Blackstone Group, just two years after agreeing to purchase them.  A month earlier it defaulted on office buildings it owed to Barclays Capital. Additional large commercial landlords which have defaulted on original loan terms include Taubman Centers, Simon Property Group, Macerich Co., Tishman Speyer, and Vornado Realty Trust.

In addition to bankruptcy, the large banks and non-banks use bailouts from the government to avoid bankruptcy.  In 2008 Wells Fargo Bank, Bank of America, JP Morgan Chase, Citigroup, Bank of New York, and many other banks and credit unions received tax paid bailouts.  Bloomberg estimates the total spent to help the banks and non-bank financial firms was 7.7 Trillion dollars!  Partial list here:

http://money.cnn.com/news/specials/storysupplement/bankbailout/

Non-bank firms bailed out included Goldman Sachs, General Electric (it had a very large financial services division), General Motors (also a large loan division), AIG Insurance, Fannie Mae, and Freddie Mac.  Without this “free money” most of these firms would have declared bankruptcy.  As an individual, if the Federal Government had offered you a similar offer of “free money”, say a $500,000 gift or loan at 0.25% interest, that would have more than bridged your financial problems and allowed you to avoid bankruptcy.

Don’t let banks, large landlords, and financial service firm lay a guilt trip on you.  They default, and use the bankruptcy laws when it makes good business sense for them.  Personally, don’t feel shame for doing what makes good sense for your own financial situation.