Another Strategic Default (that people approve of)Saturday, February 12, 2011
In this interview that was published on mortgageorb.com, I was asked this by the interviewer: “Why is it that strategic defaulting at a corporate level is not actively challenged, but it is being challenged at a consumer level?” That was, of course, a great question.
As I wrote, the notion of approving business defaults while flogging one’s neighbor for walking away from his mortgage is entirely irrational. A corporate Chapter 11 is a strategic default, and these business decisions are never questioned by the same masses of folks who are enraged over specious charges of moral failure on the part of homeowners who walk away from homes that are collapsing their financial condition. This is because people who are financially ignorant think that households do not have to make strategic financial plans – only businesses do. It is a temperamental response triggered by ignorance and emotional blame.
One of my favorite companies, ever, is preparing to strategically default: Borders Group, Inc. I knew this three years ago when analysts still thought the bookseller’s problems could be solved by short-term marketing gimmicks. The company’s financial condition was troubled early in 2008, and its business model had already been taking a plunge. Liquidation seems likely, but Borders, a Michigan company, leaves behind many great memories as the first mega-bookstore with greats service, selection, and a striking physical ambience. Unfortunately, after a few years of struggling to reinvent itself as a top contender in a field with little room for competitors (brick-and-mortar bookstores), Borders Group has to default and turn the keys over to the bankruptcy court.