Is the current economic crisis creating a generation of American deadbeats?  Once upon a time in America, we were taught that no matter how much financial trouble we get in we pay our debts – no matter what.  But now that has fundamentally changed.  Today, record numbers of Americans are filing for bankruptcy and a new term had to be invented (“strategic defaults”) to describe the large number of people who are making “business decisions” to walk away from underwater mortgages.  Meanwhile, many of these same individuals who are walking away from their debts are spending big money on cruises, vacations and new cars – as if they were still entitled to all of the good things that come with living the American Dream.  Below you will read some incredibly disgusting examples of this.  It is as if a whole generation of Americans has decided that “financial responsibility” is a problem that they don’t care to be bothered with.  But what is it going to do to the U.S. financial system if we can no longer count on people to honor their debts? 

What we have got is a big mess on our hands.  Most Americans were never taught how to responsibly handle their finances.  Decades of easy credit cards and easy mortgages is starting to catch up with us.  We created the biggest credit bubble in the history of the world, and now that things are coming apart we don’t know quite what to do. 

The reality is that the American people know that the U.S. economy is in really bad shape and that things are not going to get significantly better any time soon.  According to a recently released AP poll, just 25 percent of Americans believe that the economy is getting better.  The same poll found that 76 percent of Americans rate the economy as “poor”, compared to just 21 percent who said that the economy is “good” overall. 

But it doesn’t take a genius to figure out that the economy is a mess.  For example, in Clark County, Nevada (home to Las Vegas) the unemployment rate has increased from 10.1 percent to 13.9 percent in just the past year.  In California’s Central Valley, 1 out of every 16 homes is in some phase of foreclosure. 

An increasing number of Americans are responding to this economic mess by running off to bankruptcy court.  Federal courts reported over 158,000 bankruptcy filings in March, which represented a 35 percent rise from February.  In fact, more Americans filed for bankruptcy protection in March than during any month since the federal personal bankruptcy law was tightened back in October 2005. 

Foreclosures also continue to explode.  According to RealtyTrac, foreclosure filings were reported on 367,056 properties in March.  This represented an increase of nearly 19 percent from February, and it was also the highest monthly total since RealtyTrac began issuing its report in January 2005. 

But foreclosures are soaring not just because people can’t pay their mortgages.  One of the biggest reasons why the number of foreclosures is flying into the stratosphere is the huge number of Americans that are opting for “strategic defaults”.  Many Americans are simply deciding that it is just not worth it to pay a $500,000 mortgage on a home that is only worth $300,000. 

“People who have prime jumbo loans, people with good jobs, with assets and nice cars are talking a hard look at this investment and making a decision, a conscious decision, to strategically default on their loans.”  Bankruptcy attorney Chip Parker told CBS News from his Jacksonville, Florida office. “ These are professionals making business decisions about their homes.  Subprime is over — these are Alt-a and option arms loans….people with 700 and above credit scores.  They are treating their homes like a business deal.” 

But shouldn’t these people honor their financial commitments?  Well, yes.  But what is even sadder is that many of these Americans who are walking away from their debts are turning right around and are spending big money on cruises, vacations and new cars.  Just check out the following anecdotes from The Market Oracle website…. 

*My 25 year old niece had $10,000 of outstanding credit card debt.  Recently, she told the bank she couldn’t pay.  She is not unemployed so the ‘hardship’ is all relative.  Nevertheless, the bank offered her a concession which she refused.  They offered another concession, she refused again.  Finally, they told her if she paid $150/month for 2 years (total of only $3600 with no interest), they would call it paid in full!  She accepted in a heartbeat.  It is less than a month later, and she celebrated her good fortune by going on a cruise to Hawaii. 

*A friend owns a small manufacturing co. He tells me of one of his female employees who was saddled with a $450,000 home she purchased almost five years ago with no down pmt.  One year after her purchase she pulled $75,000 home equity and purchased ‘fun stuff’ including a boat.  She recently walked away from the house (now saddled with $525K mortgage), purchased a new house for $200,000 (in her sister’s name) and kept all the goodies purchased from the home equity withdrawal.  With the much lower mortgage payment she just bought a new car. 

*My sister is a nurse with 25+ years on the job.  She told me of a young couple that she is good friends with that both work at her hospital making a decent joint income.  They didn’t like the fact that they grossly overpaid for their 3000 sq ft home in 2006.  They stopped making hefty monthly payments six months ago and haven’t yet been contacted by the bank.  They have decided to wait until contacted and then walk away.  In the meantime, they just returned from NYC from a week vacation in the Big Apple. 

*My brother-in-law wanted to know if he should stop making payments on everything.  He lives in Virginia and his carpentry skills are not as marketable as they were in the height of the boom.  He and his wife’s best friend have lived close-by for many years.  For the past 13 months since they strategically decided to stop paying their mortgage, they had yet to be contacted by their bank.  Not even one letter!  My brother-in-law doesn’t understand how they get to pocket the mortgage and spend carefree, including a 10-day Caribbean vacation. 

Do the above stories bother you? 

They should. 

If Americans are going to file for bankruptcy or walk away from their mortgages they should at least start showing some signs that they have learned something.  They should at least start tightening their belts and begin acting like responsible members of society. 

But this is 2010.  Today most Americans feel like they are entitled to live the American Dream.  Most Americans feel like we all owe them something. 

The end result of this is going to be the breakdown of the system of credit in this nation as we get to the point where we can’t really count on anyone to fulfill their financial obligations. 

And once that happens we will have one gigantic mess on our hands.