I’m a deadbeat.
Eight years ago, I purchased a two-year old condo in a beautifully manicured gated community with tennis and volleyball courts, swimming pools, clubhouse and gym, and covered parking in Florida across the street from a major league baseball training camp.
A bank offered me one of those ridiculous nothing-down, interest-only loans. I declined, put 20 percent down, and made regular payments. Three years later, Florida real estate crashed, and dragged my condo with it. Two-thirds of its value vanished. It was so far underwater that it could take decades to recover. My bank went broke, the next bank went broke, and the third bank sold my loan to a fourth bank working for Fannie Mae. The banks wouldn’t talk to me, so I couldn’t sell the condo without paying more money in a market gone sour that was not my fault.
Realtors, lawyers, and bankers all gave me the same advice: Default and do a short sale. That took 18 months. During that time I collected $20,000 rent. At closing, I offered it to Fannie Mae, but Fannie Mae told me to keep the money since any payment would cancel the sale.
At the end of the year, it sent IRS Form 1099 on which I had to pay tax. It was the wrong amount – a lot higher and a nice round number. Fannie Mae said if I could prove how much I really owed, it would replace the form.
I knew that defaulting would destroy my personal credit. (Before doing this, I talked with my bank to make sure it wouldn’t hurt my business.) Now, over two years later, I still can’t get a new credit card even though my income is good, my house has no mortgage, my credit cards are paid in full, and I have some savings. Lenders simply don’t trust me.
Last week, most Republicans voted for the U.S. to default on its debt ceiling to prove, somehow, that we are serious about out budget deficits. When countries such as Spain, Russia, and Greece and cities like Detroit defaulted, interest rates and unemployment rates skyrocketed to 25 percent. They still face years of severe financial problems.
The debt ceiling a quirk of history. Before 1917, Congress had to approve all specific types of borrowings. In 1917, the first debt ceiling law was designed to allow the Treasury to issue the types of debt necessary to finance World War I. After Congress passed Budget Control Act in 1974, the debt ceiling was raised simultaneously as Congress passed appropriation bills.
In 1995, after the federal government shutdown, Congress separated the spending authorization process from the debt ceiling. Since then, Congress passed trillions of dollars on spending bills without providing the money to pay those bills.
No other nation has a U.S.-style debt ceiling. No other nation approves spending without making the money available. No other nation is that insane.
My strategic and intentional default did not prove to my creditors that I was a tough negotiator or that I was serious about dealing with my debt. It proved that they don’t trust me, won’t lend me money, and charge extra. It proved that a deadbeat is a deadbeat.