1/8/2013: Strategic defaults...

This is "I am not drowning puppies for fun" note concerning my view on the problem of 'strategic defaults':

1. I do not allege there are no 'strategic defaults' in Ireland.
2. I do state that at this moment, there is no evidence of these defaults being a systemic problem of specific dimension.
3. Absence of evidence is not in my view evidence of absence.
4. I am aware that some people prioritise payments of unsecured debt over secured debt. This can be for a number of reasons. 
5. However, (4) does not automatically imply that a person doing so is out to 'game the system' to their advantage. They might be prioritising payment of unsecured debt for a number of reasons, other than personal gain, e.g.: (a) their credit cards or small credit union loans fund their day-to-day living expenses and as such they need their credit flowing to survive, or (b) their unsecured creditors exerted more pressure on them and they simply caved in, or (c) they are afraid of losing their last line of credit, etc.
6. I do not allege that doing (4) above (including for the reasons outlined in (5))  is a correct or a good or an acceptable course of action. In fact, in my opinion, it is not.
7. I am aware of at least one instance where an organisation I am working with faced a case of a wilful and strategic default. We advised the bank to pursue all legally available courses of action to stop the person from continuing to engage in such activity.
8. I am aware of the study that used US research (not US data) to extrapolate to Irish case. I find such an approach a good point for a debate, but I do not accept it as a robust evidence to base any policy design or analysis on. It is not an evidence and thus (2) and (3) above continue to apply.
9. I am aware of the statements by media and analysts that the problem of 'strategic defaults' in Ireland is growing and is already significant. 
10. My view is that (9) is an unsubstantiated claim, not backed by any real evidence and as such it has to be treated as just a conjecture. Anyone is free to make a conjecture. Some might even opt to be so kind as to seek evidence to back one up. None have a right to impose their conjecture onto actual solution or policy mechanism.

I hope this explains my position on the issue and ends the nonsensical accusations that I am denying the problem. 

My personal conjecture on the topic (backed by anecdotal evidence, so not different from any conjectures on the topic presented in the media to-date) is that there can be borrowers attempting to game the system. We do not know how many are. We do not know who they are. The correct way f dealing with them is to penalise them at the point of discovery. Before such a point, however, everyone is innocent, until proven guilty.