In a speech in Florida, presidential candidate Mitt Romney said he supports the idea of principal reduction.
We’re just so overleveraged, so much debt in our society, and some of the institutions that hold it aren’t willing to write it off and say they made a mistake, they loaned too much, we’re overextended, write those down and start over. They keep on trying to harangue and pretend what they have on their books is still what it’s worth.
Romney said, essentially, that he realizes that without some sort of principal reduction or debt forgiveness, the door to a bigger problem might open: more “strategic defaults” where homeowners walk away because lenders won’t work with them:
In some cases, if the debt is not in something you can service, it’s like you have to move on and start over away from those debts. It’s helpful if you get an institution that’s willing to work with you, but if you don’t you have no other option.
Lenders, he says, are afraid of losing their shirts. But he doesn’t consider their position reasonable:
They just want to pretend all of this is going to get paid someday so they don’t have to write it off and potentially go out of business themselves.
Finally, his message to lenders:
My own view is you recognize the distress, you take the loss and let people reset. Let people start over again, let the banks start over again. Those that are prudent will be able to restart, those that aren’t will go out of business.
And finally what almost sounds like a scolding of the banks:
This effort to try and exact the burden of their mistakes on homeowners and commercial property owners, I think, is a mistake.
(This jibes with a quote from the day before, also in Florida: “Too many institutions aren’t willing to write it off and say, we made a mistake, we over-leveraged, we loaned too much.”)