Akkam’s Razor

Tanta at Calculated Risk posts the following as a response to a story in the Washington Post regarding a ‘condo flipper’ upset that his owners association’s board won’t allow them to rent their properties (with the logic that if not being allowed to rent, they will be forced into foreclosure and eventually a short-sale, dragging the value down for the other units):

Why is it we can’t get reporters to just ask a couple of Econ 101questions when they interview these people? Like, how much would you rent it for? Would that be enough to cover 2005-era mortgage payments?
If so, how does that compare to what the unit would sell for? If not, would the “market rent” you set here also “drag down values for the entire building”? And what’s your plan for making up the difference?
What’s a “particularly” low price, anyway? At the end of it, what’s the net difference to your neighbors of turning the thing into a rental project, which lowers values, makes financing for resales hard to get,
and uses up the “hardship quota” of allowable rentals, versus establishing a painful but accurate new comp for an owner-occupied sale?

And, finally: do you really expect the short sale-style negotiation tactic–”accommodate me or I default on you”–to go over as well with your neighbors as it does with your servicer? I’m truly curious about that question. At least, in a short sale, the servicer is free of you after taking the loss: from the servicer’s side, the deal can’t get any worse down the road once you sell. What are you offering your condo board? A guarantee that you’ll never skim the rent and end up defaulting anyway? A guarantee from a self-described flipper who doesn’t appear to have disclosed intended occupancy quite accurately up-front when he bought the units in the first place? (If they were purchased as officially non-owner-occupied, why were they not rented immediately? Did you try but fail to rent them immediately? What am I missing here?)

This seems to be the core of the economic mutually assured destruction of the “too big to fail argument”. As illustrated above, there are many other stakeholders and many uncertain outcomes which are not equally borne by those said stakeholders, all to benefit stakeholders unwilling seeking to redistribute their risks since they couldn’t reap all the profits.