The eve of a new year is traditionally soul-searching time - doing our personal
accounts in more ways than one. It is also when we are deluged with all sorts of
Thus the Central Bureau of Statistics has let us know that a
whopping 52 percent of Israeli bank account holders were in the red at least
once in the outgoing year, that for 21% the overdraft is chronic, that 10% had
limits clamped on their withdrawals, that 32% were alerted by their bank to
their mounting debts and 54% were behind on utility payments, etc.
is more, lots more – all colored a conspicuous, menacing red. The bottom line is
that being deep in the red is the rule rather than the exception for most of
this country’s households and businesses. It is our way of life, how we kid
ourselves that we make ends meet and how we maintain our lifestyles, albeit
This spendthrift partying was supposed to have ended
more than six years ago, when stringent regulations – or so they were hyped –
were instituted to impose heavy financial penalties on departures from
rigorously defined credit frameworks.
Theoretically that is how things
are. In reality both borrowers and lenders blithely sidestep the well-meaning
regulations. Not only has nothing improved but things have become palpably
The banks make good money off our interest payments and the public
loves to live well on loans. Thus when a recidivist credit-craver exceeds set
limits, his friendly banker instantly accommodates him by enlarging the
All participants in our national pastime of running up
debts thereby make mockery of the rules put in place with compelling good
reason. This is akin to enabling addicts to obtain more fixes, with both pushers
and junkies ostensibly benefitting.
Moreover, contrary to our prevalent
urban myth, we are not necessarily overdrawn because we cannot feed the kids. We
use credit to finance overseas junkets, upgraded cars, eye-popping family
celebrations and even investments in the financial markets.
Lost in the
lust to splurge is the understanding that overdrawing yet staying within the
credit limits of the clients’ arrangements with their bank would mean lower
interest rates (than the exorbitant ones charged for profligate overindulgence)
and the ability to plan rationally (rather than write checks for which there is
no cover). The uncertainty and the dependence on a given banker’s whims can be
The accounting anarchy that too many individuals and businesses
have grown fond of has to go even if it will be missed. Credit without clear and
unambiguous guidelines is like playing a game without rules. One never knows
what to expect. And when this system becomes comfortable, it takes on the
characteristics of offering an alcoholic the booze that induces a sense of
Lack of financial discipline is not only harmful to
those who appear to exploit its seeming short-term enticements, but it can also
erode bank stability. When too many in an economy live beyond their means for
too long, something is bound to give way.
Invariably those who succumb to
the lure of easy money end up paying outlandish bank fees and inflated interest
rates. The banks rake in profits and have no incentive to bring capricious chaos
to an end. They never bother to put the brakes on, except in rare cases of
excessively poor risk and a surfeit of bouncing checks. Banks love overdrafts,
which is why their voice is near-absent from public discourse on the
It is imperative – now more than ever, as a global crisis looms
yet again - that concerted efforts be made to reeducate the public and overhaul
mind-sets. The profligate overspending we countenance is strictly prohibited in
other economies, America foremost.
It is high time our economy were run
according to orderly Western standards. The over-leveraging we witness runs
through all rungs of our economic ladder – from middle-class households to
tycoons who “haircut” what they owe bondholders.
The curious local custom
that allows both moguls and families with none-too-high earnings to consume
recklessly has to go, and no day is too soon.
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