Change the national pastime

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.

By
September 15, 2012 22:45
3 minute read.
Isreli currency.

Money cash Shekels currency 521. (photo credit: Reuters)

 
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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 data.

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.

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There 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 unrealistically.

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 worse.

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 available credit.

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 obviated.

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 deceptive bliss.

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 issue.

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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