In the red

It’s official – the Bank of Israel is worried about the whopping numbers of Israeli bank account holders who end up in the red at least once a year. It therefore is putting in motion new and more extensive reporting requirements of banks.These would oblige banks to submit comprehensive quarterly statements on their credit exposure in the household sector according to the borrowers’ level of risk. The aim is to allow the BoI to determine the extent of the banking system’s exposure. Individual borrowers will be ranked in groupings based on their income, financial holdings, the status of their loans, whether they are in arrears, etc.This is mandated by the fact that being deep in the red is the rule rather than the exception for most of this country’s households and businesses. It’s our way of life, how we kid ourselves that we make ends meet and how we maintain our lifestyles, albeit unrealistically.The new bank reporting regulations will go into effect next year – a full decade after the widespread spendthrift partying was supposed to have been curtailed by stringent regulations (or so they were then hyped) instituted to impose heavy financial penalties on departures from rigorously defined credit frameworks.In reality, both borrowers and lenders blithely sidestepped the well-meaning regulations. Not only has nothing improved but things have become palpably worse.The banks make good money off interest payments and the public loves to live well on loans. Thus when a recidivist credit-craver exceeds set limits, a friendly banker instantly accommodates the client by enlarging the available credit.All participants in our national pastime of running up debt thereby make mockery of rules put in place with compelling good reason. This is akin to enabling addicts to obtain more fixes, with both pushers and junkies ostensibly benefiting.Moreover, contrary to the urban myth, we aren’t overdrawn because we can’t feed the kids. Israelis take credit to finance overseas junkets, upgraded cars, eye-popping family celebrations and even investments in the financial market.Lost in the lust to splurge is the understanding that overdrawing while staying within the credit limits of one’s arrangement with the bank means paying lower interest rates (than the exorbitant ones charged for profligate overindulgence) and the ability to plan rationally (rather than write checks for which there’s no cover). The uncertainty and the dependence on a given banker’s whims can be obviated.The present accounting anarchy that too many individuals and businesses had grown fond of has to go even if it’ll be missed. Credit without clear and unambiguous guidelines is like playing a game without rules.And when this state of affairs becomes comfortable, it is disturbingly reminiscent of offering an alcoholic the booze that induces a deceptive sense of bliss.Lack of financial discipline not only harms those who appear to exploit its short-term enticements, it can erode bank stability. In the long-run when too many in an economy live beyond their means for too long, something is bound to give way – e.g. the current Greek travails.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 little incentive to bring capricious chaos to an end. They never bother putting the brakes on except in rare cases of excessively poor risks 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 that concerted efforts be made to educate the public and overhaul mind-sets. The profligate overspending countenanced in our midst 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.