Credit crisis: a different point-of-view
As the UK Government bails out Bradford and Bingley (after Northern Rock) and as the US Congress, Treasury and a lame duck President continue to grapple with the TARP bail out plan, I’d like to tell you two true stories which may cause us all look at the problem from a different point of view.
A friend of mine is a drug addict and I have his permission to tell his story.
At the age of 11 he started smoking and by 25-years-old was up to 60 a day -an unhealthy and expensive habit. He was introduced to cheaper alternatives by a friend who supplied him with cannabis. This made him happier for a while but soon this friend was supplying him with “E”, cocaine and eventually heroin. That’s when he got help - after years on the slide he started on methadone and is now in his words “a recovering drug addict”.
I admire him tremendously - he didn’t start out with the intent of ruining his life, he just did a little of what “everybody else did” and things got out of control. Through will power, the help of friends and family and the NHS, his life is on track again. Sadly the pusher/dealer is still out there peddling and profiting. He has not yet been punished in any way for his part in my friend’s pain and, probably, is somewhere ruining other lives.
That has to be unacceptable in a modern society; we should have laws against it – oh I forgot, we do.
Another friend of mine is in debt and I have his permission to tell his story.
He got his first credit card when he left university (in those far off days there was no student debt on graduation) and within a year or two had reached his limit. His friendly bank swapped the credit card debt for a five year personal loan AND let him keep his credit card. Then the letters started to arrive – “You have been pre-approved”, “12 months interest free on balance transfers” “Buy now pay later”. My friend, who by now was promoted and married, took advantage (well everybody else was) and when the babies (twins) came, the nursery, the prams the car seats etc all went on the cards. Which soon
reached maximum again. But no problem, “let’s roll it up into another five year
loan (adding what’s left of the old one in for good measure) and of course you can keep the credit cards (and we’ll increase the limit)”. And with the twins they needed a bigger house – which they got (from a very reputable bank which hasn’t collapsed) based on four times their joint earnings.
This meant his wife had to go back to work and the one salary just about pays for the nursery fees. He didn’t start out with the intent of ruining his life, he just did a little of what “everybody else did” and things got out of control. My friend and his wife are lucky; they have come clean to their parents who, between them, have paid off the main debts. They are now living within a budget set by the father-in-law (ironically a bank manager).
Sadly the money lenders/pushers are still out there peddling and profiting. They have not yet been punished in any way for their part in my friend’s pain and, probably, are somewhere ruining other lives.
That has to be unacceptable in a modern society- we should have laws against it.
This real story is being repeated all across the UK today – as a country we must address the problem of the £1,449 billion (this is FOUR TIMES the amount of the proposed US bail out) of personal debt currently held in the UK. This figure is made up of:
Loans secured on property (“mortgages”) £1,218 billion
Consumer lending (personal loans /credit cards etc £231 billion
Once the banks have been bailed out (and they do have to be) then the money pushers/dealers have to be dealt with. As a society we surely have to help those struggling with debts they should never have been granted. This help has to be paid for by the banks - they granted the loans, they receive the interest – and government help may be (I think certainly will be) needed.
I wonder whether debt is one of the last great taboos. Thirty years ago we didn’t talk very openly about sexuality but now we do and are a more tolerant and better place for it. In the 1980s we talked about our wages and what we earned and in the 1990s about how much our houses had gone up. But I can recall only a few people admitting that they had refinanced on the back of those increasing wages and prices. I wonder if the last part of this decade will be the emergence of our being open about our debt levels. I somehow doubt it but I think we might be a better society if we did.
A closing thought - recently we have seen a rise in debt management firms to help restructure personal debts. The problem is nobody trusts them. Perhaps once we can talk about debt openly, without shame or being judged, we can deal with sorting out the problem in an adult way.
Chris Parry is a Senior Lecturer in Financial Services at the Cardiff School of Management at the University of Wales Institute, Cardiff (UWIC).
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