Non Performing Assets (NPAs) – BAD LOANS, NPAs and BAILOUTS – A Paradox

BAD LOANS, NPAs and BAILOUTS

When I read about the “Rich and Famous” defaulting on paying back their loans to banks, resulting in bad debts and Non Performing Assets (NPAs) – resulting in the banks writing-off bad loans – which entails deploying honest taxpayers’ money to bailout the rich defaulters – I am amused at this ludicrous situation where the poor hardworking citizens subsidise the unethical rich businessmen – and – I am reminded of this article which I wrote around 5 years ago.

THE “POUND-FOOLISH” ALWAYS EXPLOIT THE “PENNY-WISE” 

BAILOUT – A PARADOX : WHY SHOULD THE POOR SUBSIDISE THE RICH…?

Musings By VIKRAM KARVE

I still vividly remember an incident which happened in the 1960’s – when I was a small boy and I lived in Pune.

My mother believed in the concepts of thrift and frugality – and she practiced what she preached.

She believed in building up savings rather than borrowing money.

We were taught to live within our means.

We never took loans.

In case we wanted to buy something expensive – we saved money till we had enough funds to buy what wanted.

After I got my job – I opened a recurring deposit – saved money every month – and purchased my first scooter after nearly 3 years.

I still remember that I bought my first car after working for more than 15 years.

I bought it from my savings – and did not take a loan for buying a car.

If we could not afford something – we had no hesitation in saying so – and we curtailed our desires instead of having false pretences.

We had not fallen victim to the disease of instant gratification.

We believed in “cutting our coat according to our cloth”.

We never lived beyond our means – and that is why we were financially sound – and our savings gave us a sense of security.

We did not believe in “keeping up with the Joneses” – and that is why – we never felt any sense of inferiority or envy if our neighbour was better off than us – or if he had something which we did not have.

I have digressed.

Let me take you back to the incident which happened more than 45 years ago in the end 1960’s.

As I have already told you – since my mother believed in thrift and frugality – she always travelled around Pune by Public Transport – Pune Municipal Transport (PMT) Bus.

Commuting by auto-rickshaw or taxi was considered a luxury – and was resorted to only when absolutely necessary like when we had luggage and had to go to the railway station to catch a train – or when there was some elderly or ailing person who could not travel by bus.

One day an aunt came to meet my mother.

She was much younger and fitter than my mother.

She had come to borrow money from my mother.

At first – my mother was quite reluctant to lend her money.

I too seemed quite surprised that my aunt wanted to borrow money from us – since she was quite well-off financially – as compared to us.

Seeing my mother’s unwillingness to lend her money – my aunt pleaded desperately to the point of emotional blackmail.

(I could overhear something about cheques bouncing etc).

Finally my mother succumbed – and gave my aunt the money.

Then – my mother asked me to see off my aunt to the bus stop.

As we were walking towards the bus stop – my aunt asked me to hail an auto-rickshaw.

“You want to go by auto-rickshaw?” I asked her, surprised, “Why don’t you go by PMT bus – it goes right near your house?”

“I am not used to travelling by bus,” my aunt said with disdain, “these PMT buses are so dirty, crowded and uncomfortable – I just can’t travel in these terrible buses. Just call me a auto-rickshaw.”

And so – off she went travelling in the luxury of an auto-rickshaw.

Of course – my snooty aunt would pay the “exorbitant” auto-rickshaw fare out the money borrowed from us – while we would travel by bus – that’s what hurt me the most.

A question arose in my mind.

How can someone who borrows money have a higher standard of living than the person who lends them the money?

In fact – why should someone who is well-to-do and has a higher standard of living – borrow money from someone who is less well-off?

Isn’t it logical that the standard of living of the lender should be much higher than that of the borrower?

My mother travelled by economical public transport bus.

My aunt travelled by expensive auto-rickshaw.

We lived in a modest home in a middle-class neighbourhood – whereas my aunt lived in a stylish house in a posh locality.

Yet – my aunt would always borrow money from my mother – when logically it should have been the other way round.

My spendthrift “pound-foolish” aunt kept on exploiting my thrifty “penny-wise” mother.

I did not understand the paradox.

How can the rich borrow from the poor?

Does it make any sense?

And – why should the rich borrow from poor?

But now I see this happening all around – when I hear that familiar term “BAILOUT”.

Rich organisations like banks and airlines (who have the most highly paid employees) are being “bailed out” by the comparatively poorer taxpayers.

Yes – the poor taxpayer is being penalised for the extravagance of these lavish spendthrift organisations – who have landed themselves in dire straits because of their own incompetence and profligacy.

Why should a person who earns much less than the highly paid employees working in these organisations be expected to bail them out?

Is it fair to ask the middle class to bail out someone who is much more financially well-to-do?

Why must the economically prudent subsidize the financially reckless?

It seems the same thing is happening with nations too.

Developed nations like Greece are seeking bailouts.

If you have a look at the luxurious lifestyle and plush high standard of living of these European Nations as compared to underdeveloped or developing nations – you really wonder why these developed and modern nations should be “bailed out”.

In fact – it is the less-developed Asian and African nations who need a “bailout” – not developed European nations.

It is inexplicable.

How can someone with a lower standard of living “bail out” someone with a higher standard of living?

It would be much better if these cash-strapped nations and bankrupt organisations be asked to cut costs, reduce salaries, prune expenditure, implement austerity measures and practice thrift and frugality – rather than giving them bailout after bailout – despite the fact that they continue with their spendthrift lifestyle.

And if they refuse to mend their profligate ways – then it is better to let them go bust.

The poor subsidize the rich.

The “pound-foolish” always exploit the “penny-wise”.

Strange but true – an inexplicable paradox – is it not…?

VIKRAM KARVE

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All Stories in this Blog are a work of fiction. Events, Places, Settings and Incidents narrated in the stories are a figment of my imagination. The characters do not exist and are purely imaginary. Any resemblance to persons, living or dead, is purely coincidental.

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Updated Re-Post of my Article titled BAILOUT Earlier Posted Online by me Vikram Karve on June 11, 2012 in my Academic and Creative Writing Journal Blog at url: http://karvediat.blogspot.in/2012/06/bailout.html and http://karvediat.blogspot.in/2015/07/the-pound-foolish-always-exploit-penny.html and  http://karvediat.blogspot.in/2016/02/bad-loans-npas-and-bailouts.html

 

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