Wednesday, June 03, 2015

A Short Story About The Greek Credit Crisis: A European Morality Tale

Greek government radical new approach to economic growth pays off

Let's imagine a situation. Let's imagine that times have been good for you and you decided to buy a house, a house that you always dreamed of, a place that you can call home. The only problem is that this place is a bit pricey, certainly a stretch financially but what the hell, times are good, your credit rating is just fine and the guys at the bank just love you.

Alas, the economy takes a downturn, your job isn't as secure as it used to be and the boss is muttering darkly about downsizing and wage cuts. Now those mortgage payment instead of being steep become vertical so you go to the bank and decide to ask them if some kind of deal can be made. They look at you aghast, they had no idea that you are unable to meet your financial commitments, otherwise why would they have sent you all those credit card applications or phoned so insistently wondering if you want a loan for a new car/holiday/kid's dental work/shopping/home extension. They are shocked, shocked to hear that you have been so profligate with their hard earned cash, how on earth could you have deceived them in such an underhand manner?

But rather than lose a long standing customer (and a house they'd never sale for money you paid for it) they decide to offer you a loan to cover your debts. The problem is that this loan comes with some pretty severe conditions, no more outings, eating in restaurants is a thing of the past, also the kids really should leave home, they're a drain on your resources and frankly, granny's presence puts the family budget over the edge.

Grudgingly, you accept the terms, what else can you do? The problem is that the job market is still not getting better, the boss is demanding ever greater "flexibility" when it comes to salaries and that loan you just took out to cover the mortgage is still just beyond your pay grade. No matter how low the interest payments are, they are piling up and up.. So you go back to the bank and explain the situation, maybe rather than foreclose they could be persuaded to cut the total loan and allow you to pay, at least some of it whilst keeping a roof over your head. The mere suggestion is enough to make them choke on their mid-morning lattes and you get the impression that all is lost.

Yet, these are finance professionals and they know that a foreclosure would not only look bad for the bank, it would also not do their careers any good at all so they come up with a compromise solution. this time they'll issue you a credit card to draw upon when you need to pay the next installment of the loan you took out to cover your initial mortgage. Your kid's college fund will have to go, and that pension plan you took out is way too extravagant for a family of YOUR means. While you look dumb struck, they add a final condition,"you have to sell the family car". But how will you get to work or find a better job without a car? "No", they say, "a car is simply a luxury you can no longer afford, the price of petrol alone means it's not a viable option. Have you considered cycling to work?"

Without a car you cannot earn enough to pay off the credit card installment which you needed to pay off the loan you took out from the bank to pay back the mortgage you had with them. You refuse, saying the conditions are unacceptable. 

Welcome to Greece.


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