Monday, February 9, 2009

Freeing you from your shackles!


The new law, passed by Parliament 10 days ago, has made it possible for 1.92 million people who have had credit card applications denied because they were labeled too risky after failing to pay their debts on time to apply for a new credit card. Normally, individuals or companies whose names are recorded in the database of risky customers cannot take out loans or have their credit card applications approved for five years after their names enter the list. Other than 1.92 million credit card casualties, nearly half a million people were on the list because they had failed to pay their individual loans and another 5.9 million for bounced checks, while 3.87 million were labeled risky customers because of failure to honor promises to pay. The new law has given them an opportunity to be freed from the shackles of a record of unpaid debt.

Another brilliant decision. I especially enjoyed the phrase "shackles of a record of unpaid debt." What exactly is the problem with keeping a record of those individuals and businesses that have defaulted on their loan payments? Why shouldn't the credit companies have the right to refuse further credit to those with poor repayment histories? Applications for new credit must be based on something, after all and failure to pay-as promised- your credit debts is a criminal offense. (In fact, the law, if I understand the article, allows people to apply for a new card. Anybody can apply for a new credit card. It doesn't mean acceptance.)

Think about it for a moment. Doesn't this amount to punishing all those small businesses and individuals that have responsibly paid their monthly credit card bills? What kind of message is that?

I think of no better way for Turkey to jump into the current economic crisis with both feet than by enacting this ridiculous law. We should be asking for more accountability, not less. This, on a grander scale, is how so many countries got into trouble in the first place, by carefree and unlimited borrowing and irresponsibly using credit without sufficient means for repayment.

Last year a friend of mine had the misfortune of working as a partner in a private company which might have served as a MBA case study on how NOT to manage a company. The stories my friend daily reported were both amusing and frightening. The first time the accountant saw the books, his hair must have turned white. Whenever his Turkish partner went to IKEA, ( which was usually about 2 times a week and almost always during working hours) he would smugly remove a stack of credit cards, at least 30 different ones, and flip through them like a Las Vegas card dealer. Items for personal use were routinely charged on his company credit card. "His attitude was: I am going to charge and charge as much as possible on my credit cards. Especially for personal items because if my company goes bankrupt, at least, I will have something to show for it," my friend told me. "Everything, and I mean, everything was charged on credit. As far I could see, he hardly ever gave a thought how he would pay any of it back."

Bottom line: There are some people who should not, under any circumstance, enter into the business world. Nobody actually relishes the idea of working as an underling. It is always more fun to give orders than to receive them. Unfortunately, just having the desire to be a bigwig businessman is not nearly enough. A success in the business world requires much more than the need to satisfy your egotistic cravings.

Small businesses that borrow without the capability to repay- or, still worse, without even the intention of repayment- are doing nothing more than stealing. Those company owners that use credit irresponsibly must be forced to close their doors because in the end, it is the tax payers that must repay the debt- with the added effect of increased interest rates for all of us. People and companies often go into bankruptcy for good reasons; this is one of the hard facts of life in the capitalist system.

On the other side, credit companies should not be expected to underwrite bad credit and the government has no authority to force them to do so. Credit is not a handout, for heaven's sake. Credit companies keep records of those individuals and companies that fail to pay off their debts for very legitimate reasons. How many times would loan money to a deadbeat friend that lives like Rockefeller and never repays his debts? Is it better to forget his failures and continue to loan him the next time he runs into a problem?

But, then, more cynically, if you were a incompetent business owner using your credit cards like tomorrow would never come, who would you be voting for?

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