Credit Crunch

Picture of a houseboat on the backdrop of beautiful Kerala backwaters. He and she tucked away into the scenic silence.

If you can afford this vacation today, why wait?

So says the billboard that used to catch my attention - and made me lose my temper everytime - off Airport road in Bangalore three years back. Well, why should I worry?

The second line is what I hate - the new means of "affording" luxury - xxxBank Personal Loans. No collateral needed. They will give you a loan. Take it, spend it. The resort owners also have taken a loan. So the money flow from bank back to bank has to happen through you. Economic activity. You pay for the vacation, interest to the loan you took, interest for the loan resort owner has taken, pay your part for the billboard that invited you into the deal and then the profit for the resort. The value of the vacation is probably only 20% of what you spend in total. But still they know the art of making you feel you are happy. That you just could "afford" a vacation that you "deserved".

Vacation was not a word for working class in our childhood. We had Onam vacation, Christmas vacation and annual vacation for schools. When we go to our grandparents place. That was our vacation. It used to be save, save, save for our parents. Save for your childrens education - though education was close to free. Still, save for building your house. The primary need and the most important and many times first asset.

They say its spend, spend, spend for Indians now. Take loans and spend. Buy a car - why not buy a 10L+ car? You just pay so-and-so per month. You can afford that, can't you? Buy vacations. You work so hard (yeah spending time on orkut and facebook), don't you? Buy all "affordable" luxuries. Come on, kids can wait. Before that let us see life. Swipe the plastic card when you see something good. Don't worry about your savings. You know banks are helping you a great deal. The more cards, the more you "afford". Build up the liabilities day by day. Not assets. But believe, get convinced, that you are the proud owner of all these.

Our moms saved a lot of gold. For them gold was an asset that helped them in need. Their daughters now collect more gold credit cards. And monthly statements on each one of them.

I welcome a recession now. I know its hard. Many lose jobs. (May be its me. I am glancing on my mails every 10 min for the pending reorg announcement). But I think its better than later. Better fall from a 5 storeyed building than from a 10 storeyed one. When I wrote about loans couple months back, the Generation Y did not understand. People cannot wait for that vacation. Enjoy life today. Just remember one thing - you are able to jump start your life because your parents got you a safe jumping board. Not a set of loans that you should start paying back. Never its too late. Just compare with the worse. Comfort is a comparative feeling. And so is hardship too.

Why this recession? Because everyone went on loans. Money was made as a tool for virtualising barter system. Now money itself is being traded. Money market - I fail to comprehend this level of abstraction. Someone was telling me six months back - housing market is bad, but money is still cheap. I guess it means a low interest loan. I think if these loans were not there, the overall price index should come down. Now they create customers by giving loans. When people can "afford" more, the price goes up. A vicious cycle where only the bank officials make money (banks do not - they only have paper assets. Thats why they fail)

You dont have to be forced out of loans. You can decide by yourself to remain where you are and stop pursuing more luxuries. If you know the building foundation is not really good, you should start climbing down. Not climbing up. But they don't tell you that. All of them tell you banks are still safe, they still give you money and make you pay up their salaries. Just hold off. No more loans for another 5 years. After that you probably will get used to it. And might not need loans to pay back your loans. Can we do that?