They stick to you like lice and babble what they have memorized as soon as you pick up the phone.
My wife and I normally have this method of handling them. I cut them short and ask. If your call is for giving for Personal, Insurance or Credit card, we are not interested. Now tell me. In most cases they thank me and hang up.
Thanks to our culture we Indians do not like to take loans. We live within our means, cut our coat according to the cloth.
Standard Chartered, HDFC and ABN Ambro have offered me Credit Cards, free of cost. The former two even sent me the cards. My cards lapsed after a year without a single transaction.
On the other hand the Americans are compulsive spenders and it is their Government and Banks who train them to spend. Spend now and pay later, if you have the money, otherwise take a loan.
Thus the USA has the highest debt in the world.
I remember in the ‘60’s when India’s food production was very dismal, we used to get wheat from the USA under PL-480. At that time, it used to be said that every newborn Indian baby had a debt of a few thousand Rupees as soon as it is born.
The wheel has turned a whole circle.
Now it is the US baby, which has a debt of USD 39000.00 as soon as it is born..
The US Government has been printing notes to cater to the spending prowess of its citizens without backing in resources and the US banks and financial institutions have been spending money knowing the their Government would bail them out in case of failure. But that has stopped now.
The government refused to bail out Lehman Brothers, the fourth largest investment bank in USA and it had to file for Bankruptcy as Bank of America and Barclays refused to take over Lehman’s debts.
Merill Lynch, another reputed financial institution was luckier as Bank of America agreed to take over Merill Lynch..
AIG, an insurer of assets is also on the brink of collapse and proposes to sell its assets/units.
And think of the irony.
These are the companies who used to certify the credit worthiness of India.
I have given below, this weeks article in the weekly newsletter I receive from “Equitymaster” since it is very pertinent to the issue I am discussing
The collapse of Lehman Brothers has caused tremendous upheaval in the world's financial and share markets with the Indian Share market losing 1000 ponts in two days.
Most people spend their weekends with their families. Since India offers very few choices in terms of playgrounds, we take our children to the malls – the modern day temples of fun and enjoyment.
After fighting our way through unforgiving traffic, we squeeze our way into the parking garage entrance of the mall – the gap of dusty air between the unfinished wall on the left of the car and the shaky bamboo sticks on the right side of the car. These bamboo sticks probably bear the weight of the entire building. We shudder at that thought but move on to the fun and games of a weekend at the mall.
Gold at the mall
Once inside the air-cooled environment - with some relief from the dust - we let the children run up and down the escalator. I remind myself to write a letter to the Ministry in Charge of Sports and Promotion of Youthful Exercise and Better Daily Habits to consider introducing a new sport in the Olympics, the one which India plans to host in 2020. (Please read – A 2020 Olympic). “Dear Sir”, the letter will read, “Please can you introduce the Escalator Race in the 2020 Olympics which your esteemed organisation will be hosting. It is possible that a child from India may win a gold medal in that sport.”
An interesting statistic: students (former and existing) of Stanford University in USA won 25 Olympic medals in China, of which 8 were gold, 13 were silver, and 4 were bronze. If Stanford were an independent country, it would have ranked as the 9th in terms of gold medals won and 11th in terms of total Olympic medals won. Stanford, by the way, probably has 15,000 students and maybe 500,000 former living students of all ages. Probably 50,000 are US citizens of the “Olympic relevant” age. India - with the 200 million young people (the “Olympic relevant” age) that Goldman Sachs wrote so excitedly about in their BRIC report - won 1 gold medal and 2 bronze medals for a tally of 3 medal – ranking at 50th. Well, that is a start.
But, we were talking about the weekend. Yes, the joy of letting your children run around in an air-cooled mall and then buying them a few cookies or an ice cream. And watching young teenagers on their first awkward date - they walk around and eye each other like peacocks in a mating dance. And nodding a weak “hello” at other parents who also bring their children to play around in the mall.
Yes, the Indian mall business is booming. Though not as a place where people spend money, but more as an air-conditioned garden. Many politicians took the land owned by municipalities for building schools and playgrounds away from the people. They were sold or auctioned off for commercial buildings and malls. In a twist of fate, those malls have become playgrounds again.
Mall mauled
Look around you and a typical mall and count the number of shops with people standing in front of the cashier line, ready to pay for a purchase. Look around and count the number of people with shopping bags in their hand. Are those bags large and fall, or small and light? Hmm, we spent two hours in the mall and bought ice creams and cookies. Add the parking bill and a typical family spends Rs 200 in 2 hours. Maybe the mall developers should consider leasing their empty buildings back to the municipalities and convert them into playgrounds – a few slides, see-saws, swings, and some sand and mud would do the trick. They could always work out a Build Operate and Transfer deal which would push the losses of the malls built, now running up a huge operating loss, back to the municipalities. With some innovative agreements, they could even make a profit from the over-built and ugly malls that they have constructed. But the death of the Indian real estate bubble – ready to crack in N ovember - is not the subject of the story.
An American weekend
Ah, yes, we were talking about the weekend. And what we typically do on a weekend. That is, try to avoid spending money. Families in the US though do go to malls – and they love shopping. Spending has become a national past time. If there was a gold medal for that, the US consumer has won it. No competition. No one even close. In fact, to prove that they know how to spend, consumers in USA borrow money. They use their credit cards to buy now and leave the worrying about paying the money for sometime in the future. The New York Times, commenting on data compiled by the US Federal Reserve, suggested that the debt habit has not gone away.
Total debt taken on by US consumers has crossed the USD 2,500 billion level (about 20% of GDP) and the credit card debt is about to touch USD 1,000 billion (about USD 3,000 for every child, adult, and retired person). This excludes any loans they have taken on their homes. And that debt is about USD 11,000 billion. So, households in the US have a total debt of about USD 13,500 billion. A child born in USA today begins life with a debt obligation of USD 39,000. Welcome to the world, Sam, you owe the banks USD 39,000. Now, now, stop crying, my little baby.
So families in America spend their weekend adding to debt. Governments reflect their people – and people reflect the governments they have. So Treasury Secretary, Hank Paulson, is the biggest spending American on record. He loves weekends. And he loves shopping on weekends. But he does not take his family to the mall and nor does he take his children to the mall to ride escalators. The US teams won 110 medals in the recent Olympics (more than the 100 medals won by China, although China won more gold medals). So on Sunday, March 16th, Mr. Paulson helps sell Bear Stearns to J. P. Morgan. The Fed provided financing for the sale and agreed to “support” USD 30 billion of the less liquid assets held in the balance sheets of Bear Stearns.
The main dish
But that was only for starters. On Sunday, September 7th the US government stepped in to take over control of Fannie Mae and Freddie Mac – the two quasi-government companies which hold about USD 5 trillion in mortgages (2x the consumer debt referred to above). The Mortgage Bankers Association reported that about 4 million homes (9% of total mortgage loans) were delinquent or late on their payments. No one knows how much that bit of Sunday shopping will cost the US government and its tax payers, but there will be a price.
And now Lehman Brothers is in trouble. And the car companies want USD 25 billion in loans from the government to help their business. Aha, the joy of weekends. So much shopping to do!
We know there are some costs in these Sunday shopping expeditions. But we don’t know if there is any benefit of these takeovers and government guarantees. We know that poor baby Sam born just a few weeks ago may see his obligation of the debt could increase by an extra USD 14,300 from the USD 39,000 he already owes the bill collectors. Yep, that’s him crying his lungs out.
| Trading day before rescue packages | Dow Jones | Bail out of | US government guarantees | Per capita guarantee |
| March 14, 2008 | 11,951 | Bear Stearns | USD 30 billion | USD 86 |
| September 12, 2008 | 11,422 | Fannie Mae Freddie Mac | USD 5,000 billion | USD 14,286 |
But shopping is addictive. Luckily, there are many weekends in a month and many months in a year and many years in a decade. So, the shopping has just begun. Enjoy it and watch it live on TV – you may get a gold medal for keeping your eyes and mouth open in shock for the longest time!
I would like to add here, that neither my wife or I have been inside a Mall as yet. You my call me tightfisted. It is hereditery. My father also did not like spending unnecessarily..My elder son Ajay has my genes but the younger, Jay, has his mother's. They like spending.
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