Debt and Promises: A Toxic Soup

A disturbing problem often encountered in contemporary financial practices is the manner in which people incur debt through a coterie of easy and sometimes absurd means.  These include: lure of easy pay-day loans; credit card issuance; margin lending; credit union lending; in-store credit and loyalty programs, and ‘loan sharking’. While some personal debt (such as housing loans) may be genuine, others are purely unnecessary and frivolous. They often originate at one extreme from: peer pressure and societal demands occasioned by changing lifestyles; over-capitalised homes; social occasions and events (aka lavish weddings and parties) to the destabilising and highly frowned extreme of gambling, Ponzi, and highly speculative investment schemes. To the extent debtors rationalise their payment future obligations will be met from some anticipated present illusory windfall or unexpected gain (lotteries and pokies), regular and genuine supplementary income (e.g. investment income) may be insufficient to service all their debt obligations. Compounding the debt problem are unexpected losses and income disturbances such as sickness, physical incapacitation and retrenchment. In short left unpaid, debt compounds further through interest charges, penalties and legal costs. In relation to commercial practices, a further debt layer is that accumulated through a myriad of borrowing practices and schemes contrived through complex legal stratagems that often go beyond the credit worthiness and repayment capacity of the business. All this makes for a toxic soup when the underlying debt...

Read More