Eight desperate tries for when money disappears: Part 2, break your contracts
[Continued from yesterday's Part 1.]
Yesterday’s post on the grim realities of Spain’s economy, using a New York Times (December 17, 2012) article, organized the ways in which an insolvent entity that has run out of cash can try to avert complete collapse and presented the first three: stretch accounts payable, pay some debts and not others, or issue promissory notes in hopes that people will accept them.
But forcing a creditor to take notes does no good for the typical consumer, since the notes are instantly worth only a tiny fraction of their face amount, leaving the note holder no better off than if she had received nothing.
Raul, a truck driver in Castellon, Spain, hoped last month to be paid from a government fund. Courts are jammed with requests.
Beatriz Morales Garcia, 31, said she could not remember the last time she went shopping for herself. A few years ago, she and her husband, Daniel Chiva, 34, thought that they had settled into a comfortable life, he as a bus driver and she as a therapist in a rehabilitation center for people with mental disabilities. His job is financed by the City of Valencia, and hers by the regional government of Valencia.
In other words, the government is the principal deadbeat.
Every law the people have not ratified in person is null and void — is, in fact, not a law.
Here the cruelty and perversity of the Euro system manifests itself. Aside from having its own foreign policy and fighting its own wars, about the most fundamental attribute of a sovereign government is control over its own money. Minting is a sovereign prerogative, which is why from time immemorial sovereigns have stamped their faces on coins and banned any private minting.
You know I’m the emperor because I’m on the coins
You can trust this; I’m your king
(For this reason, I find all too apt the Eurozone’s insistence on not having any human beings on its money. It is almost as if the economists who thought up this malapropism wanted to underscore the facelessness of their government, and hence its unaccountability.)
Nobody stands behind this
If Spain were sovereign, instead of having bade it auf wiedersehen, then Spain could print its own money, and while that leads to inflation, it dilutes the government’s obligations ratably across the board.
At home recently, Mrs. Molina said she had sometimes used her credit card to pay her mortgage.
Mrs. Molina’s strategy, aside from being desperate, is a good one because under Spain’s perverse mortgage laws, she and her husband are better off being in debt to the credit card companies than to bank lenders, especially if they have to move to the next strategy on our list.
- Go bankrupt and cancel all the excess debts.
Often the unpaid workers, like Mrs. Molina, whose company is now in bankruptcy proceedings, hope their labor will keep a struggling operation afloat over the long run.
As I’ve written before, bankruptcy comes in two forms: reconstitution (where the debts are cut and the entity emerges as a going concern with a sound balance sheet), and dissolution (where the entity disappears and its liquidation assets are distributed and sold).
We’re glad that you’re gone, you rascal you
A dissolution bankruptcy, which is where most of these Spanish companies will end up, results in the disappearance of jobs.
Often enough the workers’ patience has not paid off — more than 300,000 companies have gone bankrupt in Spain over the last few years.
Dissolution burns up the nation’s economic muscle, which is already consuming itself in the withering 28% unemployment rate. (And remember, that’s the formal unemployment rate; what percentages of Spaniards have jobs that pay no cash?)
They never expected any big money. But it seemed reasonable to expect a reliable salary, to take on a mortgage and think about children.
They are suffering because Spain’s government has breached its social contract with its citizens – and these breaches, like a cancer that has metastasized, are breaking out everywhere in Spain.
Or the Principles of Political Rights
In 2007, the [government] insurance fund paid 70,000 workers.
Since the start of the crisis in 2008, the insurance fund has paid nearly a million workers nationally back pay or severance.
In other words, roughly 225,000 a year, or triple the pre-crisis rate.
It is on track to pay more than 250,000 this year, and experts say the figures would be much higher if not for the logjam in the courts.
In reality, Spain’s benefits capped are being forcibly capped by lack of cash, which is causing the court backup. The throughput failure is a cash failure.
The courts have become jammed with people trying to get back pay from a government insurance fund, aimed at giving workers something when a company does not pay them.
When the system collapses, where is the legitimacy of government?
“What, then, is the government? An intermediary body established between the subjects and the sovereign for their mutual communication, a body charged with the execution of the laws and the maintenance of freedom, both civil and political.”
― Jean-Jacques Rousseau
A government exists to protect and aid its citizens. Police, fire, emergency medical assistance protect us directly. The court system protects our property and our contractual dealings, and enables commerce. One by one, Spain’s government is abdicating its responsibilities to its citizens – and its citizens, now, are paralyzed with fear.
In the past year, however, both of them have had trouble being paid. Mrs. Morales Garcia is owed 6,000 euros, nearly $8,000. They have cut back on everything they can think of. They have given up their landline and their Internet connection. They no long park their car in a garage or pay for extra health insurance coverage. Her husband, Mr. Chiva, even forgoes the coffee he used to drink in a cafe before his night shifts. Still, the anxiety is constant.
In 1931, when he was truly stony broke, George Orwell lived as an informal worker and then as a bum in both Paris and London; and unlike so many thousands of others, he observed it with his clinical dispassion and wrote about it in his remarkable journalistic book, Down and Out in Paris and London. Orwell describes better than anyone I have read poverty’s debilitating effects on the psyche.
Written by a man who unwillingly live it
People are wrong when they think that an unemployed man only worries about losing his wages; on the contrary, an illiterate man, with the work habit in his bones, needs work even more than he needs money. An educated man can put up with enforced idleness, which is one of the worst evils of poverty. But a man like Paddy, with no means of filling up time, is as miserable out of work as a dog on the chain. That is why it is such nonsense to pretend that those who have ‘come down in the world’ are to be pitied above all others.
The man who really merits pity is the man who has been down from the start, and faces poverty with a blank, resourceless mind.
Takes time to recover from this
The couple’s pay has been so irregular that they are having a hard time even keeping track of how much they are owed, because small payments show up sporadically in their account.
“There are nights when we cannot sleep,” he said. “Moments when you talk out loud to yourself in the street. It has been terrible, terrible.”
- Devolve to a barter system.
And when you’ve got money
You’ve got lots of friends
Crowding around your door
When the money’s gone
And all your spending ends
They won’t be ’round any more
– Billie Holiday, God Bless the Child
God Bless the Child, that’s got his own
When money runs out, it’s time for barter.
Mrs. Molina considered herself luckier than most. At least her family has been able to lend her money when she needed it, at least for now.
An extended family is a group savings scheme linked by ties of blood – and for the poor, it can be essential lifeblood if the problem it faces is purely one of temporary difficulties, either of employment or cash flow. But unless there’s a reversal of fortune, and the beneficiaries once again produce enough income to support themselves, then the whole family can be drawn into insolvency.
No one is keeping track of workers like Mrs. Molina.
The government cannot afford to track them, for fear of what it might find.
Mrs. Morales said it was particularly hard to watch other mothers in the park with their children while she must leave her own toddler to go to work, unsure she will ever get paid.
“We are working eight hours, and we’re suffering more than people who are not working,” she said.
It will occur to Mrs. Morales, if it has not already, that she should start taking care of other people’s children. Though doubtless, with the thicket of EU rules on employment, she will be best served by doing this informally, with payments in kind, or under the table.*
If you’re not working, protest
[Concluded tomorrow in Part 3.]