Debt

Bill-newby L. G. William Chapman, B.A., LL.B.

I know of no sagacious soul who is ambivalent when pronouncing upon the subject of debt though most condemn it.  Even if one acknowledges the temporary utility of debt as a device for capital enlargement, it is normally something from which we are encouraged to distance ourselves. Debt is regularly maligned in everything from Biblical references to parental words of advice.  It is even asserted that the etymology of the word “debt” is connected to sin: A duty neglected or violated; a fault; a sin; a trespass. “Forgive us our debts .”

Neither a borrower nor a lender be

As someone who has the rare privilege of having maintained a Line of Credit with every chartered bank in Canada – contemporaneously – I can tell you that I have many favourable things to say about debt.  While I certainly wouldn’t be hand-picked as a textbook example of fiscal restraint and planning, it would be deceitful of me to suggest that debt hasn’t afforded many pleasures I would not otherwise have savoured. Admittedly everything I possessed was encumbered. I mockingly quipped that I owned only the front wheels of my car! I am however bound to observe that at this advanced stage of life I no longer suffer the burden of any debt whatsoever but this doesn’t diminish its bygone appeal and instrumentality.

For people like I who are accustomed to debt the world is a different place than it is for those who abhor it.  I find for example that it is the very people who can most easily sustain the pinch of debt who most revolt against it and who are inclined to adopt thoroughly dampening and miserly habits.  This of course explains why they have so much money.  I on the other hand viewed debt not as a handicap (though a temporary drawback) to my larger scheme but rather as a tool to its casual implementation. It is safe to say that the magnanimity of the banks contributed in no small part to my own comparative liberality in the expenditure of money.  Easy come, easy go I suppose!

Big Spender

When I graduated from law school I had virtually nothing in my chequing account (and I certainly cannot recall having had a savings account).  The only bargaining chip was a law degree.  My first loan application was to the Royal Bank of Canada on Spring Garden Road in Halifax, NS across from Robbie Burns’ statue in Victoria Park.  I had received an enthusiastic promotional letter in the mail from the President of the Royal Bank of Canada inviting me to speak to the Bank about all my loan requirements.  This I did one sunny Friday afternoon.  When I met with the banker I asked for $250.  He replied that it would be no problem at all. “Just ask your father to sign here”, he said.

Robbie Burns

Having declined the banker’s familial invitation, I trod up the street to the Canadian Imperial Bank of Commerce.  There I asked the banker for $500 to which he responded, “Cash or cheque?” As you might imagine this petty episode nonetheless established an important precedent.  Indeed when I subsequently decided to open my own business in Almonte and needed $10,000 I was astounded when the banker at Bank of Montreal asked, “Are you certain that is enough?  Wouldn’t you like to borrow more?”  Well!  I mean to say!  Who can resist such forceful insight!  It wasn’t long before I was hardened in my ways.

People who juggle a lot of debt seldom have a compensating reserve of liquid assets (or what is lyrically called “cash”).  It would be misleading to dismiss this concern as frivolous and I certainly haven’t any intention of challenging its prudence. The only thing that motivated me to perpetuate my indebtedness was the hope that the capital upon which I had expended it would one day amount to something. Furthermore as I awoke to the concept of amortization it appeared to have the persuasive strength of wisdom and my entire life became geared to a corresponding 25-year plan.

amortization

The object of my indebtedness was real estate.  The first venture was a surprisingly modest home purchase on St. George Street for $24,500. Granted the place was so small I had to back into it, but not insignificantly I could still afford the luxuries of passable Scotch whiskey and cigarettes!  I subsequently traded up to a larger house for $76,900.  This was a fortunate move because in those days – believe it or not – banks were reluctant to lend money other than upon the security of an owner-occupied residence.  So when an office building later caught my eye I was only able to leverage the purchase by using my new house as additional collateral.  Parenthetically the $80,500 purchase price for the office building was entirely floated by debt.

As you can see, even though I still had no money, I had succeeded to enlarge upon my possessions, most of which had the appearance at least of being rational and useful.  This however was a trend destined to change.  Through committed expenditure upon capital improvement of my real estate (which by then included an urban condominium and a rural 25-acre parcel of land) I learned to employ it in turn for further loans.  This time though the dalliances took a turn for more personal indulgences, things like cars, a grand piano, furniture and complicated watches.  It was at this stage of economic evolution that banks gratuitously began tossing in unsecured lines of credit with regular secured loans.  This of course was the bank’s answer to the decline of interest rates; namely, increase the capital owed so the resulting product of return on funds was the same.  As an unsuspecting and eager consumer I cheerfully misinterpreted this extension of credit as an acknowledgement of my growing capacity and business acumen.

Suavity

Eventually my appetite for things was exhausted.  I had succeeded not only to go up to the trough but to get into it.  I was saturated. I then resolved to reverse years of profligacy. Without going into the dreary details of my financial catharsis, permit me simply to rejoin that one cannot have money and things.  I have subsequently adopted an entirely different mantra regarding the meaning and pleasures of life.  Let me assure you that this abrupt modification was not in the least dissatisfying. I have ever been a visceral person. Yet having sated my appetite, there was no feeling of deprivation.  In retrospect I prefer to dignify this spotty financial career as a philosophical choice along the lines of carpe diem but I recognize there may have been more luck than design in what I did.  Besides how impossible it is to erase the stain of one’s past conduct!  In the end it may only be the prayer for forgiveness of one’s debts that counts.