Sunday, November 29, 2009

Are גמ"ח's a bad thing?

Sounds ridiculous at first, what could be bad about providing interest free loans to people who need them? However, in this past weeks Mishpacha (Hebrew) the editor printed a letter in his weekly column which makes exactly this claim.

The main point of the letter is that גמ"ח's allow people to borrow money that they can never pay back. Someone who has a hard time getting through the month has very little chance of paying back a $50,000 loan that he took to marry off his children. The existence of גמ"ח's greatly increases the societal pressure to provide money to children without giving any thought to how the money will be paid back. According to the letter most people in the Charedi world are in debt and spend a lot of time running from גמ"ח to גמ"ח to pay back loans. גמ"ח's promote irresponsible financial behavior and let people drown themselves in debt.

I agree with the letter writer to a point. גמ"ח's are definitely enablers for risky financial behavior just like zero dollar mortgages were in the US. As a parent I know it is very difficult to say no to a child or not provide them what they need. If $50,000 is the going price to marry off your daughter it is very difficult to say no and unfortunately in today's Charedi society if you say no to the money your daughter will have a hard time getting married.

The bottom line is that the Charedi lifestyle is simply unsustainable financially. Sooner or later the bubble will burst.

In truth, I don't know what the answer is. In today's world (both in the US and in Israel) even if you have a good job it is very difficult to support a large family. Salaries are simply not made to support 6+ kids. Therefore telling people to work is not necessarily going to solve the problem. Large families and the modern finacial world just don't go together.


Chaim B. said...

Why do you limit your critique to the chareidi world? In more modern circles where the price of the wedding will be 100k, tuition is 20k+ per kid in many schools, etc. it is also impossible to have a normal job and provide for a family of even 3-4 kids. The system for all groups only has 2 levels: the rich who have no problem paying for it all, and everyone else trying to keep up by living one step out of poverty on borrowed money.

Orthonomics said...

I could not agree more with your premises that gemach lending is doing harm. The idea of running from gemach to gemach, as we read about so often, is evidence of that.

I believe in interest free lending, as I would hope every Jew does. But the halacha is that loans should not be given where the person will be unable to pay back. It makes little sense to me that there is no a gemach "credit reporting agency" where those in charge of communal money know that person already is overextended. And of course it makes little sense for a community (Chareidi or Modern) to be living the lifestyle of the rich and famous on less than rich and famous earnings.

Thrift isn't just an American Christian concept. . . . .

Orthonomics said...

I linked by the way. Thanks!