Incorporate to Survive

Gain a split personality and follow the example of mega corporations to avoid being answerable for your actions

Let us postulate a scenario that could happen to anyone of us sometime in our adult lives. Or as one of my lecturers was wont to say, “let us hypothise this proposition”…

You get a job, start working and earn a regular monthly salary. You scrimp and save and as some years go by you find that you have built a little nest egg that allows you to put up the cash for a down payment on a house. You enter a loan contract with a bank, mortgage a significant part of your salary for the next couple of decades and buy the house.

A few months later you lose your job, you are unable to meet your obligations on the house and the house is repossessed. If you come out of the other end with any money at all, you are fortunate. The chances are that you will lose your shirt along with your house. It’s something that should never happen to anyone, but does nonetheless.
This basic rule of life is understood by most people in the world. It is what guided our fathers to build houses with the money they had in their pockets. Not tomorrow’s earnings. And they still live in those houses. More than half the world’s population continue to make their big ticket purchases on cash. So while privation may extend to going without some meals, people who live their lives without hocking their tomorrows usually don’t get hit as bad.

But you don’t have to follow the rules if you are a big corporation, not an individual.

A good case in point is that of the large banks and financial institutions that were bailed out to prevent the collapse of the financial system. Also the auto makers that got government handouts to keep afloat and reorganise. What are the chances that you would ever get such help as an individual? Even in a country with social security in place, you won’t get rewarded for being a drunk or a gambler.

At the time the erstwhile Daewoo Motors collapsed worldwide, spelling the demise of the Indian operations, I interviewed their then managing director. Tasked with selling the India operations in the face of a mounting debt, faltering sales and with no hope of support from Korea, he was then toying with the possibility of doing something along the lines of what GM and Citibank have done now. His solution was to split the company into two – one part to have the assembly lines making the cars that were still bringing in a healthy revenue and the other to be saddled with most of the company’s liabilities including the engine plant that could only make engines of a size they were unable to sell.

So two units, one with the assets and revenue generation and the other with the debts and useless plant and equipment. Issue one share of each unit for every share held in the original and you now have one company that’s worth zero and another that may have a great new future. Makes lots of sense. Except that when the debt was issued, it was to a company that had worthwhile assets too.

Now if only you could apply this to your personal life. Take a loan to buy the house and then split yourself into two. So what if you have stretched yourself or have lost your job? The positive guy keeps the house, the negative gets wound up with no fanfare and a little paperwork.

I know it’s impossible to do that, not just physically, but because no government would allow you to walk away from your responsibilities to banks.

However, in this time of crisis, a new lesson is being taught to the world’s population. That despite all the hooplah of it only taking so many billion dollars to banish global poverty, provide clean drinking water or feed the world, the money never comes. When you have to save the greedy, the rich and the world’s largest ‘for profit’ organisations, what’s a few more trillions in money that future generations have to pay for anyway?

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