Family Problems

Nemo is in a quandary. He has just heard from his Cousin Demo, who has been down on his luck for awhile, and appeals to the DP’s readers for advice. Briefly, the situation is like this:

Demo has a large extended family, many of whom work in his diner. Business at the diner had been great for quite a while, and Demo probably hired a few more of my cousins and aunts than he should have, and paid them more than they probably should have been paid, but that’s his business.

When business was booming, I helped him finance an expansion of the diner, along with some other family members, and things went just fine — until he called and told us that he was afraid he might fall a little behind in the payments. We said fine, and reduced the installment amounts to a lower level at the same rate. But he had fallen behind on other bills as well, so the banks and the credit card companies were on his tail, and they charged higher rates the more he borrowed. To make things worse, business fell off quite a bit as a result of general economic downturns.

Things came to a head pretty quickly as a result, and Demo wound up with his back to the wall. Too much to pay, too littler income to pay it. We all talked again, but this time he asked us if we could — well — kind of forget about half of what he owed us. He doubted he could ever really pay back that much.

We were kind of shaken. But we wondered if part of the blame was ours. We knew that he was pursuing a dangerous path, and living a little too much in the moment without stopping to think about the moments, months and years to come. Maybe we should have been a little less generous and a little more stringent with our own largesse. Still, Demo is family, and, after a lot of heated discussion, we decided to go along with his request and forgive about half of his debt to us — as long as he agreed to let some people go, cut salaries and control his costs better.

This wasn’t easy. While none of our lives would change in a noticeable way, that didn’t mean that we couldn’t have found good uses for the money we had earned, paid our taxes on and then lent to him. And we were also a little perturbed when we found out that the financial statement he showed us when he borrowed the money were pretty much a fiction. In fact, we definitely would have been a lot more cautious if we knew just how close to the wind he was sailing.

Now, things have gotten worse. Demo is having second thoughts about firing Aunt Pheno and Uncle Leno, and he doesn’t want to resign from the country club he joined, because that means he’d lose the $25,000 initiation fee he paid with the money we lent him. And while we have agreed to reduce his debt burden, those troublesome banks and credit card companies want to be paid in full, so his monthly payments are pretty hard to make.

But he has a new idea: if we give him a credit card backed by our credit, he could consolidate all his debts at a much lower interest rate, which would at least buy him some time to try to work his way out of this mess. He seems to think that we kind of owe him this — in fact, he’s actually said that it’s really not our choice, since his ability to repay us is probably contingent on our agreement to this arrangement — but I’m not too sure.

I worry that this will just let him borrow even more money without doing anything to fix the things he was doing to get him into this mess in the first place. Frankly, I hear more than a little bit of the junkie in him — he’ll do and say anything for his next fix. So here’s my question: do we give Uncle Demo his credit card, and trust him to begin behaving responsibly, or do we tell him that he’s going to have to quit cold turkey?

I’d like to hear your ideas before I Demo tells me that I have to accept payment in takeout souvlaki.

About nemo paradise

Nemo has been perversely fascinated by finance since emergence from college as an English major with little or no math. His opinions, analysis and observations are generally subjective, and employ vast amounts of quantitative analysis the same way that an elephant turns savannahs into useful energy, with impressive piles of dung as a by-product. Nemo has been professionally employed in the trading and analysis of and commentary on financial markets since 1972. Nemo makes no short-term predictions, except when seized by caprice. The future is inherently unknowable, but is subject to analysis. Very, very infrequently, this analysis uncovers situations where outcomes are not random over the longer term. And, as you can tell, Nemo is a smug son of a bitch who has learned from his mistakes to guard his projections very, very carefully, but has no hesitation in attacking like a starving wolverine the misconceptions, idiotic assumptions and howling fallacies that financial pundits offer with stunning frequency.


Family Problems — 7 Comments

  1. 1. Only a fool gets involved in someone else’s family problems.

    2. It would be unwise to offer advice based solely on what was written above. Outsiders don’t know the personalities and trustworthiness of the people, and are hearing only your side of the issue.

    3. Based on what I’ve seen in similar situations, you should not sink any more money in, hoping to get it and some of the older money back.

    (You’ll note that #3 flies in the face of #1 and #2. I’ve never claimed to be wise. Wise ass, yes, but that’s a subtle but very real difference.)

    So, was this an actual family situation or a metaphor for Europe?

  2. I’ve learned some painful lessons on throwing good money after bad with relatives. It’s usually a fools hope, and ends in tears and anger.

    Cut your losses now. Things won’t be getting any better economically anytime soon – in my opinion.

  3. Sorry, I thought it was annoyingly obvious. Maybe I should have added that Uncle Demo had stepped down from running the restaurant, and that the new manager said he wasn’t going to pay up unless…, or that my brothers and other cousins were having a pretty rough time as well, or that Uncle Demo thought that the real problem was that his relatives weren’t eating often enough at the diner…(the “you Germans save too much and consume too little” argument, which cracks me up).

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