Impact of Financial Collapse in Mexico
Ever since I can remember, my father would always give my sisters and I casual lessons on the way the world works. We got history, we got science and very often we got finance. He even made his weekly financial revision and bank statement organization a family bonding experience. I remember laying on my parents bedroom floor with my father going over every number and concept on the bank statement explaining to me what everything meant. I must have been no older than six (I know, its really non-conventional, but neither is my father). Interestingly enough, the only thing that really sunk in was the fact that if you have your money in a bank, you'll make a "profit" given the interest you receive in the account. Later, I opened my own junior account and received monthly statements showing that I had made ten cents on my five hundred peso account. I loved those ten cents (however insignificant) because I figured that eventually, after many years of receiving ten cents, I would be a very wealthy kid. Many years later, in 1994, when Mexico was hit with a massive financial crisis, it dawned on me that interest rates can work against you as well. As I am from Mexico and was living there at the time, again, my father was giving me a financial lesson while we were on the way to the bank. We were discussing the situation and I noticed he was very stressed. He mentioned that, given the situation, he was having a very hard time paying the mortgages on our apartment and meeting the car payments. I was confused and asked him to explain. Well, after the crisis hit, the interest rate was kept very high to attract investment. As a consequence, many Mexicans were left in a very awkward situation, where their debt to the bank had increased dramatically. The car stopped, we got out and walked into the bank. I couldn't believe it; the entire bank was filled with people's living rooms, bedrooms and kitchens. There was furniture, TV's, VCR's, frying pans, washing machines, everything and anything you can imagine. The bank had confiscated all the goods that people had bought using bank loans but hadn't been able to pay back. That's when it dawned on me that perhaps the car we were driving in, and that the home I had to live in might also be taken by the bank. Interest rates 101, the hard way. That's when it really hit me...but really, really hit me, that interest rates take as much as they give.
To end the cycle, later that year, a bank moved into a building owned by my father. But even the banks were out of money and so, not very often but on occasion, they would pay my father rent by giving him the TV's, the VCR's and the furniture that they had taken from other peoples homes... almost like bartering. We agreed to this because, in all honesty, we had to take what we could and hope to later sell it ourselves.