Bailouts for irresponsible punters anger the sensible and sound

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Bailouts for irresponsible punters anger the sensible and sound

A small shop owner prepares to open his store in Seoul on May 30. [YONHAP]

A small shop owner prepares to open his store in Seoul on May 30. [YONHAP]

 
Bailouts for cryptocurrency losers and millennials who gluttonously bought up stocks at or near the market top are not going over well with people who played by the rules.
 
The government announced plans to cut interest payments by as much as 50 percent for investors 34 or under and with low incomes and low credit scores. Their annual interest rate will be 3.25 percent for up to three years.
 
"This could indeed create moral hazard," said Won Chae-hwan, a finance professor at Sogang University.
 
"Crypto investment isn't a daily necessity, and they invested hoping to earn a fortune. A lot of crypto investors are young people, and the support measure seems like populism to hold up the falling approval rating of the president."
 
The announcement was made amid rapidly falling financial and crypto assets following strong rallies last year. The Kospi is down more than 20 percent year to date, while Bitcoin is down more than 50 percent from the peak.
 
"Will people who have their debt written off say 'thank you' and make a fresh start?," asked a commenter on a Naver community website on Sunday. "It's like giving back the money they lost to gamblers, and telling them never to gamble again, but with people's taxes."
 
"I cannot be convinced about the reasons the government is voluntarily cutting interest rate on some investors because they suffered losses," said a 35-year-old office worker.
 
Self-employed businesses are also set to get breaks in the form of extended terms, up to 20 years, and lower rates.
 
The Financial Services Commission (FSC) plans to encourage banks to offer the same level of the support for the self-employed even after the government stops the support programs in September.  
 
Out of the 660 trillion won ($51 billion) of debt subject to the self-employed support program, around 160 trillion won of the debt needs to be absorbed due to insolvency. But the government only designated 30 trillion won for the support program, which means banks may have to absorb the rest.  
 
"An excessive reduction in debt or a uniform extension of financial support programs could have an impact beyond creating a moral hazard and affect the financial system," said a banking source.  
 
The FSC said in a statement on Monday that it will minutely design the support programs and the evaluation standards to minimize creating the moral hazards.  
 
"Extending the loan repayment periods seems a more reasonable support program than writing off their interest payments since young people have a lot of opportunities to repay the loans in the future through work," said Kim Jung-sik, emeritus professor at Yonsei University's School of Economics.  
 
 
 
 
 
 

BY JIN MIN-JI, AHN HYO-SUNG [jin.minji@joongang.co.kr]
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