Tuesday, July 29, 2008

Off the Grid in Estonia

There was a discussion on one of my forums about people with negative equity on their homes (owing more on the mortgage than the house can be sold for) and whether it's possible to just walk away and let the bank eat the difference. A British poster related the story of his wife's ex-husband, whose bank only foreclosed when they found out the guy was on unemployment benefits and didn't go after the ex-wife because the guy didn't tell them where she lived - fearing that she'd tell the bank how much he was really earning.

The first thing that I felt was odd about the situation was the fact that the bank had to rely on the ex-husband telling them where she lived; in hyper-connected Estonia, much of the ease and cheapness of consumer credit stems from the fact that you can't really hide. The second thing was that the bank had no way of knowing how much the guy was making.

Giustino once said that Estonia is a country where using cash is considered quaint, but burning wood to heat your home is fashionable. This got me thinking: is it even possible, in today's Estonia, to live entirely on cash, bypassing banks altogether?

People used to live on cash, way back when - in the 90s, when a lot of folks were on what was called "envelope pay" - you got some cash in an envelope at the end of the month and the man from Maksuamet didn't need to know. These days if you want a mortgage, or a car lease, or a credit card, or co-signing for your kid's student loan, you need at least six months' worth of demonstrable, legal income, not to mention that people under a certain age will have most of their retirement paid for out of a private pension fund that's fueled by a percentage of your salary that is matched twice over by the government. You need to be paying taxes to get all that, plus medical coverage. But let us presume that you are a young, healthy person earning a decent income from an untaxable source - I don't know, dealing weed, or selling inflatable dildos on eBay* or something. Can you actually have a normal life on par with credit-card-carrying Estonians? Not even in the long term, but day-to-day? Living on unsubstantiated income?

Foremost is accomodation. Let's say that your supplier drowned trying to swim across the Narva river and you've got enough cash that nobody is chasing after to buy an apartment. Can you do it? Unlikely: any real estate purchase in Estonia has to be certified by a notary public, who will either hold the money in escrow (via a special bank account), or at the very least want proof of payment to complete the transaction - something like a bank slip. Obviously depositing the cash in your bank account is out of the question (if you ever get caught, the police could get access to your bank records and inquire as to the source of the money). I suppose you could actually go to a bank branch and deposit the cash directly into the seller's account - if you can find a branch that does cash transactions, which a lot of them don't any more. I'm not sure if you have to show ID to deposit cash into an account normally, but you certainly would with a large enough sum to buy an apartment, there are money-laundering laws in place just for such occasions. Interestingly enough the seller might actually go for it: they are not obligated to know where you got the money. It's not their problem.

Or you could rent. If you're renting a flat long-term, there would have to be a contract - and a big part of why realtors are still in business in Estonia is because they will do background checks on potential renters. (I don't really understand what else realtors do - all the property in Estonia gets bought and sold via ads on the same two websites, and you still have to be there when potential buyers come and see the place.) Still, the realtor will only find out if you're wanted by creditors, and you don't really have to prove where the money is coming from; but if the flat's owner is going away for a year, they will want the rent to arrive in their bank accounts. Far more importantly, the utilities: paying your Eesti Energia bills in cash could be an issue, and paying the homeowners' union for the rest of the aggregate services without going through a bank is pretty much impossible.

A better option is to be renting a few rooms in a family's house - done often enough in Tartu - where the owner is actually right there and doesn't mind you covering the rent and your share of the utilities in cash each month.

In comparison, buying a car would be trivial. Private sellers will gladly accept cash, and all you need to register it in your name is a purchase contract signed by both parties, and the car's old registration slip. You have to pay a registration fee, but that can be done in cash - most registration offices have a bank branch on-site just for that. Also, as long as you don't leave the country and still have valid insurance and technical test coverage, you can actually keep driving a car you've bought without registering it for ages. If you've got the purchase contract, you're the legal owner of the car. There's still a beat-up old Honda Accord out there somewhere, registered to my name; I sold it for parts years ago, and since I have a copy of the purchase contract to prove I'm not the owner any more, I don't really care.

Daily expenses would be simpler. You'd be hard-pressed to pay mobile phone bills with cash outside a bank, but then you could have a pre-paid SIM card and buy top-up chunks for it in cash. They won't work abroad, but they are dirt cheap and disposable, which might come in handy if you're a drug dealer.

Not the result I expected. Now that I think about it, it's actually possible to live in Estonia entirely on cash; but it'd be really inconvenient...


* which I did in college, but you'll have to buy me a pint to hear the story.


Alan Mendelevich said...

I think if you had legal income at the time when you got your mortgage you can make payments buy putting cash into your bank account and it'll be off the tax office radar (most likely).

Also, when you have enough cash I think you can get fake official job with minimum wage (pay minimal taxes off your drug money) and enjoy social security benefits.

antyx said...

I'm fairly sure the tax office would know - mortgage payments are tax-deductible, so in Estonia the bank automatically notifies the tax office as to the amount paid in mortgage interest.

Sure you could get a fake job, but that's not the purpose of this mental exercise. :)


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