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Old 07-28-2008, 10:41 AM   #261
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Stories like these give me a stomach ache (although the subjects don't usually seem too worried).
I am impressed from the photo that she can still afford to buy cigarettes....

A while back I happened to meet a poor mom and her two children.
My first thought was to give the mom some money, but then I noticed
her smoking. Smoking isn't cheap these days... so throwing money at
the problem isn't the solution. It all boils down to this... success in life
is all about choices and lifestyle.

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Old 07-28-2008, 10:48 AM   #262
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Usury statutes in the United States

Each U.S. state has its own statute which dictates how much interest can be charged before it is considered usurious or unlawful.
If a lender charges above the lawful interest rate, a court will not allow the lender to sue to recover the debt because the interest rate was illegal anyway. In some states (such as New York) such loans are voided ab-initio[15]
However, there are separate rules applied to most banks. In 1980, due to inflation, national banks (banks that generally include N.A. in their name), federally chartered savings banks, installment plan sellers and chartered loan companies were exempted from state usury limits by the federal government through a special law. This effectively overrode all state and local usury laws.[16]
(wikipedia)

1980: avg. savings per year $6578; avg. debt $42,873
2007: avg. savings per year $449; avg. debt $121,650.
from interactive chart here.. you have to click through to get at it:
The Debt Trap - Interactive Feature - NYTimes.com

This is not just a series of independent personal decisions made in a vacuum. It is a systemic sickness.. an epidemic.

The gov. is not just setting a bad example.. it is complicit in debt expansion. Debt expansion is not the result of bad planning.. it IS the plan.

If there is a flu epidemic, the government might step in to try and stem it, not just for moral reasons w/r/t each affected individual, but "to promote the general welfare" as provided for in the Constitution. If there is mad cow, do you want the government to be on the side of the producers? That's what's happening here.

A deadbeat nation made up of millions of deadbeats threatens the general welfare.


You have a healthy view of appropriate debt.. but that's not what is promoted in society or even by our own government. It's an appalling dereliction of duty on their part. The credit bubble bursting is going to cause great pain and wreak economic havoc which affects all of us.

All the steps taken so far reward the perpetrators and favor one particular industry, in an attempt to continue the private debt expansion and profits therefrom, yet now at the taxpayers' direct expense and responsibility.

All where some controls on lending and capitalization could have nipped this in the bud. It isn't a free market.. where did you ever get the idea it was a free market? I don't have the individual choice to say "no, UBS, I won't give you a discount loan; you screwed up so take your medicine".
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Old 07-28-2008, 10:56 AM   #263
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All the steps taken so far reward the perpetrators and favor one particular industry, in an attempt to continue the private debt expansion and profits therefrom, yet now at the taxpayers' direct expense and responsibility.
Hopefully not. Besides FDIC offering the backing to failed banks and this new bill (*sigh*) being passed in Congress, how much is being bailed out as the taxpayers' expense? I hope very very little. Many things are unsustainable in the economy and the encouraging of the federal government I agree with you upon. Based off of our economy and wealth, we should be a large creditor, not a large debtor nation. This would allow interest rates to come down a little bit allowing (although you hate it) a little more credit leeway. I will agree with you on the government part. But, I feel that your solution (preventing usury, more regulation) makes the problem even worse. The person who NEEDS the money now (why they are getting the CC in the first place) will be prevented because the CC determines the only credit-worthy rate they can offer is 35% or so. Now, they are prevented and the CC company is prevented from the rate. This is called deadweight loss. Yes, both sides made problems, but I don't feel stepping in to control pricing is the way out of this. It starts from the top and personal decisions.
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Old 07-28-2008, 10:58 AM   #264
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1980: avg. savings per year $6578; avg. debt $42,873
2007: avg. savings per year $449; avg. debt $121,650.
FYI...$42873 adjusted for inflation from 1980 to 2007 is $120962.86

So in essence the debt load hasnt changed a bit in 27 years.

The savings thing unfortunately isnt so easily explained. I would like to see how they define 'saving'. Some of the metrics count bank accounts and taxable, but not 401k's or IRA's. Of course they also dont include the value of the home, and those cost a heck of a lot more now than they did 27 years ago.

My best bet is that lifestyle inflation has also eaten up a lot more of peoples income. Cable/satellite tv, cell phones, high speed internet and so forth didnt exist then and therefore didnt cost anything.
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Old 07-28-2008, 10:58 AM   #265
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(wikipedia)

This is not just a series of independent personal decisions made in a vacuum. It is a systemic sickness.. an epidemic.

The gov. is not just setting a bad example.. it is complicit in debt expansion. Debt expansion is not the result of bad planning.. it IS the plan.
For decades the government has supported and promoted
the dumbing down, perversion of society.

The government is not your friend.


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Old 07-28-2008, 11:03 AM   #266
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My best bet is that lifestyle inflation has also eaten up a lot more of peoples income. Cable/satellite tv, cell phones, high speed internet and so forth didnt exist then and therefore didnt cost anything.
Yep. I have a sneaking suspicion that as "hard" as people say it is to make ends meet today, if we had the exact same lifestyle as we did 50 years ago it might be easier today than it was back then.

It's the "lifestyle creep" that creates new "necessities" which makes the cost of living so much higher today.
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Old 07-28-2008, 11:10 AM   #267
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Yep. I have a sneaking suspicion that as "hard" as people say it is to make ends meet today, if we had the exact same lifestyle as we did 50 years ago it might be easier today than it was back then.

It's the "lifestyle creep" that creates new "necessities" which makes the cost of living so much higher today.
I just got a great deal on my wireless internet for my laptop.

What's a laptop? What's the internet? We can actually save our money now.
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Old 07-28-2008, 11:45 AM   #268
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Good point on the inflation.. that would make average 1980 savings $18,559/year (that sounds almost suspiciously high).

Even if we stick to the realm of these numbers.. a person saving $20k/year can pay off $120k of debt (let's say a mortgage at 6%) in about 7 years.

A person saving $500/year can pay off $120k of debt... um.. never.

I know that the "savings" are what's left after whatever loan payments Mr. and Ms. Average are already making.. but you get the idea. Even if people are hanging on by the skin of their teeth, there is no room for more debt expansion, and a financial system based on debt expansion is going to be necessarily hamstrung.
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Old 07-28-2008, 12:19 PM   #269
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Good point on the inflation.. that would make average 1980 savings $18,559/year (that sounds almost suspiciously high).

Even if we stick to the realm of these numbers.. a person saving $20k/year can pay off $120k of debt (let's say a mortgage at 6%) in about 7 years.

A person saving $500/year can pay off $120k of debt... um.. never.

I know that the "savings" are what's left after whatever loan payments Mr. and Ms. Average are already making.. but you get the idea. Even if people are hanging on by the skin of their teeth, there is no room for more debt expansion, and a financial system based on debt expansion is going to be necessarily hamstrung.
I think most on this forum will agree (not us though! 8) ) that the national savings rate is atrocious and will lead to problems. How it should be taken care of is different for most people, as I feel we would have a tough time agreeing on that as well.

For the specific numbers, I wonder if they include principal payments on mortgages as part of savings. Now, I know most people here do not like the oxerextension of oneself to the point that their only "saving" is principal payments, but it still is a form of saving. In other words, I am saying that real estate values over this time period has gone up pretty well with inflation and that more of the debt is in mortgages and more of the savings would be into the equity of one's home. Not sure though, or exactly how factual it is that a higher percentage of debt nowadays is in mortgages (the more I think of it, the more I think it is the opposite), but thought I should bring it up.
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Old 07-28-2008, 12:38 PM   #270
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Ladelfina,

I am a bit more to the right of you, politically speaking. Yet, that does not keep me from admitting that I agree with you on several points that you have made.

About the government intervention for the people to do the "right thing", I don't know if that is possible. Who decides what are the right things? The "people" or some elected individuals?

I keep telling my friends that perhaps we do have a government "from the people and for the people". For some time, the American public believes in conspicuous consumption. Also, the banking industry has gone over its head in its greed. There will be some regulations to rein the latter in, I am sure, but after the horse has left the barn. But I also see that there is no way for any government to keep individuals from doing harm to themselves, like our subject woman, short of putting her in a straightjacket.

Same as you, I feel apprehension that the US economy may stumble along for the next few years. What can we do, knowing that the foolishness of our compatriots will hurt us some? Well, I find comfort in the fact that, financially, in the near future I may not do as well as the last 3-4 years, but I will still do VERY WELL compared to the spendthrifts.

Anyway, thanks for the lyrics of "Mi Manchi". I tried to mouth the words, listening to Bocelli. But it was too tough, with me not knowing Italian. No, I am not a karaoke enthusiast, and I need to be threatened with bodily harm before I have a microphone in hand.

Lastly, I do not care if your husband HATES Bocelli. I read that Bocelli is not a good opera singer, and has been boo'ed on stage. However, as a pop singer, he shines.
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Old 07-28-2008, 01:07 PM   #271
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I would guess that these numbers were already adjusted for inflation.

Honestly, though, these numbers look worse than they are. Most of this increase has been in mortgage debt. The mortgage rates in 1980 were double digits. They were about 6% for the last few years. So a doubling in mortgage debt doesn't end up costing much.

People can carry more debt when money is cheap.

Is that stat a bad thing? Yup. Is it a disaster? Probably not.

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Originally Posted by ladelfina View Post
Good point on the inflation.. that would make average 1980 savings $18,559/year (that sounds almost suspiciously high).

Even if we stick to the realm of these numbers.. a person saving $20k/year can pay off $120k of debt (let's say a mortgage at 6%) in about 7 years.

A person saving $500/year can pay off $120k of debt... um.. never.

I know that the "savings" are what's left after whatever loan payments Mr. and Ms. Average are already making.. but you get the idea. Even if people are hanging on by the skin of their teeth, there is no room for more debt expansion, and a financial system based on debt expansion is going to be necessarily hamstrung.
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Old 07-28-2008, 01:25 PM   #272
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I've benefited greatly from my use of consumer debt.

When I was in college, I finished paying tuition bill one Spring quarter with credit card cash advances, so that I could register. It took me about 3 days at $200/day. Between the fees and interest, I probably paid $100 before I was able to pay it off that summer. It was worth $100 to register and avoid asking for money from my parents.

Over the years, I've occassionally carried a balance for a month or two, but mostly I pay off my credit cards every month. It is really handy to have a card that will give me access to $10k+ on just my word.

I've made a few bucks over the years on cashback and zero interest loans from the credit card companies as well.

I suspect that they've done ok as well

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I don't see how consumer borrowing benefits anyone but the lender.
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Old 07-28-2008, 01:35 PM   #273
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NWB check this out:
http://forvo.com/languages-pronunciations/it/
It is strangely overloaded with names... but you can get an idea.
It's actually pretty simple since there are fewer sounds and they are virtually always consistent.

Hamlet, that is a good use of credit in a pinch (but I'm not sure if I would classify college tuition as "consumption"). I had student loans.. good thing they were not at credit-card rates..
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Old 07-28-2008, 01:48 PM   #274
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ERD50, I think the delusion is only in part what the borrower thinks is going on with the paperwork, hidden costs, tricky rates, etc. The main part of the delusion is the whole concept of what the benefit is. You and brewer assume the costs and benefits balance out, otherwise who would do it? I take issue with all of that. I don't see how consumer borrowing benefits anyone but the lender.
(My emphasis added in bold face above.)

In 1997, we bought a house in San Jose for $239,000. We put 5% down and financed 95%.

In 2003, we sold the house for $440,000. After all selling expenses were paid and the mortgage paid off, we received $220,000 from the sale wired into our savings accounts. As a result of borrowing this money in 1997, we turned $12,000 "down" plus about $40,000 in after-tax mortgage interest into $200K of *tax free* price appreciation -- which is the only reason why we are fortunate enough to own our home free and clear today.

You don't think we benefited from this borrowing?
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Old 07-28-2008, 02:03 PM   #275
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(My emphasis added in bold face above.)

...

You don't think we benefited from this borrowing?
Ahh, I didn't see that until you quoted it, so I'll chime in.

Needed a car in college to get to my co-op. Borrowed $4k and then started a job, that I would have no other way to get to without that car, at $16.80 an hour. Was then able to work a summer internship at the same company next year at $17.50 an hour.

Needed money for my last year of college, took out $4k in student loans.

The work experience in my field, plus my college degree, set me up to actually get a job and stay in the field. Needless to say, I couldn't make as much as I am without taking on that debt in the first place.
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Old 07-28-2008, 02:17 PM   #276
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Sure, you did. But because of the timing, not because of the borrowing per se.
That San Jose house might be headed back down to $239k for all we know.

If you look at financing a home from the investment perspective of allowing you to leverage and make a big gain, how is it different from buying stocks on margin? Is that a great idea that everyone should also implement?

I don't think I ever said no one should ever, ever have a mortgage. I don't consider a mortgage entirely "consumer" borrowing (but it is when you are borrowing 120% of the sales price). Even if you look at debt as a kind of medicine that sometimes you need to assume because of some specific ailment: that doesn't mean you should be gobbling down hundreds of aspirin a day. A $4k car loan is not likely to be toxic; a $40k car loan may well be.
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Old 07-28-2008, 02:29 PM   #277
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If you look at financing a home from the investment perspective of allowing you to leverage and make a big gain, how is it different from buying stocks on margin? Is that a great idea that everyone should also implement?
Plenty different. You can't live in your stocks. And if you don't take out a loan and pay mortgage interest, your alternative is paying rent. (This isn't an invitation to start the old rent/buy debate, just stating that if you did not take out a mortgage, you'd have much of that cash flow dedicated to rent. Pay the bank or pay the landlord for a place to live.

Houses also don't go bankrupt due to mismanagement, insider nefariousness or product obsolescence.

I don't personally think people should borrow more than they need to on a mortgage, but even though it may be the same *principle* as buying stocks on margin, in reality -- for practical purposes -- they have very little in common in terms of risk management.
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Old 07-28-2008, 02:39 PM   #278
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This is not just a series of independent personal decisions made in a vacuum. It is a systemic sickness.. an epidemic.

The gov. is not just setting a bad example.. it is complicit in debt expansion. Debt expansion is not the result of bad planning.. it IS the plan.
Impossible to disagree, as long as the powerful borrowing incentive of mortgage interest deductibility survives.
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Old 07-28-2008, 03:25 PM   #279
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Like most other people on this forum, I think access to credit is necessary for a functioning market. But some people make really poor decisions in accessing credit. Unfortunately, those really poor decisions by those "some" may end up affecting a wider population. I don't blame the lenders, although I suspect that many mortgage agents engaged in less-than-honest practices. Profit is what drives the markets, and it is naive to think otherwise. Competition between financial institutions give consumers choices on credit products, whether mortgages, credit cards, car loans, student loans.

I can't understand how increasing regulations on credit lending will change what I see as a marketing problem. I'm talking about 5th Avenue marketing...advertising. Has anyone ever seen the film "In Debt We Trust"? It's worth seeing; it will either confirm what you've already known or it will be a real eye-opener.

People buy stuff. They have always bought stuff, and they always will buy stuff. Advertising/marketing companies exist to make people want to buy more stuff. Advertising/marketing companies have psychologists that study how to make people want to buy more stuff. These companies work diligently to target and influence consumers to buy bigger, more expensive stuff.

Why not increase regulations on advertising and marketing? I'm not being sarcastic. If you need to increase regulation on credit lending, why not increase regulation on what drives the consumers' need to buy more than they need and more expensive stuff than they need, whether it's a house or a handbag?
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Old 07-28-2008, 06:38 PM   #280
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It seems that the "savings" number is a function of guessed at earnings by individuals minus guessed at expenses.

So a thousand bucks a head might just be some bad guessing.

Further, the bulk of the debt is mortgage, and that built up equity is considered an expense as a mortgage payment, not as an asset. Its increased drastically as a number because inflation and cost of housing has gone up so much in the last 27 years.

$120k wont ever be paid off? Whole lot of people with 2-4x that in a mortgage that they probably will pay off in 20-30 years.

Lastly, if any decent house in a good neighborhood in the SF south bay area sells for $239k, I'll be buying it and as many of its friends as are available.
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