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Old 07-22-2008, 11:44 PM   #101
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Maybe a better solution for home-loans, credit cards, etc, would be some sort of intelligence test that the lender of credit needs to give to the perspective lendee?
Discrimination?

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Old 07-23-2008, 01:56 AM   #102
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Hmmm... an interesting observation. Ok.... let me conceed the arguement to you then. Maybe you are right, maybe there is a much larger percentage of people out there than I thought possible, that are just sort of barely able to mentally get on with their lives. People that have reached adulthood, but are fairly low functioning, and have no family or friends to help them.
Maybe a better solution for home-loans, credit cards, etc, would be some sort of intelligence test that the lender of credit needs to give to the perspective lendee? Something tangible that would prove a working knowledge of interest rates, balloon payments, PMI, etc, depending on what sort of credit the person was going for? That might solve a few problems. The lendee gets their loan or credit upon passing a certain "financial literacy" test (much like a drivers licence exam), and the lender is now protected against later allegations of "predatory lending" and the like. Seems a fair and equitable trade to me. The banks and credit card companies of the world now have to prove that the people they do business with, are mentally up to the task of performing such transactions. And if not... no loan, credit card, etc. No way to financially hurt themselves any more. What do you think?
Maybe the lendor should show a similar knowledge of financial matters.
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Old 07-23-2008, 05:33 AM   #103
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HaHa. I mean SnoopDog? Blech. Put the sista back.
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Old 07-23-2008, 07:14 AM   #104
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I don't think you can legally live in a fire damaged studio apartment after it's been a methlab.

My starter home was wasn't even legally inhabitable until I put 10K into repairs and it still cost 145K for a 2 bedroom 1 bath.
Depends on your "time reference". Here's our "history" as we moved "up the scale":

1971 - $4.5k (mobile home-e.g. "trailer" - 3 BR/1 bath)
1975 - $21k (in-town twin - 3 story - 5 BR/1 bath)
1979 - $60k (detached ranch - 2 BR/1 bath)
1994 - $222k (traditional colonial - 4 BR/2.5 bath)
20xx? - gravesite (priceless!!! )

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Old 07-23-2008, 08:28 AM   #105
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Depends on your "time reference". Here's our "history" as we moved "up the scale":

1971 - $4.5k (mobile home-e.g. "trailer" - 3 BR/1 bath)
1975 - $21k (in-town twin - 3 story - 5 BR/1 bath)
1979 - $60k (detached ranch - 2 BR/1 bath)
1994 - $222k (traditional colonial - 4 BR/2.5 bath)
20xx? - gravesite (priceless!!! )

- Ron
Morbid.

Don't think that my generation in certain areas of the country will be able to get any think like this for this price. Traditional colonial 4/2.5? Try 500k... It may be just a different time in inflation, but this further proves the theory that over time houses stay in line with wages (about 3x national average), so any major deviation will eventually lead to a reversion to the mean.
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Old 07-23-2008, 09:19 AM   #106
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The comments about IQ got me to thinking. Not just IQ, but almost everything can be measured and distributed on a bell curve. In regards to IQ, that means that each time you go to the grocery store and see someone that looks severly handicapped, there is a genius somewhere as that person's opposite on the bell curve.

So too, if we distribute people according to their financial ability on a bell curve. For each person able to manage well, there is another that is going down the tubes. As we look at those who fall farther from the mean with enhanced financial ability, there are those who have already crashed and burned.

Those in the middle are just getting by. That the tests keep getting harder, by that I mean the inducements to spend are slicker, flashier and more appealing while the risks are glossed over, does not make life easier, especially for those exhibiting less ability.
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Old 07-23-2008, 09:19 AM   #107
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Depends on your "time reference". Here's our "history" as we moved "up the scale":

1971 - $4.5k (mobile home-e.g. "trailer" - 3 BR/1 bath)
1975 - $21k (in-town twin - 3 story - 5 BR/1 bath)
1979 - $60k (detached ranch - 2 BR/1 bath)
1994 - $222k (traditional colonial - 4 BR/2.5 bath)
20xx? - gravesite (priceless!!! )

- Ron
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Morbid.

Don't think that my generation in certain areas of the country will be able to get any think like this for this price. Traditional colonial 4/2.5? Try 500k... It may be just a different time in inflation, but this further proves the theory that over time houses stay in line with wages (about 3x national average), so any major deviation will eventually lead to a reversion to the mean.
When I was looking at buying a house a couple years ago even mobile homes started at 100K.
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Old 07-23-2008, 09:46 AM   #108
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When I was looking at buying a house a couple years ago even mobile homes started at 100K.
Again, it all depends on your reference in time.

When we purchased our "first abode" (the mobile home, mentioned above), I had just left the military.

Had a wife (did not work), one child.

First job? Paid $120/week ...

I was there one month, and got my next "position"...
Paid $125 week (hey, almost a 4% increase )...

Again, it's all "relative" (and it helps if you have "relatives" that will help you out); nope, we didn't

- Ron
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Old 07-23-2008, 09:52 AM   #109
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The comments about IQ got me to thinking. Not just IQ, but almost everything can be measured and distributed on a bell curve. In regards to IQ, that means that each time you go to the grocery store and see someone that looks severly handicapped, there is a genius somewhere as that person's opposite on the bell curve.

So too, if we distribute people according to their financial ability on a bell curve. For each person able to manage well, there is another that is going down the tubes. As we look at those who fall farther from the mean with enhanced financial ability, there are those who have already crashed and burned.

Those in the middle are just getting by. That the tests keep getting harder, by that I mean the inducements to spend are slicker, flashier and more appealing while the risks are glossed over, does not make life easier, especially for those exhibiting less ability.
It all depends on how spread out it is and where the center is for statistical distributions. As I believe haha mentioned, IQ's median is 100 (by definition) and the standard deviation is aruond 13-15. This means that 68% of the entire population falls between 85 and 115. So, for every person above 115, there is also someone under 85 in theory.

For financial literacy, however, what do you define as average? Somebody who has moderate CC debt, a large mortgage and a few car payments? Somebody who has massive CC debt, an ARM and plans on using a reverse mortgage to keep their retirement plans alive? Somebody who carries no debt and makes $120k a year? It is tough to figure out what is and what should be the middle in the bell curve. What you say is somebody who is financially illiterate may actually BE the middle (half better, half worse), where somebody who is very good with finances could be the middle, meaning half the country is even better.

There are other distributions though, and (you can look it up) I think financial literacy falls more into postively skewed (also called right-skewed). That means, if you look at the distribution, the majority of people are on the left side (more financially illterate) and it tails off really low to the high end, looking like a long tail. This outlook is depressing, but I feel accurate.
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Old 07-23-2008, 09:58 AM   #110
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Hmmm... an interesting observation. Ok.... let me conceed the arguement to you then. Maybe you are right, maybe there is a much larger percentage of people out there than I thought possible, that are just sort of barely able to mentally get on with their lives. People that have reached adulthood, but are fairly low functioning, and have no family or friends to help them.
Maybe a better solution for home-loans, credit cards, etc, would be some sort of intelligence test that the lender of credit needs to give to the perspective lendee? Something tangible that would prove a working knowledge of interest rates, balloon payments, PMI, etc, depending on what sort of credit the person was going for? That might solve a few problems. The lendee gets their loan or credit upon passing a certain "financial literacy" test (much like a drivers licence exam), and the lender is now protected against later allegations of "predatory lending" and the like. Seems a fair and equitable trade to me. The banks and credit card companies of the world now have to prove that the people they do business with, are mentally up to the task of performing such transactions. And if not... no loan, credit card, etc. No way to financially hurt themselves any more. What do you think?
The financial literacy test is already administered. In fact, it does a pretty good job at predicting what borrowers are going to renege on loan obligations, and which borrowers are trustworthy. The lowest scores are not extended credit by most reputable lenders, and if they want credit, they will need to go to loan sharks. To make it easier on lenders, this financial test is developed by one company, a company that focuses on predictive modeling. Do you know where to find the results to your financial literacy test? Check your FICO score.

Now, it's not a multiple choice test, nor are there any essays. But it does grade you on your past ability to responsibly use credit, and it's a pretty good predictor of future behavior. It doesn't make any sense for each lender to administer a separate test, as the cost of compliance would be very high. As a result, the cost of credit would go up. Additionally, can you imagine the outrage of responsible borrowers who are "bad test-takers?" As an aside, responsible borrowers (high FICO) who score poorly are probably a much better risk than irresponsible borrowers (low FICO) who know how to calculate interest rates.

The last thing we need is more government rules that tell lenders whom they can loan to, and under what terms. I've long recommended that personal finance be taught as part of a high school curriculum (ie. as a senior year math/economics/statistics elective), and I think that's the best and least intrusive solution to the problem.
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Old 07-23-2008, 10:27 AM   #111
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FoA, the run-up in housing has certainly outpaced people's ability to start small compared with previous generations.
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Or, would we rather that person get money from the loan shark thug down the street?
...
Or the less-regulated industry which offers far better rates and safety than the loan shark.
...
You seem to want very badly to create a utopian-like place where no one is even allowed the possibility of making a bad deal.
Why is loan-sharking illegal? How is the VW lady better off with Wells Fargo than with Vinnie.. when Wells Fargo charged her $25k in return for $5k cash? I don't know where the bright line is but I think we all agree there should be a line.. and that recently many firms crossed the line into predation territory.

I don't think gov. should protect everyone from every bad thing.. but it certainly does already protect people from OBVIOUS (or less-obvious) bad things. We have to wear seatbelts and we can't drink raw milk. [I don't particularly care for those reg.s necessarily, they're just an example.. I am a small-government liberal!!]

In the case of housing, the gov. actually has perversely (and perhaps unknowingly) exacerbated the debt problem by making housing debt interest deductible. The more interest you pay, the bigger the deduction! Why not get a HELOC on top of it? So now all your housing consumer purchases with the HELOC get preferential tax treatment, too. It's a big mess!

I DON'T want to look to gov. to put their thumb on the scales, whether it is to benefit homebuyers or oil drillers or corn growers or hedge funds.

I DO look to government to fairly regulate the marketplace to prevent the most egregious abuses, not to CREATE or influence the marketplace. Since ideologically the de-regulators have held sway for quite some time.. we end up with the greedheads running the show with predictable results... a world of big government and even-bigger debt where regulations regarding debt (among other things) are despised, gutted and flouted.

The woman who is over-extended on credit is analogous to:
-the banks which are over-extended
-the municipalities and states which are over-extended
-the GSEs which are over-extended
-the Federal gov. which is over-extended

Quote:
you and I are going to help bail her out whether we like it or not.
BWW.. please take a careful look at which one ISN't asking for money from your pocket. It's the woman in the article.

I think people are reacting so negatively to her and her ilk for two reasons:
one is that she 'personifies' a much larger systemic problem (even though she is only responsible for her tiny corner of it, which she accepts). We can feel human anger at an irresponsible person more than at an irresponsible entity.

The second is really -as the CR commentary dealt with- a definite class issue. I can hear the scorn dripping from the keyboards of those who bring up the junk she bought on QVC. QVC!! Quelle horreur!

NOCD... I mean, at least she could have had the good taste to go into debt buying fine wines and helicopters...

I know not everyone on this thread is reacting that way.. but compare to the mention of FinanceDude's clients above, or the couple on Nords' thread with the hefty pensions who still can't save. People might be amazed, critical, what-have-you.. but there just isn't the VENOM that certain quarters reserve for this lady and her pathetic little QVC baubles... even though the big spendthrifts had more advantages than the lady in the article, and blew a lot more money besides.

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Old 07-23-2008, 10:56 AM   #112
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Eh, I think the criticism of the criticism is a little out of hand.

Someone who defaults on debts, declares bankruptcy or walks away from a mortgage leaves unpaid funds to financial institutions that other people participate in as customers, employees and employers.

Loss of those monies effects all those people negatively. Then if they stumble and the government leaps in to bail them out, it effects all taxpayers.

The facts in this case are fairly straightforward:

- She made a whole string of bad financial decisions. Whether she was dumb, misled or had a low IQ are mitigating reasons, but none of them change the fact.
- Health problems collapsed the house of cards, but she built the house
- Poor life habits probably created the health problems, or at least made them worse
- It doesnt matter if she was shopping on QVC or buying items from the Smithsonian. She couldnt afford it. If she was bored and sitting around the house she should have gotten a work-from-home job making some sort of income to help pay the bills.
- Looping in her kid into the final round of stupidity...well...I dont even need to bang that gong.

Irresponsible and self destructive. If the banks had refused to give her the credit lines, I'm sure she'd have found another way to arrive at the same end.

So is she a bad person? Eh, she is what she is. There are plenty of people who spend more than they should. There are plenty of people living paycheck to paycheck with no safety net. There are plenty of people in poor health for a variety of reasons, many self inflicted.

The thing is, the delta between where she ended up and a much better life was just a very small amount of discipline at a few key junctures and a short term disability insurance policy that would have cost her next to nothing.

Even Forrest Gump had pretty good discipline.
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Old 07-23-2008, 11:04 AM   #113
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Even Forrest Gump had pretty good discipline.
That's because his "momma always told" him . . . .
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Old 07-23-2008, 11:11 AM   #114
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CFB, I agree w/about 80% of what you outlined. There was just a lot of piling-on onto this one hapless soul so I thought some devil's advocacy was warranted.

Disability IS a good thing to have in your tool kit, but it doesn't really appear much on the radar screen. We set it up for our small biz., but had to kind of fight for it with the agent, who looked at us youngsters (what? you!? disabled?) and wanted to sell us life insurance instead. Probably way higher commissions and company profit on the life vs. disability products.
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Old 07-23-2008, 11:14 AM   #115
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That's because his "momma always told" him . . . .
Not always - "life is like a box of chocolates"

You don't always know what you are going to get...

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Old 07-23-2008, 11:18 AM   #116
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Oh I think she has plenty of hap. I also think some of the perceived piling on wasnt too far off the mark.

Of course as was pointed out, the entire article was developed and targeted specifically to say "look what this idiot did".

Companies like Aflac will sell a disability plan to just about everyone. Premiums might have been stiff for an overweight smoker, but if you're going to fall into bankruptcy if you're out of work for a month due to illness, maybe its a good idea to consider it.
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Old 07-23-2008, 11:20 AM   #117
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ladelfina pointed out the predatory behavior of financial companies. There are some points that I agree with.

I carry no credit card balances, and our FICO scores are in the 800, yet it irked me when I read about "universal default", or CC companies raising interest rates when a card holder FICO score goes down.

For years, I wonder about our tax policy on mortgage deductions. Some of us are old enough to remember deductions on other consumer loans, such as for cars. Though I became a home owner shortly after entering the work force, and of course took the deduction until I paid off the mortgage, I always question why home owners deserve an advantage over home renters. Recently, a forum member pointed out that mortgage deduction does not exist in Canada. How about other countries? Perhaps the housing bubble would be less inflated without this tax subsidy. We enjoy it so long, and it is so ingrained in our mind and our budget that no one ever questions its fairness or benefits to society.
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Old 07-23-2008, 11:25 AM   #118
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The mortgage deduction was instituted to increase peoples interest in homeownership and to make buying a home more affordable.

Homeowners tend to become better rooted in their communities, care more about their property and neighborhood, and become more financially stable over time.

You can encourage people to buy, but you cant put a cap on people paying dumb prices for things.

Canada doesnt have the subsidy because homes in canada cost $4 and are frequently eaten by beavers.
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Old 07-23-2008, 11:33 AM   #119
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Canada doesnt have the subsidy because homes in canada cost $4 and are frequently eaten by beavers.
Hey, I should look into buying some Canadian homes. The price difference with the US homes would more than pay for "beaver protection".

Scratch that. They may not let me in.
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Old 07-23-2008, 11:36 AM   #120
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Hmmm.. in most of Europe mortgage interest is not deductible [see below], I don't believe.. I should check. The way they establish people being "rooted" is that -quaintly- banks have historically required 20%-50% down before they will give you a mortgage. That's changing, probably for the worse.

Encouraging SO-CALLED home-ownership with ZERO PERCENT DOWN and other down-payment mitigation schemes (some borderline fraudulent) is not encouraging rootedness or financial stability one whit. Doesn't matter whether the house or whatever other crap you "buy" with 0% down costs $80k or $800k. There certainly could and should be caps (minimum %) on down payments.

In addition, maybe you shouldn't be able to roll all the expenses (moving expenses and so forth) into the loan, nor should you get "cash back". The bank is not getting collateral out of your movers or your new furniture.. so why should they loan on that?

---
In Italy you can deduct mortgage interest, but only 19% of it up to 4000 euros paid.. so a $760 deduction max. They also make you pay sales tax (3% on primary residence; 10% on secondary), so that dampens people's interest in hopping around from purchased home to purchased home. Some people would argue that that means owners are TOO rooted.. but there are two sides to every coin. :-/
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