Yet another stupid debtor and retirement account raider!

[ERD50]

A warm feeling in your heart?

barbarus, you can't discount that benevolent feeling you have when you know you are contributing to someone's Rolls, prostitute, golf club fees or offshore account.

I find it a bit amusing (though sad really), that people just don't grasp that when two parties willingly enter into a contract, that *both* parties are gaining something they want. It's a trade off, but one that is acceptable to *both* parties. The alternative is simple - don't do it.

If you take out a mortgage, you should know full well that the mortgagee is (edit [-]going[/-]) expecting to make a profit. If you don't find that acceptable, then save up the cash to pay outright. Why complain about the price they charge (assuming they don't have a monopoly)? You have the power to just say NO.

So yes, you could say I had a 'warm feeling in my heart' when I was able to 'own' my own home, before I saved up 100% cash. It meant I had more control over my life than a renter, I benefited from sweat equity, from knowing that I wasn't at the mercy of having a lease renewed, etc. I was pretty happy with the deal.

If they want to spend the profits on a Rolls or golf fees, that is their right (I'll leave out the others as they may be illegal and I don't want to twist that morality play into this conversation).

Sorry, I just don't have much patience for people playing the victim, when they have a choice in the matter.

-ERD50

 

[HFWR]

barbarus, you can't discount that benevolent feeling you have when you know you are contributing to someone's Rolls, prostitute, golf club fees or offshore account.

I'm fairly certain that my credit union is not operated like a hedge fund, nor is it part of the Trilateral Commission.

Though they might occasionally play golf, or visit prostitutes...

 

[ladelfina]

ERD50, who here is playing the victim? I put my money where my mouth is: I've owned two homes outright and would never, ever, pay a bank a mortgage. I would rather live in a trailer or a tent. Or just rent, which is in most cases the equivalent, and nowadays generally more advisable. I can't speak for barbarus, but that is my take on things.

There are plenty of delusions that people 'enter into' but the mere fact that they enter into them does not automatically render them salubrious.

 

[ERD50]

ERD50, who here is playing the victim? I put my money where my mouth is: I've owned two homes outright and would never, ever, pay a bank a mortgage.

OK, you made your choice and you seem satisfied with it; that's cool.

But it struck me that your casting of the mortgagees as people that are just taking your money to spend on toys, was also casting the mortgage holder as a 'victim' that was being played for a fool. Was I wrong about that? If so, sorry.

There are plenty of delusions that people 'enter into' but the mere fact that they enter into them does not automatically render them salubrious.

Well, if they are 'deluding' themselves, that's another matter altogether. But, if you enter into a contract, you ought to do it with eyes open, and the expectation that you are trading one thing ( a cost) for another (a benefit). And the other party is doing the same. And if someone doesn't understand what those costs and benefits are, they should educate themselves before signing the contract.

In my view, some basic education would go much further than government regulations on this detail or that detail. Clever crooks come up with new scams and/or loop-holes faster than governments can come up with (and enforce) new laws.

-ERD50

PS, thanks for the vocabulary lesson:

salubrious

1. Promoting health or well-being; wholesome. Especially related to air. From the Latin "salus" - meaning health.

 

[HFWR]

I reject the notions that (a) credit is inherently "bad", and (b) that people are too stupid to comprehend the terms of their loans.

Everyone was trying to get on the easy money train. Crying foul after the fact is rationalization, in most cases...

 

[rs0460a]

I reject the notions that (a) credit is inherently "bad", and (b) that people are too stupid to comprehend the terms of their loans...

Sorry - being logical in today's financial world is not allowed ...

- Ron

 

[ladelfina]

If the lenders are "clever crooks".. well just because crooks are clever doesn't mean you have to give up on having a police force. When I read that history of the "Bankruptcy Abuse" bill where an amendment that would bar interest over 30% (THIRTY.. Three-zero) was REJECTED.. well, I don't think that just a little "detail". That starts looking to me like the police have just decided to give up and hang out at the (highly salubrious) Dunkin' Donuts.

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.

Home mortgages are a little different because you have a durable asset.. but still how can you look at a situation where in an unsustainably high market banks were loaning 120% of the sales price and say.. "sure, let them keep doing that". I say, "no, don't allow them to do that".. not just to save the "victim" homebuyer but to save the very banking system itself!! I am not being a bleeding heart on this at all; I have selfish motives!

"Some" debt is probably sustainable. Infinite debt is not. We are in an infinite debt situation which is being addressed via more debt. You don't like the idea of "government regulations" that might force or incentivize saving, or that might bring up capital requirements, or that might limit usurious interest rates. Do you have no problem with a government that is instead throwing all regulations out the window and allowing highly-leveraged international investment banks access to yet more debt? Debt that you will be financing? The "needs" of banks are by nature limitless and must be contained somehow.

The USA is not being run these days to promote the health and well being of its citizens; it's being run to promote the health and well being of banks. The small savers are being served up on a silver platter, with 401ks that have to be invested in the market at the same time they are limiting purchases of savings bonds. Why would a government limit purchases of its own savings bonds?

"In the 1960s, there was a box on your tax form where you could say I'd like my refund in the form of savings bonds,"

Treasury takes new whack at savings bonds

 

[armor99]

I find it a bit amusing (though sad really), that people just don't grasp that when two parties willingly enter into a contract, that *both* parties are gaining something they want. It's a trade off, but one that is acceptable to *both* parties. The alternative is simple - don't do it.

If you take out a mortgage, you should know full well that the mortgagee is (edit [-]going[/-]) expecting to make a profit. If you don't find that acceptable, then save up the cash to pay outright. Why complain about the price they charge (assuming they don't have a monopoly)? You have the power to just say NO.

So yes, you could say I had a 'warm feeling in my heart' when I was able to 'own' my own home, before I saved up 100% cash. It meant I had more control over my life than a renter, I benefited from sweat equity, from knowing that I wasn't at the mercy of having a lease renewed, etc. I was pretty happy with the deal.

If they want to spend the profits on a Rolls or golf fees, that is their right (I'll leave out the others as they may be illegal and I don't want to twist that morality play into this conversation).

Sorry, I just don't have much patience for people playing the victim, when they have a choice in the matter.

-ERD50

Excellent post ERD50. I think your post does an excellent job showing (perhaps contrasting) the two viewpoints that seem to exist on this board. The viewpoint that I share, is that we are all adults, do not need the govt or anyone else, to hold our hands in the decisions that we make. I believe that people should be smart enough to make their own decisions, and then live with those consequences. I have mentioned in other posts that if people truly are NOT smart enough to run their own lives, (cases of mental problems and the like), then the govt should try to intervene, and I do believe there are programs to help such people.
The alternate point of view (one that I do not share), is that by and large people (in general) are not smart enought to do things for themselves, and that people who are smarter than them, should tell these folks what they need to do. It also goes on to insist that since most folks are too foolish to know a good or a bad deal when they see one, then the govt should step in (because presumably they are smarter), and make sure that no lending institution can try to make a better deal for itself in a business capacity. In that point of view this would be exploitive. The fact that people can say "NO" to a deal as ERD50 accurate explains, is irrelavent, because most folks lack the mental capacity to understand when they should probably do that.

 

[CitricAcid]

If the lenders are "clever crooks".. well just because crooks are clever doesn't mean you have to give up on having a police force. When I read that history of the "Bankruptcy Abuse" bill where an amendment that would bar interest over 30% (THIRTY.. Three-zero) was REJECTED.. well, I don't think that just a little "detail". That starts looking to me like the police have just decided to give up and hang out at the (highly salubrious) Dunkin' Donuts.

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.

Sounds like price control to me, not my cup of tea. You see the consumer not getting ANY benefit from the lender? Why do they do it then? Are they tricked into it? Are they misled? If the answers are NO to both of those, then they willingly make a choice because it helps them. How much does it help them? I don't know and it doesn't matter. What matters is if they were not duped into the transaction, they did it willingly and the fact is it HELPS them. There are costs to a transaction, and benefits. That is the foundation of the entire world economy. (sidenote here for why I don't care about the trade deficit). What do banks do for societies? It allows present consumption at a cost for future consumption. That is WHAT THEY OFFER. If you don't like it, then don't take it.

About the buying house with cash, ladelfina has done it herself that is entirely respectable and her own choice. If she does not want to carry credit card debt and a home mortgage, it is entirely her choice to do so. Many others would prefer to carry debt in a form of a mortgage, a car loan, or to pass off future consumption for present consumption (a credit card). By offering this service, the banks deserve to be paid. How much? Not up to me. But, if the rates they are charging are so high, then why not just not buy something, why not just find a better rate? Answer: interest rate is damn close to a fair price for the service being offered.

 

[ERD50]

If the lenders are "clever crooks".. well just because crooks are clever doesn't mean you have to give up on having a police force.

We need a police force. I think enforcement should be swift and severe with cases of *fraud*, not for cases of making offers that people are free to reject.

When I read that history of the "Bankruptcy Abuse" bill where an amendment that would bar interest over 30% (THIRTY.. Three-zero) was REJECTED.. well, I don't think that just a little "detail".

I don't think there should be a law against 30% loans, or 60% or 90% or 9000%. Should there be a law against offering a Picasso for $1M? I can put my house up for sale for 10x the going rate - I am unlikely to get any buyers, but I don't think I should be arrested. What's the difference?

ERD50, I think the delusion is only in part what the borrower thinks is going on with the paperwork, hidden costs, tricky rates, etc.

Well, I've said it before - if someone is ready to make the largest financial decision of their life, it should not be unreasonable to expect them to do a tiny bit of basic research and educate themselves a bit on the process. I'm pretty sure there are some 'Mortgages for dummies/idiots' books out there. Funny how some of these people seem to be responsible enough to hold jobs that qualify them for the payments, they seem to be smart enough to figure out how negotiate our complex legal system to file bankruptcy claims, but these same people are not smart enough to ask what 'adjustable' means in 'adjustable rate mortgage'? Hmmm, they figured out that the adjustable rate was cheaper (to start) than the fixed rate - how'd they get so smart and so stupid at the same time?

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.

So just because you don't see the benefits, they should be outlawed? I don't see the benefit of disco music, or rap, but should it be outlawed.... wait, maybe you have a point there

OK, back to the Picasso, some people don't see the benefit - so what. Do you truly not believe in a free market, and individual choice? Should the govt decide what artwork I should own, and a 'fair price' for it? I don't want that, but I don't see how you can argue one w/o the other. So why should the govt decide a 'fair price' for a loan?

"Some" debt is probably sustainable. Infinite debt is not. We are in an infinite debt situation which is being addressed via more debt. You don't like the idea of "government regulations" that might force or incentivize saving, ...

I'd like to see the govt set an example - balance the budget, and pay off the debt. I don't see any reason for an established govt like the US to be in debt when it can collect the money it needs from it's citizens. IMO, it is just sleight of hand, pay for stuff today with tomorrows promised dollars, so it doesn't look like they are spending so much.

Which brings us to a parallel with personal debt. I see a benefit to a mortgage for a family in the early stages (it's fine if you don't share that view), but as time goes on, they should be getting out of debt and building a positive net worth. Our country is out of the 'early stages' of 'life', and should be debt free, IMO. A possible exception is for public works projects that have a long term payback, but high up-front cost. No different than a personal financial decision.

-ERD50

 

[Helena]

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.

~

 

[ladelfina]

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".

 

[CitricAcid]

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.

 

[cute fuzzy bunny]

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.

 

[Helena]

(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.


~

 

[ziggy29]

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.

 

[CitricAcid]

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.

 

[ladelfina]

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.

 

[CitricAcid]

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.

 

[NW-Bound]

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.

 

[Hamlet]

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.

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.

 

[Hamlet]

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

I don't see how consumer borrowing benefits anyone but the lender.

 

[ladelfina]

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..

 

[ziggy29]

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?

 

[Marquette]

(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.