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Capitol One asks, "What's in your wallet?" Of course, they really don't care what's in your wallet, as long as it's a Capitol One credit card -- and only that. The less real cash in the wallet the better. That way you'll have to use their credit card to buy the stuff they know you'd buy if only you had the dough. Who needs cash anyway when they'll lend it to you, at 18%? Be late on a payment and they'll jack you ass up to 32% annual interest. (That's $320 annual interest on every $1000 owed, for the math-impaired.) Over the past decade those offering fast, easy and expensive credit have proliferated faster than Indian Casinos. Everyday they crowd our mail and email inboxes with pre-approved lines of credit in the thousands of dollars. As a result Americans now owe these plastic peddling John Gottis an average of $8000 per household. Meanwhile the American savings rate has dropped to minus 1%. Which means a shocking percentage of Americans no longer even live paycheck to paycheck. They have to borrow before that next paycheck. Then there are the mortgage lenders from hell. Thanks to the Capitol Ones of the world, all those cash-strapped Americans were still able to load up on wide-screen TVs, all kinds of furniture, leaf blowers and surround sounds systems, they now also "deserved" their own home to put them in. But first lending standards that had, since the end of WW II, had made America the homeowners capitol of the world, had to be chucked. Lenders didn't want the herd culled down to just traditionally "qualified borrowers." No siree, they wanted to lend to all comers. When we bought our first home back in 1971 no bank would loan one cent more than 80% of the appraised value of the home. That required the buyer to have a 20% interest in the property the day the loan closed. Why? Duh! But such rules limited the pool of borrowers that could qualify for a loan. So the lending industry sent healthy doses of dough to Washington and got the rules loosened, then loosened again, then again. After all, the Republicans were in charge now, and they believed "government was the problem." And, next to the taxman, federal banking regulations and the regulators that enforced them, were the biggest drag on the economy of all -- or say they said. The first offspring of those efforts were so-called "low-doc" loans. The industry had argued that all the paperwork required before the advent of computers was clogging up their automated systems and slowing loan fundings. So the low documentation loan was born. Borrowers were required to provide fewer and fewer documents supporting their contention that they could actually afford, and are likely to repay, a loan. Once the housing bubble began to really puff up, lenders even bristled under the minimalist restrictions of low-doc loans. They whined about it and, once again, Bushite banking appointees shrugged and said, "what the hell." And so were born "No-doc" loans... referred to in the lending industry itself as "liar loans," because a borrower could claim anything and not have to prove it. It was the lending industry's version of "don't ask, don't tell." The rush was on. Home sales boomed. Online applications allowed borrowers to refinance their homes on a whim, while drunk or on the toilet. Lenders hauled in lending fees by the billions. But another limiting obstacle loomed. Once they lent to finance a home purchase, lenders could no longer actively milk that borrower. That's when lenders decided that the old "home improvement" loan needed some modernizing as well. In the "stupid old days" lenders required that borrowers use home improvement loan money on -- are you sitting down? -- home improvements. That way if the borrower defaulted the lender would have security for their loan in the form of capital improvements. That limitation had become a roadblock, keeping lenders from tapping into the rising value of homes already owner occupied. So the home improvement loan was killed off and replaced by the "home equity loan." That put lenders were in the ATM business, encouraging homeowners to tap what equity appeared in their home to purchase whatever they felt entitled to; cars, boats, more TVs, vacations... spare the lender the details. The lender didn't care. So the old-fashioned American dream morphed before our eyes into a frenzied binge of lend & spend, lend & spend, lend and spend. What our parents would have called a "spend-thrift" lifestyle, Republicans pointed to as proof "the American economy is on a roll." Stephen Pizzo has been published everywhere from The New York Times to Mother Jones magazine. His book, Inside Job: The Looting of America's Savings and Loans, was nominated for a Pulitzer.
Is consumption an addiction? I understand taking on mortgage debt to purchase a home because the debt is offset by the value of the home in a normal real estate market. In a normal market, it is an excellent investment. However, the market became grossly overvalued this decade, making what is happening now in the market inevitable. Some say the market will not be fairly priced until the sale to rent price drops back toward the historical average. What is it about human psychology that makes a healthy person not under the distress of a hardship spend more than they have? There is absolutely no investment value in consumption, and practically everything except real estate and true collectibles lose half their value or more in the first year of ownership. Are people swayed by jealousy of others? Jealous of what? That people can drive themselves into debt? While it certainly makes the problem worse, advertising and the cultural bias that promotes spending beyond one's means is just more of the noise in life we have to filter out every day. This is a matter of personal choice and self esteem that we can control. People are worth so much more than the "stuff" they surround themselves with. One minor point. When a person does only spend what they can afford, they are silly these days NOT to use a rewards credit card instead of cash, checks or debit card for every expenditure where a credit card is accepted. Credit card issuers are so convinced that people will not pay off their balance in full each month that they provide all kinds of incentives to use their credit card, These include buyer protection on purchases, limited liability to $50 if the card is lost or stolen (you are out of luck if you lose or someone steals your cash), and automatic cash back on purchases. I had a card that paid 5% cash back on all supermarket purchases for several years until they realized "hey, we're losing too much from these clowns that never pay us interest" so they cut it back to 2%. Nothing else such as cash, checks, or a debit card pays me to use it and provides free insurance with its use. The key is the mindset that you never use it when there is not money in the bank to cover the purchases being made. As an added bonus, the dollars in the "float" between the time of purchase and the time the balance is paid from your bank account each month is earning interest in the bank. by
csnet (0 articles, 2 quicklinks, 2 diaries, 73 comments)
on Thursday, January 3, 2008 at 2:33:02 PM
Good tip Very true, when people on the spot can make a decision like that they often will be glad to do so. Also any group that traditionally bills may be open to discounts. We get a 10% discount from our dentist by paying on the spot, saving them credit card fees or needing to send a bill. The credit card works well in places where discounts are not generally given for using cash such as large grocery markets. by
csnet (0 articles, 2 quicklinks, 2 diaries, 73 comments)
on Friday, January 4, 2008 at 1:57:02 AM
Wanna be member of the anti-word police, author, columnist, activist and muckraker extraordinaire. Author of:Land, Legacy and Lynching: Building the Future for Black AmericaUrban Asylum: Politics, Lunatics and the Refrigerator Woman Contributing editor: (works in progress)Red, Black, Brown & Green: Ethnic People and the Move to Economic Self-Suficiency Screaming Doors (novel) Screaming Doors
Mortgage scams--the new crack industry peddling pure, unadulterated fiscal crack--You got that right.Our addiction to financial stupidity allows the credit industry to shake, bake, simmer and fry us, over and over again. Keeping the American public math impaired and fiscally illiterate's gotta be a full time job for somebody. Between the consumption-addicted citizen and the corrupted credit industry, we're spending ourselves into fiscal slavery faster than a foreign country can buy up all of our bogus paper. by
M. Davis (38 articles, 2 quicklinks, 12 diaries, 132 comments)
on Thursday, January 3, 2008 at 2:45:17 PM
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