Debt

First, let’s just go with the part where I’m going to be on the irregular blogging schedule indefinitely.  Things with dad are still wobbly, it is what it is.

But I want to talk about debt.  Now, I’m sure I’m late to the game.  I can’t be the first person to come to some realizations.  Some of this comes from recent career events that have me working in and around financial stuff.  (I wanted to be a paid author – I write, and I get paid.  It’s kinda worked out, just not how I expected.)  Some of it comes from trying to get my own checkbook in order.  Some of it comes from reading random financial books and blog posts, and watching random videos.

Here’s the deal with debt.

The banking industry doesn’t care about the principle.  Let’s take your mortgage.  Say you owe $100,000 on your house, and you’re paying 5% interest.  The lender doesn’t care that much about getting the $100k back.  That’s chump change to them.  What they want is that 5%.  You go to corner bank, put in your loan application, and then their people look at all your paperwork.  What they want to know is if they’re going to get that little 5% over the next 30 years.  Because that little 5% is going to add up to hundreds of thousands of dollars.  Once they’ve given you that mortgage, they turn around and sell it.  Because there are a LOT of people who want to buy the right to collect that 5% over the next 30 years.  Fannie and Freddie do a lot of the buying.  They take all of the little loans that they buy and package them up and sell those to wall street, so investors can buy into a piece of the action.

They aren’t buying and selling the $100,000 that you owe, they are buying and selling the 5%.

If you can’t make your payments anymore and your loan becomes a “non-performing loan,” it becomes toxic to the balance sheet of whoever holds that loan.  So they sell it to companies who buy the loan.  It’s now called a note.  Companies will happily sell that note for much less than the balance, and another company will happily buy it, because even if they come to an arrangement with you where your principal is reduced, they can still make money because they’re still collecting interest on whatever agreement you come to.

Seriously.  Say you know you owe that $100,000 to the bank, but you aren’t making your payments for whatever reason.  The bank might sell the right to collect that debt to a new company for $50,000.  That new company now can come to you, negotiate your balance down to $75,000 with a reduced payment.  You’re feeling good because you now owe $25k less and your payment has gone down.  The company is feeling good because you’re back on track to pay them $25k more than they paid for your debt, plus the interest terms you’ve just agreed to.

It’s the interest that matters.  And here’s why.

When you buy something with cash, it is an even exchange.  The dollar is more or less equal to the item you’ve just purchased.  If I go to Marshall’s and buy makeup brushes, I’m paying for the goods, the convenience of the store front, and the cost of the employees.  The margins aren’t particularly great on any one item.  There’s enough that it keeps them in business, but Marshall’s has to put a lot of energy into it.  They have to spend most of that $1.00 just to have the thing I want in place at the time I want it.  Not a whole lot of new wealth is generated that way.

Debt, on the other hand, is lucrative.  Really lucrative.  Your debt, specifically.

In the past 20/30 years, in real terms wages haven’t gone up all that much.  But we keep thinking things will get better, so to keep up with the Jones’s, we whip out the credit cards…  Those mofos should be ashamed of themselves.

The systems designed by the people with money are designed to keep funneling money upwards towards those same people.  They do it by reducing taxes on the kinds of incomes that generally only the super wealthy get (capital gains and the like) such that Mitt Romney only pays something like 15% in tax and the rest of us pay something like 30%.  And if they aren’t getting enough by moving money up the wealth hierarchy through ridiculous tax systems, the entire apparatus is geared towards driving  your debt.

The 24 hour news cycle?  Intended to up your anxiety because anxious people find security in trading money, which is intangible on some deep, prehistoric level, for things.  Commercials.  Intended to drive your spending.  It’s all designed to drive your spending, because the small cog of your spending moves goods around the world, and the big cog of your debt moves wealth out of your pocket and into the pockets of the already wealthy.

This is one of the reasons why the powers that be are so vehemently against some of the regulations put in place by the U.S. Government – because that gets in the way of their ability to generate more debt by raising the credit standards for issuing debt, for a start.  The whole mortgage crisis had more to do with the inability to collect the interest payments than it did the outlay of initial cash that went into the purchase of all of those homes.  That initial money is more or less solid, because it goes back to the 1 for 1 exchange of cash for a real thing.  $100,000 in initial purchase price is land and sticks and bricks.  It’s not that different than the purchase of a pair of shoes at Marshalls.  That dollar is a real thing, represented by leather and buckles and the like.

My argument isn’t that everyone should avoid debt…  That isn’t a practical stance.  But I would propose that understanding what’s going on is important.  One book I’ve read suggests that the only debt you should have is the kind of debt that has an asset attached to it. At least a home has the hope of appreciating.

The argument also isn’t that all bankers are evil.  Most people most of the time are just looking after what they understand as their own best interest.  That’s true of me, it’s true of bankers, it’s true of pretty much everyone you meet.  It isn’t personal, it isn’t evil.  But.  From a stance of neutrality, I can not be mad at them for their desire to generate more wealth for themselves, and still recognize that it is a system that is designed to suck my resources out of my pocket and into the pocket of someone who already has plenty ‘nough.

Just something to think about.

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Debt

Currency

We’ve all heard the saying “time is money,” right?  It’s a Benjamin Franklin statement that gets bandied about but deserves further consideration.  After all, what if it is true?

Think about the overall growth in wealth we’ve experienced as a society.  Go back to the industrial revolution.  Every one of the inventions that shifted the production of necessary goods from the hands of crofters and farmers to the factory liberated a chunk of time from that process.  Dresses stopped taking three people a month to make and started taking one person a week to make.  (I’m making these numbers up.  The time decreased, I have no idea what the reality-based stats are.)

Every invention, every bit of progress involves liberating time.  Vacuum cleaners: the end result was time.  Computers and automation: time.  Cars: time.  Airplanes: time.

When you go to work, you’re trading time for money, but time is the real currency.  We are all given hours, no matter the circumstances of our births.  In fact, it might be the one resource distributed more or less equally…  Okay, the flaw in that argument is the health risks associated with poverty, the increased violence experienced in the African American community, preventable diseases in third world countries, etc.  It isn’t a perfect argument, just a perspective to consider…When one generation passes down an inheritance, what they’re really sending forward is time.

It is an idiosyncratic currency, to be fair.  But maybe dollars also mean different things to different people.  Anyway, it is just something to think about.

Currency

There Are Reasons Why It’s Messy

So we are on our way to a last-minute answer to the debt ceiling.  Yay for us.

Meanwhile, the real issues haven’t changed much.  Between the common sense call for each of the components to live within their means-from individuals to families to cities to counties to states to the country-and the harsh reality that certain expenses can quickly outpace our ability to earn, we are left with … a mess.

A mess that can’t be solved by voting in the prom king with the white smile and the promises of painless solutions.  A mess that finds no answers in party-line posturing.  And a mess that uncovers absolutely no latent interest in pragmatic solutions based on the real world. 

So.  Put me in charge of the world.  Here’s what I’d do.  Discipline by discipline, I’d wipe the books of laws and start from scratch.  Old laws will tell me what issues need to be addressed, but not what the right answer is. 

Taxes: wipe the tax code.  Identify a percentage of income that gets paid by people and by businesses and call it a day.  No loopholes, no exceptions, no exemptions.  Businesses couldn’t exist  without a stable government providing the infrastructure.  Where would Amazon be with no roads for them to deliver stuff on?  Get over it.  Taxes make it possible for you to run your business.  Let the Feds have 23% of everything, no exceptions, let the states have 7% of everything and make it work.  If you are going to incentivize anything, incentivize saving: let’s have a luxury tax.  If you want to live in a house with gold faucets, go ahead, but accept that you will pay a tax on your spending habits.  Meanwhile, give me some room in my taxes to dictate where I want the money spent – half of it goes to the general fund, the other half I can say I want you to spend 50% of it on Defense and 50% on the Environment.  It’s our country, let us have a say in where we want the money spent. 

Healthcare: socialize it already.  If you take into account that the biggest thing standing between most people and the entrepreneurial spirit is the fear of being without healthcare, socialized medicine could be a huge boon for small businesses everywhere.  No, none of the systems are perfect.  Yes, there may be waiting periods and other forms of bureaucracy, but damn.  It’s healthcare.  People get sick and there isn’t anything fun about it.  Of course it is going to be messy, and there is something fundamentally effed up about companies making a profit on the backs of people who can’t afford their blood pressure medicine.  People’s health is not something that should be considered a profit center. 

Education: Let the states figure it out.  This idea that you can impose a single solution that is going to work for Wyoming and Mississippi equally is ludicrous.  If the feds aren’t eating up a huge education budget maybe some of that money can go back to schools.  There is something asinine about failing to invest in the education of our own people. 

Mortgages: Get the hell out of it.  A home purchase isn’t the right answer for everyone – particularly not a highly mobile workforce that may not be in one city from one year to the next.  Particularly not when homes are becoming aspirational purchases built out of tyvek and tissue paper.  

Categorization of Entities: Businesses are not people.  They don’t get a vote.  End lobbying permanently.  Take some of the money saved in simplifying the books and add it to the Congressional budget for researchers and advisory boards that are not allowed to serve in a business capacity.  Can we please have a Government that does what is best for everyone instead of enacting laws that favor a business community at the expense of the Country’s greater good?  

Regulation & Enforcement: draw a thick boundary between the entities that are being regulated and those who are regulating so the regulators can make decisions that are for the good of the country, not for the good of business.  Let the government regulate things that cross state lines – finances, labor laws, monopolies, the environment, food quality, equality, etc – and let states manage the rest.  

Law Making: let the lawmakers make no law that doesn’t equally apply to itself.  

Defense:  For the love of Elvis, can we please take care of our soldiers?  Unless dying for someone you’ve never met is in your job description, stop whining about what it takes to feed and care for a Soldier.  If you think that we can go without Defense, you are nuts and clearly not living in the real world.  If there is socialized medicine then you take that off the table for the Defense budget, and then tell them they get x dollars and they can spend it on what makes sense.  

I’m sure there is more, but I’m out of time at the moment.

There Are Reasons Why It’s Messy

BOA Short Sale

Mine just got submitted to the bank.  So far, they have everything but a colonoscopy from me.  My realtor called and talked to someone who gave her a list of things they needed TOTALLY different from the guy I talked to back in December.  Change of process?  Or do they just not have their shit together.  Somehow, since my head aches today, I’m going to go with option B.

BOA Short Sale

Bust

So, I’ve been defeated.  I fell down on the spending diet in Salvation Army, of all places.  For ~$40, I purchased the stuff to feed my sewing obsession.  

I’m back on the wagon, tho.  It is still a good idea, even if I’m not living up to my best efforts.  Any ongoing goodness will just have to be it’s own reward.

Bust